GMR Airports Infra Rs 87
As per industry observers, air passenger traffic for domestic airlines is expected to grow by 14-15% for the next several years. Unsurprisingly, investors are excited. An industry with prospects of long-term mid-teen growth is like a goldmine. To be sure, India’s domestic air passenger traffic reached approximately 154 million in fiscal year 2023-24 representing year on year growth of 13%. International passenger traffic on domestic carriers clocked 29.7 million, year on year growth of 24%.
However, this goldmine is scaringly treacherous. It is littered with skeletons of many airlines and their investors. Old timers would recall Modiluft, NEPC Airlines, Air Sahara and more recently Jet Airways and of course Kingfisher Airlines.
There are two ways for an investor to participate in the ongoing air travel boom. First is through airline stocks and Interglobe Aviation is a fine example of that. It is the Maruti of the skies with 55% share of domestic traffic. It has rewarded its shareholders handsomely and unless oil prices go through the roof or Tatas do a Jio on it when they get Air India up and running, it should continue to do well. And none of these scenarios are zero probability events. Oil prices are fickle and duopolies can be brutally competitive as we have seen in the telecom sector.
There is another way to participate in the aviation growth story for investors not wishing to place all their eggs in one basket, or airline – Airports. Most cities have only one airport so usually there is no competition to contend with. And operating margins of globally listed airports are almost 3-4x the margins of globally listed airlines. Even during Covid times, margins of airports remained in the green while airlines margins became negative.
GMR Airports is a listed airport company in India having three operating airports viz Delhi, Hyderabad, Goa and two upcoming viz Bhogapuram in Andhra Pradesh and Nagpur.
Airports have three main sources of income. First is Aero revenues which include landing and parking fees from airlines, user development fee from passengers etc. However, there is a regulator called AERA to fix these rates. Second source of revenue is the rent and fees that an airport gets from shops and establishments in the airport. This revenue is not regulated and hence more meaningful. Third is the development of land owned by these companies adjacent to the airports. As per a report by ICICI Securities, GMR has big monetizable land parcels around its three airports which the Street finds most interesting.
A recent political development is also positive for GMR. With TDP becoming a crucial part of the central government, ascension of Andhra Pradesh’s economy is almost a given. This would mean more traffic for Hyderabad airport, thereby higher revenues for GMR.
Couple of potential red flags also need to be mentioned. First is the upcoming airport in Jewar near Delhi. If it offers cheaper rates to airlines and/or UP govt lowers tax rates on Aviation Fuel, then it could dent traffic at GMR’s Delhi airport. Second is that GMR is still not PAT positive but carries huge debt of around 36000 cr which eats up all its operating profit.
GMR is not an easy call to make, it can go sideways. On the other hand, if it is able to monetize its land parcels and get its Balance Sheet in order, then it can fly higher than the airlines it caters to. Only intrepid investors with a high-risk appetite should consider this stock.