GMR Infrastructure Ltd
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Ladies and gentlemen, good day, and welcome to GMR Airports Infrastructure Limited's conference call to discuss Q2 FY '23 results. [Operator Instructions]. Please note that this conference is being recorded. We have with us today Mr. Saurabh Chawla, Executive Director, Finance and Strategy.
Before we begin, I would like to state that some of the statements made in today's discussion may be forward-looking in nature and may involve risks and uncertainties. Also, recording or transcribing of this call without permission, without prior permission of the management is strictly prohibited.
I now hand the conference over to Mr. Saurabh Chawla for opening remarks. Thank you, and over to you, sir.
Thank you, and good afternoon, ladies and gentlemen. Thank you for joining the second quarter fiscal '23 earnings call. Just as a forewarn, I'm suffering from a little bad throat. So if I start coughing, one of my colleagues will take need to -- hear, takeover and complete the opening remarks that I wanted to indicate to you.
Globally, economies continue to face major challenges on geopolitical crisis, persistent and broadening inflation pressures. Central banks across the world continue to roll back accommodative monetary policies to fight inflation, a hike in interest rates. Indian economy, however, remains as an outlier, remains as a bright spot, as most economic activity indicators remain resilient even amid monetary tightening. For instance, the last GST collections in October '22 crossed 1.5 lakh crores, the second highest ever indicating robust, underlying economic activity.
Coming to our performance for Q2 FY '23, GMR Airport Infra's net revenue increased by 17% Y-o-Y to INR 1,126 crores in Q2 fiscal year '23 driven mainly by traffic improvements in our operational airports. EBITDA decreased by 5% Y-on-Y to about INR 473 crores, mainly due to the restart of payment of monthly annual fee or MAF, from the Delhi Airport with effect from April '22 perspective.
Net loss after tax has reduced from INR 502 crores in Q2 fiscal year '22 to INR 195 crores in Q2 fiscal year '23.
I would like to highlight the following key points in our business over the quarter. We signed a deal with Aboitiz InfraCapital for divestment of our stake in Cebu Airport. The transaction will be undertaken at an enterprise value for PHP 49.7 billion, and we will receive an upfront amount of about PHP 9.4 billion. We would continue to operate as a technical services provider until December of 2026, and would also be entitled to additional deferred consideration based on subsequent performance of the airport on the same period. The decision to divest our stake in Cebu Airport is also in line with GMR Airports' strategy to focus on churning capital and redeploying capital in other high-growth opportunities.
With respect to the progress -- with respect to the capacity expansion at our airports namely, Delhi, Hyderabad and Goa, we have achieved about 73%, 78% and 91% completion as of September 30, '22. Goa Airport is targeted to be inaugurated shortly. As you may be aware, Directorate General of Civil Aviation has already issued aerodrome licence lessons for the Mopa Airport, paving the way for starting commercial flight operations. Expansion projects at Delhi and Hyderabad are targeted for completion in September '23 and March '23, respectively.
In the Crete Airport project, 93% of the Earth Work has been completed on the airport site. Works are progressing on multiple fronts of runway, taxiway, apron, parking area, fire station and other buildings.
Terminal Building concreting works are also in progress for base slab, foundation and columns. Flood protection measures are in progress at the airport and access roads. As of September 30, '22, 15.9% of physical progress has been achieved in the Crete Airport project.
In Goa, we have already filed for a multiyear tariff proposal for the first control period starting from April 2023 to March 31, '28, with inclusion of partial period of September 1, '22 to March '23. AERA has currently issued an ad-hoc tariff on August 26, '22 with the landing and parking charges, including VTP have been approved, and the UDF has been approved at INR 450 per departing domestic passenger and INR 1,100 per departing international passenger. The ad-hoc tariff is applicable up to March 31, 2023, or the determination of final tariff whichever is earlier.
On the Medan Airport, the Angkasa Pura Aviasi or APA, joint venture company of GMR Airports Limited and Indonesia state-owned airport operator Angkasa Pura II or AP II, formally took over the operations of Medan Airport beginning July '22.
The Ministry of Transport Indonesia has also proved increasing passenger service charges, PSC. Domestic PSC have been increased by 27% and International PSC has been increased by 16% with effect from August 1, '22.
