GMR AIRPORTS LIMITED analyst Q&A

Thank you very much. We will now begin the question-and-answer session. The first question comes from the line of Mohit from ICICI Securities. Please go ahead.

Yes, good afternoon and thanks for the opportunity. My first question is on the hypothetical RAB. Of course, you received a very positive order from the Supreme Court and the TDSAT. My question is, once let's say this value gets crystallized, right, do yo u think this will get implemented in near time or do you think this will get implemented in the next control period?

So, honestly speaking, as a commercial organization, we would like it to be implemented immediately. But there is a process of law and there is a regulator. So, we really actually can't guide you as to when it will get implemented. At first stage, I think the AERA has to compute the numbers and represent it back to the Supreme Court and the process will go from there on. GRK Babu, you can add to this now.

Yes, sir. I think the TDSAT order is very clear that the HRAB has to be recomputed and whatever the earlier computation done by the AERA has been quashed. So, the order says that in 12 weeks they have to compute and implement it. But as you know that law takes its own course, that AERA has got an opportunity that they can appeal. So, it will be very difficult to say that it will be implemented immediately.

Understood. My second question is on the INR142 crores of loss which has been booked in the foreign exchange. Is this entire thing linked to the MTM impact on CCD? Is that understanding right?

So, it is the forex loss which is booked on an MTM basis on the FCCB interest. So, that instrument itself is well into money and that's what I had highlighted in my opening remarks. There is no possibility of that being treated as debt. Most of the analysts, of course, treat it as equity anyways. And even in our representation on our debt, we exclude the FCCBs over there. So, it is purely following the accounting standards of the country and we expect that once these are converted into equity, all these notional provisioning that are being done on a quarterly basis will all be written back as exceptional profits at the time of that conversion.

Understood. My question was that the INR142 crores that is booked entirely is linked to CCD. Is that understanding right?

Correct.

My third question is, how is the Delhi duty -free grown in Q1 FY26 compared to last year? Do you think there was underinvestment in the asset because of the transition?

I will ask Rajesh to respond to this topic.

So, Mohit, this Delhi duty -free transition is only happening now, 27th of July. So, the first quarter was purely as is business as usual. So, no impact of the transition over there. In terms of its growth the non-aero revenue for duty-free has grown by about 4%.

Understood, sir. My question was, was there underinvestment in the recent past because of transition? Because you were taking over, the other guy was not interested in investing in the asset.

No. So, primarily there are two things which are there for running the business, is the shop, the way you do the fit out in the shop and the inventory. So, the business was being run because we were also a joint venture partner in that. So, there was no such thing where we cut down the investment requirement over there. So, no impact because of that.

Thank you. The next question comes from the line of Nirav Shah from GeeCee Holdings. Please go ahead.

Yes, good afternoon, sir, and congrats on a solid set of performance. So, a few questions. Firstly, on our Hyderabad cargo and MRO business, last full year we did an EBIT of INR275 crores and this quarter itself we did around INR98 crores. Now, you have mentioned in your opening remarks about a 3-year contract with Akasa. But from here on, what kind of quarterly revenue can we expect? Because it's a pretty strong number that we have reported at this segment.

So, Nirav, I will, of course, ask Rajesh to respond. But, we really do not give guidances on any future outlook. All that we can say is that it is a robust business and with increasing aircraft coming into the country, the outlook is very positive on the MRO business of ours. But Rajesh, I will leave it to you to talk more about it.

Saurabh, you already covered it well. So, in terms of the MRO business per se, in terms of its growth potential, Saurabh has already talked about this, the kind of order book we have in terms of maintenance and the order book what airlines have placed. So, it's on a real good growth trajectory and we'll leave it there without giving any guidance on the numbers going forward.

Okay. But just the utilization of our assets over there, I mean, the area, was it the optimum or there is still room to grow?

So, there is some room to grow. We are also looking at the expansion of the capacity. That's, again, need-based depending upon the order book what we'll have. But yes, as you know, it does not require a very significant investment in terms of hangers and all that. But yes, we are evaluating the possible options of expansion.

