Buy GMR Airports Ltd for the Target Rs 120 by Emkay Global Financial Services Ltd
We initiate coverage on GMR Airports (GMRAIRPO) with BUY and TP of Rs120, based on 25x EV/EBITDA for the domestic airport business, with international airports and airport land development valued separately. GMRAIRPO is India’s largest private airport operator by passenger traffic (27.3% share in FY26), with 9 airport assets (6 in India). India remains one of the fastest-growing aviation markets, with ~8% passenger CAGR expected over FY26-31, providing a strong structural growth opportunity. While aero revenues remain regulated, increasing share of high-margin non-aero and adjacency businesses should enable GMRAIRPO to capture a larger share of the airport ecosystem economics. We expect revenue, EBITDA, and operating cashflow to expand at 13.7%, 16.5%, and 17.9% CAGR to Rs218bn, Rs91bn, and Rs80bn, respectively, over FY26-FY29E, driven by higher non-aero, adjacency, and passenger growth. With limited near-term capex requirements other than Hyderabad airport, stronger EBITDA and cashflow generation would further reduce net debt/EBITDA to 4.9x in FY29 from 6.7x currently.
Unlocking high-margin, non-aeronautical revenue streams
Non-aero and adjacency businesses are key segments for incremental value creation, contributing 67% to revenue. GMRAIRPO is increasingly moving from a concession/landlord model toward direct ownership and operation of airport adjacencies. Consolidation of duty-free, cargo, retail, and parking under the GMR Airport (standalone) platform will help in improving scale, control, and value capture. We expect the adjacency business, which jumped 127% in FY26 and contributed 25% to revenue, to see 14% CAGR over FY26-29E.
Airport land provides additional source of recurring income
The company is increasingly shifting from simple land leasing toward self-development, creating an additional source of recurring income and asset value. GMRAIRPO is currently receiving lease income from the monetized land parcel of ~ 552 acres and received ~Rs9.8bn/year in FY26, predominantly from Delhi Airport land. GMRAIRPO has additional 2,451 acres of land to be monetized in its airports. Favorable industry tailwinds provide structural growth opportunity India’s aviation sector offers strong structural growth, with passenger traffic expected to see ~8% CAGR over FY26–31. Low air-travel penetration (0.13 trips per capita in CY24 vs 0.58 in China, 0.84 in Thailand, and 1.31 in Malaysia) provides headroom for growth. Additionally, rising per-capita income should drive higher spending on non-aero offerings such as duty-free, retail, and F&B, creating an additional growth opportunity.
For More Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354
