The new land monetisation would not only boost DIAL’s lease revenue, but would also help it partially fund the proposed capex of about Rs 9,000 crore at DIAL.
GMR Infrastructure (GMR) has awarded the commercial development rights for about 9.7 msf at Delhi Airport (DIAL) to Bharti Realty (Bharti) broken down into two phases of about 4.8 msf each. For phase 1, Bharti will pay DIAL an upfront Rs 1,840 crore and an annual lease rent of about Rs 360 crore through 2036 (that will be marked up by 50% for 2036–66). Bharti has an option to secure the rights to develop an additional space of about 4.8 msf in phase II on similar payment terms over the next five years. We view this deal as positive for GMR since it demonstrates its ability to steadily monetise DIAL land that would also help partially fund capex worth about Rs 9,000 crore ear marked for DIAL. Maintain ‘BUY’ with an SoTP-based target price of Rs 23/share.
After monetising 45 acres in 2009 and 23 acres in 2017, DIAL has inked an agreement to monetise about 32 acres (phase I) by awarding development rights for 0.45 mn sq mt (4.8msf) of office space to Bharti. Bharti will pay DIAL about Rs 1,840 crore upfront and an annual lease of Rs 360 crore through 2036 (that will be marked up by 50% for 2036–66). Bharti has an option to secure the rights to develop additional space of about 4.8msf in phase II on similar payment terms over the next five years. This deal implies GMR has practically monetised the bulk of about 10msf of office space that the DIAL board had recently approved.
The new land monetisation would not only boost DIAL’s lease revenue, but would also help it partially fund the proposed capex of about Rs 9,000 crore at DIAL. Compared to the NPV of Rs 85 crore/acre in 2009 that GMR had realised, the current deal implies monetisation of Rs 150–190 crore/acre. This coupled with GMR’s ability to create varying formats at DIAL Aerocity (hospitality in 2009, retail in 2017 and now office space) testifies to growing attractiveness of DIAL land as a realty destination. Improving operations of power assets and financial restructuring, not to mention the favourable policy/regulatory actions, are boosting GMR’s cash flow. We reiterate that GMR is the most exciting play on the fast-growing Indian airport sector and that value creation in this vertical is likely to take off in the wake of greater clarity on the regulatory framework.