On the passenger traffic, Q2 FY 3 has been relatively weak quarter, and that's a seasonality of effect that is there with further negative impact due to higher shared [indiscernible]. In the month of October '22, domestic traffic at Delhi Airport and Hyderabad Airport stood at 93% and 95% of 2019 traffic levels. While international traffic was at 84% and 83%, respectively, on the 2019 traffic levels on the international side.
Recently fewer aircraft capacity are flying due to supply chain issues of components arising out of the Russia-Ukraine conflict. However airlines are now using their short-term capacity through wet leasing contracts, which should help ease capacity constraints. Traffic is expected to gain further momentum with addition of routes and airline capacity as we strongly believe long-term growth story remains intact.
In Medan Airport, traffic recovery has been driven by steady growth in both domestic and international traffic. Domestic traffic recovered to 81% of 2019 levels and 75% on the international side. Total traffic has recovered to about 79% in Medan Airport.
In Cebu Airport, domestic daily passenger is 55% to 60% of pre-COVID level, international, it is there 15% as on Q2 FY '23.
On the airport land development, in Delhi Airport, we awarded a contract to Chalet Hotels, the owner, developer, and asset manager of hotels for developing a hotel at Terminal 3. The terminal hotel will have 350 to 400 rooms, positioned in the 5-star deluxe space. The development of terminal hotel at T3 with good hospitality to travelers at the gates of international terminal. It can provide significant benefit to transit passengers, both domestic and international.
In Hyderabad Airport, lease lead has been executed with Amity University for lease of 28 acres of land for setting up of university, plus an option for additional 5 acres for a school to be exercised in the next 12 months.
In Nagpur Airport the Supreme Court of India has upheld the judgement on the Nagpur Bench of Bombay High Court that had previously quashed and set aside the letter issued by MIHAN India Limited annulling the bidding process of Nagpur Airport. Accordingly, the authorities are expected to execute the concession agreement at the earliest for Nagpur Airport with GMR.
On the ESG front, we have committed to be at the forefront of environmental protection and sustainable development. Our top priority is to be one of the world's most environment-friendly and sustainable gateways. For instance in our Delhi Airport, our goal to become Net Zero carbon emission airport by 2030, way ahead of IPCC's 2050 target adopted by most major industries across the world.
During the quarter, Delhi Airport received the National Awards for Excellence and Energy Management by CII-Green Business Centre, while Hyderabad Airport won the CII National Awards for National Energy Leader & Excellent Efficient Unit. Both the airports are maintained ASQ scores at 5 during the quarter.
The presentation with all financial numbers are already available with you. If not, it can be downloaded from the IR section of our website. We are available to respond to your questions on this call and offline post the call.
Now I would like to open the forum and my colleagues from the corporate and businesses answer your queries. Thank you so much.
[Operator Instructions] The first question is from the line of Mohit Kumar from DAM Capital.
First question is when do we expect to receive money from the sale of Mactan-Cebu? And what is the use of cash? And are there any other opportunities to monetize any more asset to reduce the debt, especially the corporate debt.
So to answer your question, I'll answer the second question first. Sale of Mactan, Cebu is not going to reduce corporate debt. It reduces the debt of the platform entity, which is GMR Aiports Limited, where ADP is the partner. They are 49% part at that level. So it really doesn't reduce the corporate debt, which is at least which is about INR 2,000-odd crores.
And the second aspect is that primarily the money will be received most likely by end of December. We had indicated and guided the markets accordingly. The regulatory approval processes are underway. We have 2 approvals awaited. And hopefully, I think in next few weeks, those will also be received and then we can move into closing quickly.
Last but not the least, we -- as you know, within the quarter itself, we have taken over the operations at Medan, whilst we had that transacted to sell Cebu. And if you look at the strategy we make substantial amounts of gains on our sale of the Cebu Airport, whilst we have many years for investment at [ Medan ]. So it's basically a portfolio management exercise where we are encashing a certain amount of our investment to reinvest that money into future opportunities. And at this current stage, it will be, Medan. So that's how we look at this particular portfolio. We are always on lookout for opportunities in both domestic and international.
We are all aware that the next round of divestments will be coming from the government of India. That may open up a privatization of almost 14-odd airports, 7 medium sized and 7 small airports. In addition to that, there are opportunities, especially in Southeast Asia, specifically in Indonesia, which we are quite excited about and would like to participate. And given these opportunities is always good to have and lean mean balance sheet so that one can use these surpluses available in that balance sheet for investments going forward. So that's the broad guidance as far as our strategy is concerned.
