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Domestic PAX recovers to 92-96% of Pre-Covid normal

GMR Infra (GMRI) reported FY22 adj. loss of INR 6.35bn, cutting losses by 77% YoY on recovery in PAX vs. low base of FY21 (Covid impact). The 4QFY22 adj. loss at INR 1.3bn is optically negative compared with 4Q FY21 profit of INR 584mn last year due to a) higher base of 4Q which had IND AS related one offs, b) INR1bn increase in other expenses on post Covid mobilisation / prior year items. The DIAL 4QFY22 EBITDA fell 31% YoY on higher base due to IND AS related adjustments while GHIAL 4Q FY22 EBITDA fell 23% YoY on post Covid people mobilisation. With steady recovery in passengers (PAX) travelling DIAL /GHIAL domestic PAX is at 92-96% of pre Covid levels while International PAX is at 50- 65% of Pre Covid levels in May’22. GMRI has got now demerged into airport and non airport business from 12th Jan’22 (record date), with existing listed entity GMRI representing the airport business while the non airport business - GPUIL (GMR Power Urban infrastructure ltd) has been listed in Feb’22. Post demerger INR 17bn of the INR 46bn corporate debt remains in the airport segment while rest is transferred to GPUIL. Additionally FCCBs worth INR 1.8bn remain in the airport segment with a conversion price of INR 18/sh. GMRI also has contingent liability of ~INR 35bn on corporate guarantees of historic loans to non-airport (GPUIL), which are expected to diminish by FY23 end as these loans get refinanced.

JM View: Post demerger, GMRI is the only pure play in India’s airport business with domestic + international exposure. We factor PAX at DIAL / GHIAL recovering to pre - Covid levels by FY23-24, with 10-15% growth in FY25-26 (long-term avg.) and 2-5% CAGR thereafter. We find demerged Airport business Base / Bull case TP at INR 42-47/sh. Our Bull case factors a) 100% of ADP deal earn-outs are achieved, resulting airport stake rising to 59%, and b) 100% sale of ~1,070 acres land at Hyderabad over FY22-24E. However, airport segment valuation is highly sensitive to PAX / SPP growth where long term growth potential is largely untapped (Exhibit 5). We upgrade to BUY given correction in stock price.

Lower EBITDA on Consolidated/DILA/GHIAL in 4QFY22: GMRI reported higher losses at consolidated level in Q4FY22 at INR 1.3 bn (v/s profit of INR 543 mn in 3QFY22) led by, 1) DIAL (Delhi Airport): reversal of prior year INR 3.25bn lease rental income booked from Bharti Deal (phase-1) due to a revised deal struck in Sept’21, 2) GHIAL (Hyderabad Airport) contributed in increasing the operating expenses led by higher mobilisation on people and 3) The consolidated other expense increased steeply by 100 crs. Supported by a provision of 43 crs. in DIAL for past years & +15-20 crs. of additional expense

4Q FY22 PAX impacted by Omicron wave: DIAL 4Q FY22 PAX grew +23% YoY to 11.9mn but fell 13% QoQ on Omicron Covid impact. However by May’22 DIAL’s domestic PAX at 92% / International at 65% of Pre Covid levels. Similarly GHIAL’s 4Q FY22 PAX grew 13% YoY to 3.8mn but fell 14% QoQ on 3rd Covid wave Domestic PAX at 96% / International at 74% of Pre Covid levels in May’22.

Audit qualification for prior period and no airport-segment: All the matter referred in Auditor’s qualifications are related to discontinued operations (non-airport) pertaining to FY21, therefore have no impact on FY22 annual results.

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