Jefferies begins coverage on GMR Airports, sees 15% upside potential

30 May 2024 CW Team

Jefferies has started coverage on GMR Airports with a target price of Rs 100, representing an upside of over 15 per cent from its current market price of Rs 86.92.

The New York-based global investment banking and financial services firm indicated that GMR Airports is transitioning from a utility to a retail consumption model and is expected to benefit from a robust air traffic growth outlook, travel retail opportunities, an upward adjustment in aero tariffs, and real estate unlocking potential.

Jefferies noted that they valued GMR Airports at Rs 100 by valuing Airport Subs at 27x FY30 Ebitda, discounted at 12 percent for four years. They anticipate the company to be PAT positive in FY26 and for leverage ratios to moderate, with Net D/Ebitda expected to be 4-5x in FY26 compared to 10-12x in FY23/FY24e, as significant capital expenditures related to DIAL/GHIAL are now behind.

Additionally, Jefferies mentioned that the on-going simplification of the corporate structure, improvement in leverage ratios, and support from global airport major ADP would facilitate re-rating. They projected a compound annual growth rate (CAGR) of 32 per cent in GMR's earnings before interest, tax, depreciation, and amortisation (Ebitda) from fiscal year 2023-24 (FY24) to FY27e.

Jefferies described GMR as the largest private airport operator in India, managing two of the busiest airports (Delhi/Hyderabad), and holding a cumulative 27 per cent share in passenger traffic in India. They emphasised that the attractiveness of the airport business is primarily driven by the monopolistic business model, strong air traffic growth outlook in India, lucrative travel retail business potential, and the ability to monetize real estate.

The firm highlighted that GMR's airport business in India has a mixed revenue profile of regulated aero revenues, which provide regulated returns on aero activities and upside potential on non-regulated revenues including non-aero and commercial property revenues.

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