Graphic by Naveen Kumar Saini/Mint
Graphic by Naveen Kumar Saini/Mint

GMR Infra investors await value unlocking as airports business takes wings

  • The deal will carve out the profitable airports business into a separate entity, which would then be demerged from the other non-airports businesses
  • To minimize reliance on the energy segment, GMR Infrastructure is divesting its stakes in some of the unviable assets

In its Q2 results media release, GMR Infrastructure Ltd said it has received all key regulatory approvals for Tata group, Singapore’s sovereign wealth fund GIC Pte Ltd and Hong Kong-based SSG Capital Management Ltd to buy a 44.44% stake in GMR Airports Ltd. Clearance from the government (expected in a few weeks) is now critical to unlock value for shareholders who have borne the brunt of value erosion for over a decade.

The deal will carve out the profitable airports business into a separate entity, which would then be demerged from the other non-airports businesses. Note that the airports segment has churned out cash steadily in the last few quarters, and boosted GMR’s overall Ebitda (earnings before interest, tax, depreciation and amortization). Airports have clocked 87% of the profit in Q2 FY20, when the overall Ebitda, at 642.9 crore, was higher than analysts’ expectations.

In fact, the airports segment has proved its mettle by steadily churning out about 70% of the total revenue, and 90% of operating profits over several quarters.

A report by Edelweiss Securities Ltd said: “GMR has ~50% market share in the airports developed by the private sector in India since the turn of the millennium." Strong traffic growth in its key airports of Delhi and Hyderabad have helped maintain Ebitda margin at above 50% for the last several quarters.

Even so, the company is battling problems of weak plant load factor on account of fuel linkage issues in the energy segment. With losses mounting at the operating level, the energy segment recorded a net loss of 114 crore in Q2 FY20.

To minimize reliance on the energy segment, GMR Infrastructure is divesting its stakes in some of the unviable assets. This should shore up overall profitability in the coming quarters.

In Q2 FY20, the firm’s consolidated net revenue at 1,527 crore was in line with Bloomberg’s consensus estimate, albeit just 4% higher than the year-ago period. With costs reined in, the overall Ebitda margin jumped from 36% a year ago to 42%. However, higher interest charges have been the bane of the infrastructure sector. The quarter’s interest outflow at 827 crore jumped 22% year-on-year.

As a result, net loss for the September quarter deepened from 334 crore in the year-ago period to 457 crore, and was worse than what the Street had pencilled in.

Yet, the stock was rock steady on the bourses. Investors are perhaps hanging on to the hope that they would gain in the final run from the demerger of the airports business, where skies are clear on the growth prospects. “Regulatory upsides in existing airports, new airport wins in India and asset monetisation will be key stock drivers," said the Edelweiss report. The proposed Tata-led consortium will help GMR Airports repay 1,000 crore debt, besides retiring 7,000 crore of parent corporate debt.

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