Got it. Second question is on Delhi duty-free. I mean, in the last call, we did mention that from this year onwards, the margin should be somewhere around 17% range and we have reported around 14%. So, is it something like this just seasonality or we should revert to 17% on an annualized basis?

We are still targeting our margins in the range of 17% and it could be some impact of seasonality here. Plus, as we will go, we are also looking at some efficiency coming in our procurement processes. So, that will further add to our margins.

Got it. Lastly, on the proposed, I mean, this INR6,000 crores of non -convertible bond, I mean, that will be used to refinance the Holdco debt. Am I correct?

Yes, Nirav. You are correct.

GRK Babu, do you want to comment here?

Yes. The blended cost currently is around 14% and we are looking for a substantial reduction in the interest cost. Number two, we are trying to see and we have been discussing with the bankers and everybody, we are trying to complete the transaction by second week or third week of August.

Got it. Great, great. That's really heartening and thank you, sir. And all the best.

Thank you. The next question comes from the line of Karthik Chellappa from Indus Capital Advisors. Please go ahead.

Yes. Thank you for the opportunity, sir. I have three questions. The first one is, if I were to look at Delhi Airport, this quarter, if I exclude the exceptional item of about INR91 crores of gain, there is still a loss of about INR42 crores, although it is down significantly year on year. Now, assuming that given that the aero tariff change is already in, if we were to see a traffic revival in the remaining quarters, can we reasonably assume that Delhi Airport will be churning out a profit?

Yes, Karthik. You can reasonably assume that. GRK, please go ahead.

Okay, excellent.

Yes, sir. I think in the first quarter, the tariffs have been implemented only from 16th April onwards. That too, only for the tickets sold from 16th, only we have got the revised tariffs. So, as Sourabh has rightly pointed out, in the second quarter, we can reasonably assume that we should be making a green or profit in the second quarter.

Okay, excellent. My second question, sir, is if I were to look at Hyderabad Airport, I mean this quarter, the non-aero revenues grew more or less in line with the passenger traffic, which means the non-aero revenue per pax was very, very soft. And this is a trend which we have seen, in the last few quarters as well. What do you think is the hindrance to actually getting a non-aero revenue per pax growth? I think we were targeting at least about 5% to 6% in the past, but this seems to be softer than that.

Rajesh, please go ahead.

So, see when you look at the non -aero revenues, it has got two components. One is the non -aero commercial revenue and then there are certain fixed revenues in nature. So, non-aero commercial revenues have grown by almost 23% as against a pax growth of 17%, which means the SPP growth is about 6%. So, when you combine the rentals and other things which are in the fixed nature, that is where it looks like that these have not grown in line with the traffic growth or maybe only in line with the traffic growth.

Also, you have to look at the mix of the growth. There is more growth on the domestic side. When we look at the weighted average growth of 17%, that domestic growth is about 19%, whereas the international is slightly lower. This mix also plays a role in the SPP growth, which should reverse as we move forward.

Okay. So, the way I should understand it is, just keeping aside the domestic versus international, if I look at non-aero, the non-commercial revenues grew faster than the commercial this quarter. So, that is why on a blended basis, the per pax growth seems to be a bit low. Is that how I should understand it?

No, no. It is the other way. Like I was clarifying, the non -aero commercial revenues have grown at about 23% as against a PAT growth of 17%, okay. Then there are certain rentals, those are in the fixed nature. Those will go at the rate of 4% to 5% or 7% k ind of thing. So, that's when you take a mix of these two, overall non-aero revenue will look like they are at par with the traffic growth, but if you segregate the commercial revenues, which are directly linked to pax, is what has grown at a pace faster than the traffic growth.

In a nutshell, the spend by the passengers are significantly higher from a passenger throughput perspective. Yes.

Excellent. My last question, sir, is if I were to look at our cash and cash equivalents, fourth quarter of last year, we were at about INR38 billion, and now today at about INR34. So, I presume there has been, I mean, the free cash flow generation hasn't been there yet. So, with the expectation of Delhi Airport turning a profit next quarter and Hyderabad growing at the rate that it is, and with most of the capex already done, can we expect that this year, we should be able to generate free cash flow at a consolidated level?

