GVKPIL is just completing the formalities on the 12% stake in Bial that it recently bought from Zurich Airport at Rs485 crore. For this, it paid a premium of Rs95 per share. This is not without reason. Bial holds great potential for future growth, given that it already handles more cargo and passengers than its southern counterpart in Hyderabad. According to Isaac George, chief financial officer, GVKPIL, “the quality of passengers is good, with a high average spend per passenger, due to the IT/BPO (information technology/ business process outsourcing) crowd." This would only improve as the economic recovery gains momentum.

Also, stakeholders in Bial have a revenue sharing agreement of only 4% with the government (Airports Authority of India), unlike Mumbai where it is around 39%. The buzz in industry circles is that GVKPIL is also interested in increasing its stake from the present 37% in Mumbai International Airport Ltd, or Mial. South African company Bidvest Group Ltd holds 27% of Mial.

Flying high: A file photo of the Bengaluru International Airport. The airport holds great potential for growth and it already handles more cargo and passengers than its southern counterpart in Hyderabad. Hemant Mishra / Mint

Another positive in the airport business is the monetization of real estate in the airport entity. For example, Bial has 515 acres of land out of the total 4,000 acres available for commercial development, which can generate a strong revenue stream. Ditto for Mumbai. Monetization involves setting up of support services such as restaurants, hotels, duty free services and so on which can create a strong revenue stream.

Even before this monetization, fiscal 2010 will see stronger revenue growth and profit before tax as airports ride the economic recovery and benefit from higher tourist traffic. Bial’s revenue for fiscal 2009 was around Rs300 crore. In fiscal 2010, it is expected to earn around Rs400 crore. Similarly, revenue is expected to touch Rs1,000 crore at Mial compared with Rs800 crore in the previous year.

For GVKPIL, profit that accrues from these two airports is added to the pre-tax profit of the company, in which revenue streams mainly comprise of power and roads. Vehicular traffic and revenue on the Jaipur-Kishangarh Expressway project and higher operating rates and higher generation in power projects will improve earnings in the next two-three years.

A leading institutional broker has projected an 80-90% expansion in earnings with earnings per share of around Rs2 by fiscal 2011. At the current market price of the share of Rs52, the future earnings are discounted nearly 26 times, which denotes high investor confidence. That’s probably because the company is at the inflexion point, where the payback on its capital expenditure is just unfolding.

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