Maintain ‘buy’ on GMR Infrastructure with TP of Rs 30

By: |
September 1, 2020 8:45 AM

The pandemic sent the traffic at DIAL and HIAL spiraling down 92% YoY and 95% YoY, respectively, in Q1FY21. Non-aero revenue at DIAL and HIAL also plummeted, down 57% YoY and 80% YoY respectively.

GMR Infrastructure, Covid-19, DIAL, GMR Airports, Groupe ADP deal, HIAL, latest news on GMR InfrastructureIn the power segment, PLFs reduced YoY at both Warora and Kamalanga, but they have since recovered to 80%- plus.

GMR Infrastructure (GMR) reported Q1FY21 adjusted loss of INR4.8bn. Covid-19 sent traffic spiraling down 92% YoY at Delhi Airport (DIAL) and 95% YoY at Hyderabad Airport. In the power segment, PLFs reduced YoY at both Warora and Kamalanga, but they have since recovered to 80%- plus. The pandemic is likely to adversely affect airport traffic over the medium term; however, de-leveraging after the Groupe ADP deal and the proposed de-merger (which will create a pure-play listed airport vehicle) should propel a re-rating in our view. Accordingly, we are lowering our cost of equity (CoE) for the airport business from 12% to 11%; maintain ‘BUY’ with a revised SoTP-based TP of INR30 (from INR25) as we roll over the valuation to December 2021E.

The pandemic sent the traffic at DIAL and HIAL spiraling down 92% YoY and 95% YoY, respectively, in Q1FY21. Non-aero revenue at DIAL and HIAL also plummeted, down 57% YoY and 80% YoY respectively. Meanwhile, traffic has started recovering, now clocking 26–31% for domestic passengers and 8–15% for international passengers visà-vis pre-covid-19 levels across DIAL and HIAL. With ~75% of passengers being domestic flyers, management expects traffic to normalise by end-FY21.

The company has decided to demerge the listed entity GMR into an airport vertical and a non-airport business. This will create two listed entities, thereby providing investors an opportunity to investors to take exposure to what will be India’s only pure-play airport business. This will also simplify the corporate structure and, along with the stake sale in GMR Airports (GAL) to Groupe ADP (refer to GMR Infra – Airport stake sale: Higher valuation brings cheer), will unlock value in our view.

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