Home >Market >Mark-to-market >Policy hurdles ebb at GMR’s airports and energy businesses

Last week, GMR Infrastructure Ltd got a breather when the airport tariff regulator came up with a hybrid model for determining the tariff at the Hyderabad airport. About a year ago, the private sector infrastructure firm legally contested the inclusion of non-aero revenue while determining tariffs.

The new model now allows the regulator Airports Economic Regulatory Authority of India to set aside only 30% instead of 100% of non-aero revenue. This brings greater clarity and visibility in both revenue and profit that would accrue to GMR from the Hyderabad airport asset. In fact, through fiscal year 2015, because of the airport regulator’s decision to follow the “single-till model", GMR had stopped collecting the user development fees. This adversely impacted both revenue and profit during fiscal year 2015. Hyderabad airport’s aero revenue fell to 80 crore from 420 crore in fiscal year 2014 and the firm also reported a loss against a profit.

The new hybrid model, therefore, augurs well. It comes at a time when a gradual economic recovery is translating into higher passenger and cargo movement at key airports in the country. For instance, the March quarter passenger and cargo movement rose by 13% each at both Delhi and Hyderabad airports, compared with the year-ago period.

Meanwhile, some clouds over the power sector too have receded. The government’s recent initiative to tie up gas supply for power plants facing gas shortage will help improve plant load factor at two of its units. Thermal power units saw improved utilization levels in the March quarter.

The only overhang, therefore, remains the high interest cost due to a highly leveraged balance sheet. This was a key reason along with policy hurdles as to why the market capitalization of the stock ( 6,600 crore) eroded to one-fourth of what it was five years ago. Given that each of these concerns are now on the ebb and the management is focusing on asset monetization and de-leveraging its debt-ridden balance sheet, there could be higher traction on profits in the quarters ahead.

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