Sir, one observation sir, EBITDA is still not enough to generate, to recover the interest cost. What levers we have, which we are looking forward to generating a positive cash flow, specifically, EBITDA minus interest cost.
So honestly speaking, we are still in the recovery mode. And also on investment mode, right? EBITDAs had contracted post COVID. If you look at our numbers, we are still reaching at about 90% pre-COVID levels as of September 30. They have improved further in the months of October and as we speak in November. So you will see a significant improvement in EBITDA levels as we go forward. And that should more or less suffice not only interest payments but also servicing and clearing down of debt and eventually in 2 to 3 years' time give significant amounts of free cash to equity holders. It's a long-term play. It requires an investment of almost 2 to 3 years, in normal circumstances. And in COVID, these investment periods become much longer. And hence, the business plans get stretched to a particular level. In our case, we've been able to bridge over these crisis because of our long-dated bonds where we have to service interest on a semiannual basis. And there is a stuff that it gets refinanced after 5 or 10 years, depending on the tenure of the bond.
That is a strategy that will play out at least for next 2 to 3 years. But you will see, going forward, Q-on-Q improvements in EBITDA numbers as traffic keeps coming back, as new airports open up, especially Goa should open up in the month of December. And you will have expanded capacities available in Hyderabad, in the March of '23 and September of '23 in Delhi. So you will see significant improvements in EBITDA level.
[Operator Instruction] The next question is from the line of Abhiram Iyer from Deutsche Bank.
Congratulations on a good set of numbers. May I ask the reason for the working capital inflow that's come in and primarily due to an increase in deferred revenue. May I ask what this is about in case of the airports, specifically Delhi and GMR Hyderabad? That's one.
And the second is more a broader term question. How do you see the EBITDA profile of the individual airport sort of evolve once the CapEx is completed, say, in the medium to long term?
G.R.K garu, you want to take the question, please, on the working capital.
In case of Hyderabad Airport, we have just renewed it to the extent of worth INR 350 crores for the facility. And we have just renewed it. And as far as the DIAL is concerned, the working capital facilities have been -- use has been fully repaid.
Yes. Sorry, just to clarify, the increase in deferred revenue for DIAL would be -- it's around INR 400 crores now. Could you just give an idea on what this account is?
Just hold on 1 minute. This deferred revenues are basically the India's adjustments which we have taken. Basically, the deposits which you have received in case of the Delhi as well as Hyderabad which have to be discounted as per accounting standard. That is what we have been accounting regularly.
Got it. So just -- so does that imply that we have received additional deposits this quarter, this half rather around INR 200 crores, INR 270 crores?
No. No. We have received some payments from Bharti, that is basically the balance amount which we have to receive from them has been received with only the additional advance development cost money as well as the entire -- the advance license fee also has been received in this quarter.
This quarter? Okay. So we aren't expecting additional now into -- what we were expecting in 2023, we have received already now.
That is as per the plan, as per the original agreement only we have received it. The next payment, which is due from the [indiscernible] will be in the month of either March or April 2023.
Got it. And any idea on the quantum there?
In the month of April 2023, we are like to debt both ADC as well as the refundable secured deposit put together about around INR 600 crores.
Got it, sir. And the second question was on EBITDA, long-term EBITDA strategy.
I think that Saurabh can...
So long term -- thank you, G.R.K garu. I think I explained earlier itself. We are still recovering from the COVID conditions and despite, I would say, elongated recovery time period, we are generating between, let's say, different asset levels.
Hyderabad, of course, as a much higher EBITDA contribution, primarily, because it has a lower revenue share. Whereas Delhi has a very high revenue share and still has a healthy EBITDA of about 45-odd percent. And as the traffic continues to improve, the non-aero will also kick in. And hence, the EBITDA levels should improve significantly over the next, I would say, year or so.
And once the airports expansions are fully completed, the areas are fully monetizable for the non-aero side of the retail businesses of ours. You will see significant improvement of EBITDA going forward. So yes, I would say at the -- probably mid-way or from a COVID recovery path to an optimum EBITDA contribution from both the airports, Delhi and Hyderabad, which are basically the main contributors to EBITDA as of now, till of course Goa and Medan start to contribute to the EBITDA.
