GMR Airports Infra is up 15% in five sessions. Can the stock fly higher after GQG's stake buy? 

While the latest investment may have brought the stock to the forefront, analysts say that this "spotlight" was a long time coming. According to analysts, there are numerous factors such as the increase in air traffic, improving financial performance. For October 2023 the company reported a 19 percent year-on-year increase in passenger traffic at 9,841,859. The passenger traffic grew 5 percent on a month-on-month basis.

But apart from passenger traffic, another factor has been an improvement in company financials over the last few quarters. "Till a couple of years back, the company was seeing stress in its financials but that has improved now – not only in terms of balance sheet but also cash flow and operating efficiencies," said Nirav Karkera, Head of Research, Fisdom.

GIL currently operates through GMR Airports Ltd (GAL) managing the Airports segment and RAXA Techno Security Solutions managing the security solutions. In Q2FY24, aero revenue was Rs 251.6 crore against Rs 220.7 crore in Q2FY23 while non-aero revenue was Rs 703.5 crore against Rs 599.4 crore in Q2FY23.

In Q2FY24, the company reported a reduction in net loss to Rs 190 crore from Rs 197 crore in the quarter ended September 30, 2022. Net income for Q2 also grew 25 percent to Rs 1,607 crore against a net income of Rs 1,285 crore in the previous period. Earnings before interest, taxes, depreciation and amortisation (EBITDA) during the September quarter grew 34 percent YoY to Rs 848 crore. Currently, the company is sitting on net debt of Rs 23,600 crore, down 6 percent from the previous fiscal.

Also read: Nine more airports to come up in UP in next two years: Jyotiraditya Scindia

Expansions and developments

In June 2023, GIL announced that GMR Airports, which runs Hyderabad and Delhi airports, will merge with GIL. Post the merger the GMR Group will continue to be the largest stakeholder in GIL with a 33.7 percent ownership followed by Groupe ADP at 32.3 percent. In February 2020, GMR Airports had signed a share purchase agreement to sell a 49 percent stake in GMR Airports to ADP Groupe at a valuation of Rs 22,000 crore.

The public holding in the merged entity will be around 34 percent. In the Q2FY24 concall, the management said they had received approvals from various regulatory bodies and are expecting the merger to be completed before the end of FY2024. With this merger, GIL could gain from increased cash flows and a stronger balance sheet, analysts say.

It also recently announced the raising of Rs 3,125 crore from a consortium of five lenders through its step down subsidiary for the part-financing of Bhogapuram International Airport. According to the management, the airport will be able to service around 6 million passengers per annum and "will be scaled up based on passenger traffic growth".

Another recent move has been the increase in aeronautical charges for Manohar International Airport, Goa, including user development fees, landing and parking charges, etc, which analysts say would add to the cash flow in the coming days.

The company has also seen an increase in capex for its Hyderabad and New Delhi airports where it has majority stakes. All these factors combined, according to Karkera, have resulted in investors having a favourable view on the company. Additionally, he pointed out that there are very few "plays" available amongst listed players in the airport infrastructure space.

What analysts say

The stock has gained over 360 percent in the last one year and over 78.16 percent on a year-to-date basis. As of December 12, 2023, the stock was trading at Rs 72.60 with a market cap of around Rs 43,280 crore.

Currently, fewer analysts are tracking the stock.

According to Sunny Agrawal, Head of Research at SBI Capital Securities, with India expected to be the third largest aviation market by 2030, GMR Airports is likely to be one of the key beneficiaries. Going forward, he said, earnings growth is likely to accelerate led by an increase in passenger traffic thereby sweating existing assets, likely uptick in non-aero revenue, the addition of new domestic and international airports and monetisation of land near airports. Agrawal advised that “one should approach the stock with a long-term investment horizon”.

ICICI Securities has a ‘buy’ call on the stock with a target price of Rs 63. In a report earlier this year, while initiating coverage in the stock, analysts at ICICI Securities said, “Airport is an attractive business with a stable regulatory regime. It is monopolistic in nature and therefore, partly regulated. The business also has an unlimited upside potential from the non–aero business and city-side development.”

On the other hand, Kotak Securities has a ‘reduce’ call on the stock with a target price of Rs 55.

While the company has plenty of opportunities in the form of increasing passenger traffic and capabilities to cater to that traffic, analysts said there are certain risks such as debt for projects like the Bhogapuram airport. "While debt is not bad, it is important to see how the company is able to convert that debt into realisations. If debt is not utilised well and does not translate into top line or bottom line it finally starts becoming a problem. But the company appears to be confident," Karkera said.

Kotak Institutional Equities analysts in their last report highlighted other risks such as limited cash flows to reinvest, limiting value from new asset wins, competition remaining benign over the long term and new investors coming in at current stiff valuations.

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