GMR looks to tread cautiously, could tilt focus towards greenfield airports

But the company continues to tread cautiously after rescheduling its capital expenditure plans for Delhi and Hyderabad airports, to a later period, despite raising money from overseas bonds, the company informed its shareholders through in its annual report.

The funds received from the deal with Groupe ADP—of which the company has got ₹9,813 crore so far in two tranches—have been used to primarily reduce debt, provide exit to private equity investors and to improve overall liquidity at the group level, the company said in its annual report.

GMR’s cautious approach, though, comes at a time when the only other major private player in the Indian airports sector—Adani Group—has been aggressively bidding in government airport privatization plans picking, up five airports. Adani, recently, also acquired a controlling stake in GVK’s airport business, which operates the Mumbai airport and is developing the Navi Mumbai international airp​ort.

The deal with Groupe ADP provides the much-needed cushion to GMR Airports to absorb the financial pressures caused by covid-19, said Jagannarayan Padmanabhan, practice leader and director, transport and logistics, Crisil Ltd.

"There are quite a few greenfield opportunities which have been awarded to GMR Airports and this will help in capital allocation and financial closure. It also helps the Indian units to incorporate some of the global operating standards in the functioning of these airports," Padmanabhan added.

GMR Group's airport business comprises three operating airports—Indira Gandhi International Airport in Delhi, Rajiv Gandhi International Airport in Hyderabad and Mactan Cebu International Airport in Philippines. Apart from operating and managing these airports, the company is developing greenfield airports at Mopa (Goa), and Bhogapuram International Airport in Andhra Pradesh and the Crete International Airport in Greece with local partner Terna Group. It has also been awarded the contract of operation and management of Bidar Airport in Karnataka till 2033.

However, the GMR Group has lost out in its bids to operate state-run airports—Lucknow, Jaipur, Ahmedabad, Guwahati, Mangalore and Thiruvananthapuram among others, and the Jewar airport—where the company was outbid by competitors, including the Adani Group and Zurich Airport AG.

"Loss of not winning Jewar impacted the strategic plan of GMR Group for IGIA (Indira Gandhi International Airport at Delhi) which plays a vital role in GMR Group business, which includes energy, infrastructure, coal etc," said Nripendra Singh, industry principal, aerospace, defence and security practice at Frost & Sullivan.

"None of the bids by the GMR Group for Indian airports done recently showed aggressive intention of the company to grab the Airports Authority of India (AAI)-operated brownfield airports. This is possibly because of the lessons learnt from IGIA where it pays 45% revenue share to AAI," Singh said, adding that the recent developments suggested that the group's focus is towards greenfield airports.

"Operating margins of brownfield airports has always been lesser than greenfield ones in which the operators have the flexibility to design the infrastructure from scratch as per planned revenue to ensure returns on investment and avoid the refurbishment costs to address passenger experience which is increasingly becoming the focal point of airport revenues," Singh added.

Another senior industry official said that development of brownfield airports may have challenges like non availability of land for expansion purposes, and opposition plans against expansion from public living nearby which prove problematic for airport development companies.

GMR Infrastructure Limited's consolidated net loss for the June quarter more than doubled to nearly ₹834 crore against ₹336 crore loss in the January-March period in FY20.

The company's airport business, which accounts for 65% of its revenue, was hit massively due to the covid-19 pandemic.

Air passenger traffic recovery could happen in a meaningful manner only towards FY22 and that FY19 passenger traffic levels are likely to be surpassed only by FY23, rating agency Icra said in a June report.

The company has raised $350 million and $150 million through bonds to fund expansion of the Delhi airport. However, due to the ongoing pandemic, it has postponed parts of planned capital expenditure to later periods. GMR Group has also raised $300 million in overseas bonds for further expansion of the Hyderabad airport. It has, however, partially rescheduled future capital expenditure to a later period.

“Our teams have been focused on cash conservation and cost reduction through various interventions to our capital and operating expenditure in order to better manage liquidity," the company added in the annual report.