So, I mean, we still have to complete our investment in capex for the Bhogapuram Airport. And also, there is a possibility, high degree of possibility of us taking over Nagpur. I think we need to put that into play. But for our existing assets that we have right now, your outlook is correct.

Excellent. Okay, that's all from my side. Wish you and the team all the very best for the remainder of the year, sir. Thank you.

Thank you, Karthik.

Thank you. The next question comes from the line of Kaseedit from Citigroup. Please go ahead.

Hi. Congratulations, management. Just two questions from me, and apology for my newness to the market. Number one on Delhi potential under-recoupment, right? What I'm seeing now is the RAB size of Delhi Airport is about INR140 billion, right? What would b e the amount of the under - recoupment that can be recognized either immediately or in the next RP period? That's question number one. And question number two, please help me understand what's the upside from taking back duty - free operation at Delhi and Hyderabad? How could you make it better and drive spending, for example, and profitability? Thank you very much.

So, I'll allow Rajesh to first answer on the duty -free side of it, and then GRK Babu, you can pick up on the RAB.

Yes. So, see on the duty-free side, as I mentioned in one of the earlier questions which were asked, as we are now getting into a platform play with consolidation of Delhi, Hyderabad, Kannur, and Bhogapuram and Goa, we will -- this will also bring in the good amount of efficiency in our procurement processes, which will be further adding to the overall profitability and value creation in our duty -free business. That's one. Secondly, even in terms of certain marketing and sales activities being driven through a platform now, should also add to the overall value. So, these are the two clear, clear advantages which will start coming in from the next quarter onwards as we consolidate these businesses under one umbrella.

Regarding the DIAL, if I understand your question, the additional RAB which has gone into the tariff determination, that is what you are asking for?

That is correct. My understanding with the court case dispute is that Delhi and Mumbai had potentially under-recouped your investment since, let's say, about a decade ago, right? I'm trying to estimate what will be the potential upside to the RAB size that can be added back. Thank you.

No, this is based on the TDSAT judgment that you are referring to?

Yes. GRK Babu, that's what he's referring.

As far as the TD SAT judgment is concerned, of course, the, originally the HRAB has already been added to our RAB by the regulator, which has now been revised by the TD SAT saying that that is not the right amount. So, they have asked us to re-compute by the regulator and then add back to the RAB. So, that working has to be done by the regulator over a period of next 12 weeks and then they will have to do it and also they have a right to appeal to the Supreme Court. So, we are still waiting for the final numbers to be computed by the regulator.

Any guidance of what will be the RAB size that you can add on top? Thank you.

It will be very difficult to say the numbers because it is both airports different and the existing they have added was originally about INR470 crores rupees was there in first control period they've added for HRAB. It should go up substantially. That is what our guess.

Got it. That's very clear. Thank you. Just last questions on duty-free, right? I just looked through the available resources and if my understanding is correct, the duty-free operation at Delhi previously, the company has been bought by Adani. Is that cor rect? And by taking back the operation, that should help bringing back the in -house customer database, for example, to be kept within GMR. Would that be a fair comment? Thank you.

No. So, first of all, the existing concession was not being run by Adani or was bought by Adani. It was a concession which was being run by a joint venture consisting of Aer Rianta, Delhi Airport and GMR Airports. That concession came to an end on 27th of July. That's where GMR Airports got this concession through a competitive bidding and have started operating it as a wholly owned business of GMR Airports.

Got it. That's very clear. Thank you.

Kaseedit, I just want to come back on the HRAB issue. All I can say is that the option value has just got crystallized. I don't want to put out my number because that will be shooting myself in my own feet, right? Let the regulator come out with a number and then we'll see how it works out from there.

Okay. All the best looking forward. Thank you.

Thank you so much.

Thank you. The next question comes from the line of Nirav Shah from GeeCee Holdings. Please go ahead.

