Jefferies initiates coverage on GMR Airports, sees upside potential of 15%

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

New York based global investment banking and financial services firm Jefferies said that GMR Airports is evolving from utility to a retail consumption play and is slated to benefit from the strong air traffic growth outlook, travel retail opportunity, upward reset in aero tariffs and real estate unlocking opportunity. 

“We value GMRI at Rs100 (valuing Airport Subs at 27x FY30 Ebitda, discounted at 12 per cent for 4 yrs). We expect PAT positive in FY26 and leverage ratios to moderate (Net D/Ebitda to 4-5x FY26 vs 10-12x FY23/FY24e), as large capex related to DIAL/GHIAL is behind,” the investment firm wrote in a recent note. 

Further, ongoing simplification of corporate structure, improvement in leverage ratios, and global Airport major ADP's backing will support re- rating. Jefferies expects GMR’s earnings before interest tax depreciation and amortisation (Ebitda) compound annual growth rate (CAGR) of 32 per cent over fiscal year 2023-24 (FY24) to FY27e.

“GMR is the largest private airport operator in India and operates two of the busiest airports (Delhi/Hyderabad) and has a cumulative 27 per cent share in pax traffic in India. The attractiveness of airports business is primarily driven by the monopolistic business model, strong air traffic growth outlook in India, lucrative travel retail business potential and ability to monetize real estate,” Jefferies said in a note on Sunday. 

The company’s airport business in India has a mixed revenue profile of regulated aero revenues, which provides for regulated returns on aero activities and upside potential on non regulated revenues including non aero coupled with commercial property revenues. 

The business benefits from rising consumer appetite to spend at Airports, said those at Jefferies. Further, they believe as the mix profile of travellers grows (more international), the spend per passenger at Duty Free currently at $8 to $12 will trend towards the global average of $25-35.

According to Jefferies, GMR is also capitalising on its partnership with ADP to develop its retail strategy and is also working to consolidate all non-aero businesses under a platform to reduce complexity and leverage economies of scale. ADP's presence at strategic and board level will ensure fund-raising capabilities, project execution and bidding capabilities, it said. 

Key risks for the airport include slowdown in air traffic, tariff order delays, and adverse regulatory changes. 

GMR Airports manages Delhi International Airport, Hyderabad International Airport, and Manohar International Airport, Goa. Additionally, the company is in the process of developing a new international greenfield airport in Bhogapuram, Vizianagaram, Andhra Pradesh.