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Slowdown in traffic but non-aero resilient

Q2FY27 revenue performance remained resilient at Delhi and Hyderabad airports, supported by revised tariffs and strong non-aero monetisation, despite weakness in traffic from disruptions in the West Asian route and airline route rationalisation. Management expects H2FY27 traffic to grow ~10% over H1 level, implying 3-4% FY27 growth, led by 15-17% growth in non-aero revenue, traffic recovery at the Hyderabad airport and tariff normalisation at Bhogapuram airport supporting earnings. With capex relating to the Bhogapuram airport completed, annual capex moderating to INR 10-15bn and net debt stable at ~INR 340bn, improving cash generation from Nagpur and Bhogapuram airports should support a gradual deleveraging. We tweak our estimates by 5% for FY28E-29E and maintain TP at INR 132, retaining a BUY rating.

Higher costs weigh on profitability: Consolidated revenue rose 11.6% YoY to INR 41.0bn in Q2FY27, driven by healthy non-aeronautical revenue growth, revised aero tariffs at Delhi and Hyderabad airports, and scaling of the adjacency businesses, despite muted passenger traffic growth of 1% YoY to 28mn. EBITDA increased 2.0% YoY to INR 14.8bn, with margins declining to 36.0% from 39.4% in Q2FY26, reflecting subdued aeronautical revenue growth and the impact of the newly operationalized Vizag airport and Goa operations. Reported PAT turned negative at INR 0.15bn versus a loss of INR 0.37bn in Q2FY26, impacted by higher interest and depreciation costs, partially offset by higher share of profit from investments.

Performance resilient amid traffic headwinds: In Q2, DIAL continued to anchor consolidated earnings, with revenue/EBITDA rising 12%/11% YoY to INR 20.5bn/INR 7.2bn, respectively, supported by revised tariffs, a 20% growth in non-aero revenue and 3% passenger traffic growth to 18.1mn, while dynamic aircraft parking charges further boosted aero yield per passenger. GHIAL remained resilient despite an 11% drop in passenger traffic to 6.5mn, with revenue/EBITDA falling 4%/3% YoY to INR 6.0bn/INR 3.7bn, impacted by geopolitical disruptions in West Asia, rising airfares and IndiGo’s route rationalisation, partly offset by 4.6% growth in non-aero revenue and record cargo volumes of 52.0k tonnes. Mopa’s revenue/EBITDA rose 26%/183% YoY to INR 990mn/INR 193mn despite a 24% decline in passenger traffic, driven by a 35% growth in aero revenue following tariff normalisation after withdrawal of the special initiative program, although softer operating performance and a 5% drop in non-aero revenue remained headwinds. Beyond core airports, consolidated aero yield per passenger/non-aero income per passenger reached INR 497/INR 772, up 6%/12% YoY, led by higher passenger spending, expanded terminals and additional retail offerings.

Maintain Buy with an unchanged TP of INR 132: Management reiterated 15-17% non-aero revenue growth guidance and expects H2FY27 passenger traffic to rise ~10% in H1, led by robust airline slot requests, actual ticket booking data and festival season implying 3-4% fullyear growth, while the newly consolidated Vizag weighed on EBITDA due to ad-hoc tariffs, with regular tariffs expected around January 2027. We marginally tweak estimates by 5% for FY28E-29E and maintain TP at INR 132. We value Aero EBITDA, which is a regulated fixed RoE business, at 12x, in line with utility peers. We value the structural non-aero business at 35x, in line with consumer discretionary peers. We value the landbank at each airport on per acre basis (incremental value of INR 17/share). Maintain Buy.

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