The next question is from the line of Tony Watson from Far East Investment Management.
Just a quick question on activity levels at Delhi and also Hyderabad. Seems traffic has plateaued in last quarter. Any thoughts as to why that has come about?
That's a small plateauing out of traffic because every year, you will find that Q2 is slightly flat in traffic growth. And it starts to pick up and it peaks again in Q4. So that's a normal seasonality trend that you see at least in our airports, if not all India. But at least in Delhi and Hyderabad, you see it play out every year. So nothing -- not a cause of any concern. Yes, there are a few other external factors which are impacting plateauing of the traffic. There is airline capacity constraints which are highlighted in my opening remarks. The supply of aircraft parts are under constraint from -- due to the Ukraine-Russia war. There are other issues that are associated with it. And on top of that, airline ticket pricing has been at its peak. So we expect the ticket pricing to become far more reasonable to start attracting other customers into the airline industry or traffic. So we don't expect similar conditions to continue. It's a seasonality effect. And hopefully, I think you will see a much better traction in Q3 and Q4 going forward.
Okay. Quick follow-up question, Slide 9. Same issue appears to be applying to the cargo business traffic. Is that the same set of contributing factors? Or are there other issues at play there? It seems the downturn in the last quarter on the cargo traffic has been fairly pronounced for both airports.
Regarding...
So I think -- go ahead, G.R.K garu, go ahead.
Regarding the cargo, it is basically the inflows which we used to get from China because of the lockdowns -- various lockdowns at China level. There was a dip in the cargo traffic. I mean, especially the quantities. It is a global phenomenon now. Whereas -- so that we are expecting to that it should come back normally by I think next quarter of '23, '24.
Just to also highlight in traffic, which I think G.R.K garu, highlighted is, we see traffic to China and Far East, including Japan and Korea has not yet opened up in its totality. Whereas to Australia, Southeast Asia, Western Europe and North America, it is now reaching levels which are sometimes better than pre-COVID levels and sometimes at pre-COVID levels. So the gap that you see today is because -- primarily because of traffic into far east, especially East Asia which is China and Japan.
The next question is from the line of [ Nikhil Abhyankar ] from DAM Capital.
In the slide number -- okay, I forgot the slide number, but we are showing around INR 213 billion of corporate airports debt. And [ INR 102 billion ] is related to Delhi and [ INR 65 billion ] is related to Hyderabad. So where is the rest sitting?
The rest is -- other airports like -- we have got Goa, [ refunded ] at GMR Airport level, all that put together. And...
And basically, car parking...
Car parking. So all those other entities.
Okay, can we get a breakup of that, sir?
There's a list of -- a lot of entities. Broadly, it is at the GMR Airport level. Goa and a lot of is JVs car park and all. And that quantum is close to INR 63 billion.
The [ INR 63 billion ] the break up will be at GMR Airports. And I think Goa will be the maximum.
Okay. Understood. And sir, how are we looking to monetize or develop the land around Delhi and Hyderabad Airports.
Delhi has already been explained by the Saurabh that the hotel has been our [ Delhi ] terminal hotel. And the balance land especially, the Bharti is already having the buffer another 5 million square foot. During the winter, we are also looking into other land parcels, which are already left at the airport, and most probably, we'll try to come up, maybe in the fourth quarter. Some land parcel in case of Delhi. The Hyderabad, it is going on, I think whatever is the development that has already been taken place, Saurabh has already explained. The rest are in some pipeline.
Okay. So can we see this fitting H2?
Sorry?
Can we see some activity in H2 regarding that, Hyderabad?
Hyderabad, yes, you will see some activity maybe in the last quarter.
Okay. And sir, final question, sir. Sir, the Cebu traffic is around 55% of the pre COVID level. It seems far below the trend that we are seeing in India. So is there any other explanation for it?
Cebu has not opened up fully like India from beginning. So Cebu, actually has the -- Philippines as a country, they have opened up very recently for the tourism. Otherwise, they have got only domestic traffic moving from island to island was also very much restrictive. Now only they have opened up and that's why domestic traffic is picking up. And International still it has very low. And we are expecting that once they are -- now fully opened up and the season will start in December and January. They should be able to start getting more [housefull]. Otherwise, as a country, they have opened up very late, not like India.