Yes. So, just one follow up. Sir, in DIAL financials, Delhi Airport financials, if I look at our incremental revenues on a sequential basis, it is somewhere around INR140 crores. This is post -revenue share excluding other income. And if I look at the incremental operating profit, again, with out other income, it's around INR160 crores. So, our incremental EBITDA is actually around 110% of our incremental revenues, though I believe that we benefited from implementation of CP4. Any particular reason you would like to share some clarity on this?

Amit, why don't you answer this, please?

Nirav, if you look at your delta between the thing, you have to also look at the expenditure. There is a reduction in the expenditure which is there between Q4 and Q1 this year. So, if you adjust for that, the numbers will make more logical sense. So, it's not only revenue which you have to look at, you have to look at the expenditure.

So, once you take the full benefit of that additional 15 to 30 days of YPP in Q2, you will get a normalized margin which should be upwards of this. So, that's a sustainable number.

Yes. Yes. Perfect.

Thank you. The next question comes from the line of Nidhi Shah from ICICI Securities. Please go ahead.

Yes. Thank you for taking my question. So, my first question is, why does the CPD revenue decline Q-o-Q for Delhi Airport this quarter?

Go ahead, GRK Babu.

See, last quarter, we have booked the IND AS lease accounting which has been done for one of the assets which has now come under operation and which was almost about INR180 crores that had been accounted for in the last quarter for the entire period of about 1.5 year. Whereas, this quarter, it is only for one quarter impact – hence, between the last quarter and this quarter it's a bit down.

So, my second question would be, is there any advantage to the Delhi duty-free moving to GAL? And or is it that we are just consolidating assets?

Yes, please Rajesh.

Yes. So, Delhi duty -free earlier was more like about 67% held by GMR. 33% was with the joint venture partner. Now, it becomes 100% owned by GMR Airports. So, naturally, the 33% to the portion which was earlier going to a joint venture partner will fully flow to GMR.

All right. Some questions on the Delhi duty-free. So, basically, now that we have seen that traffic at Delhi airport is growing moderately, where are we expecting the growth in Delhi duty-free revenues and EBITDA to come from? That's the first thing on De lhi duty -free. The second thing is that currently, what is the rent that Delhi duty-free is paying to DIAL under the new concession?

Yes. So, let me first take up the first point on the traffic. The traffic during this quarter, as all of us know, there has been geopolitical issues in the first quarter of this year. So, that has impacted the traffic and more so the international traffic during this period. And with the geopolitical issues getting resolved, we expect the traffic growth to come back. That's point number one. And accordingly, and with the international traffic directly linked to that, so duty-free, the sales and growth of that will get aligned to the growth in the traffic. That's on the duty -free, how that duty- free revenue and growth will look like as we go along. The rentals, which we call it as a concession fee, in the current concession, vs the new concession, there is no significant increase. It's more or less in the range of what it used to be in the old concession. So, the percentage number is commercially sensitive in nature. So, I'm not sharing that with you, but in terms of the rentals, it is more or less the same what it used to be earlier.

Lastly, on DIAL, we're seeing an exceptional amount of about INR90 crores. So, what is that exactly?

It consists of two components. Basically, number one is the daily duty-free has bought back the 25% of its equity. So, basing on that, the DIAL has also surrendered its 25% stake in the, I mean, in the Delhi duty-free, and they have got a capital gain of about INR53 crores, which is an exceptional item. Number two, earlier, they have made a provision for one of our joint ventures, Bajoli Holi, and now it is no more required. So, to the extent of about INR37 crores to INR38 crores has been reversed. Both put together is about INR91 crores is the exceptional item.

All right. Thank you so much. Those were my questions.

Thank you. Ladies and gentlemen, we'll take this as the last question for today. I would now like to hand the conference over to the management for closing comments.

Thank you. Thank you, everybody, for joining this call. And the teams are, of course, available offline or through email to answer any of your queries and further details. Appreciate your participation today. Thank you so much.

Thank you. On behalf of GMR Airports Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.

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