The next question is from the line of Teena Virmani from Kotak Securities.
My question is related to a large component of minority interest which is there in the second quarter number. So there is significant jump in that minority interest or the loss basically. So what is leading to this significant change Q-on-Q and even on a year-on-year basis?
Actually, it's basically because of the Cebu transition, we have recorded impairment loss at GAL level. So this impairment loss -- because of this impairment loss, there is minority interest of ADP share of 49%. That has got increased.
Okay. Okay. And on the profit from associate companies also, this has also come back to be lower on a Q-on-Q basis. So is it some kind of seasonality impact, which is impacting the -- already performances or the performances are better but why it not reflecting over here. So just wanted to understand the reasons and the and any other parameter which can actually help it grow in the coming quarter.
Teena, can you repeat the question, please?
So below PAT the profit from associate companies, this is around INR 142 million for the current quarter. And for first quarter, it was around INR 223 million. So just wanted to check why there is a dip in the profit from associates or profit from JV companies. Any specific reason for this? And how this profit can grow going forward.
No, mainly the associates and joint ventures, Cebu has declared more loss because of the very low traffic at Cebu level. Otherwise, all the joint ventures, other than the Cebu have been doing very well, either at DIAL level or [ HAL ] level. It is only the Cebu which has brought down the numbers.
So this loss will not be there for next few quarters because now that you have signed a deal for Cebu. So this number should rectify in the coming quarter back to the original?
Yes. Once the deal is completed, but still we will be continue to be minority shareholders in the company. So we'll have to still account it, until 2024. Because we can -- right now, as per the transaction of the Cebu, we will be actually continue to be 33.33% shareholder, GMR and Aboitiz as well as Megawide. So only 2024 October, Aboitiz will become the full-fledged owners. 100%. So till that time, we continue to account it, 33.33%.
The next question is from the line of Anshuman Ashit from ICICI Securities.
Sir, the first question is on the CapEx for H1. So could you please give us the number? And what is the target for FY '23 and '24?
CapEx this financial year, we're expecting to incur about INR 1,300 crores to INR 1,400 crores overall for the Delhi. And also about Hyderabad. So Delhi will continue to have the expenditure in the next financial year also, whereas, Hyderabad will be completing the entire CapEx by March 2023. So expect them to spend about INR 18 billion totally for this financial year.
How much have we incurred in the first half?
So the Hyderabad has incurred about INR 400 crores to INR 500 crores because of [ some slow billing ]. But right now it's picking up much faster.
And sir, in Delhi.
Delhi is also about INR 800 crores.
Okay. Sir, second question on the land development both on Delhi and Hyderabad. Sir, could you please give us some more details on the Chalet deal. So what is the area that it will be developing and the revenue that we will be earning through this deal. And also on the Hyderabad lease, with Amity and also Schneider one which we have mentioned in the last call.
It is the airport hotel is basically on a land, parcel about 2 acres of land, which is just opposite Terminal. That is what is coming up. So the Chalet will be constructed by the [indiscernible] and the entire fit up will be done by [ concessionaire ]. So it is -- some deposits will be provided by them, initially and subsequently, it is on the revenue share basis of their revenue. Plus with a minimum guarantee. So there are certain conditions which are to be complied with. Otherwise, the minimum guaranteed amount has to be paid by the [ concessionaire ].
Is it possible for you to share this amount in the -- all the alliance...
Offline, we can discuss, if possible. If it is possible -- if the documents are provided we can able to say. Otherwise...
Sir, one final question is on the earn-outs, which we were supposed -- which was supposed to be tested once the FY '22 results would be audited. So where do we stand currently on that front?
FY '22 and FY '23 and FY '24 is actually, basically the 3 years earn outs. FY '22 numbers have already been provided. And it is under the discussion with the ADP.
Okay. So we are on track.
Yes. We are on track. Always -- the discussion is already going on. The numbers have already been shared with.
[Operator Instructions] As there are no further questions, I would now like to hand the conference back to the management for closing comments.
Thank you. Thank you, friends, for joining our call. We are available offline to answer any of your queries. So please, you can reach out to the IR team. You can send your e-mails and we will revert back as quickly as possible.
Thank you so much, and have a wonderful day. Bye-bye.
Ladies and gentlemen, on behalf of GMR Airports Infrastructure Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.