GMR: Some real concerns

The permission to levy an airport development fee for three years will help GMR Infrastructure — which heads the consortium running the Delhi airport. The amount of Rs 1,800 crore expected to be collected, will be used to modernise the airport — the budget for which is an estimated Rs 9,000 crore. However, the project itself isn’t going too well. Already, the hospitality piece has been delayed by more than a year for one reason or another, mainly the lack of funds.

With real estate developers under a fair bit of financial stress, there’s little appetite for large airport assets, believes brokerage Macquarie, which adds that there’s huge oversupply in Hyderabad too, delaying the take-off for GMRs real estate plans in that market. In a recent report it said chances of GMR being able to monetise its real estate assets are severely impaired.

What’s more passenger traffic has eased off — between April and December 2008, it fell 4 per cent and 9 per cent at Delhi and Hyderabad airports respectively. Traffic is unlikely to pick up in the near future given the downturn in both the domestic and global economies.

Thus both aero and non-aero revenues would be under pressure hurting revenues from airports which account for nearly 35 per cent of GMR’s top line. The company is already feeling the pressure with pbit (profit before interest and tax) margins for airports in the December 2008 quarter coming in at just 0.8 per cent compared with nearly 22 per cent in the previous year.

That together with higher interest and depreciation charges depressed GMR’s net profit which fell 36 per cent y-o-y. This was despite the company reporting a strong top line growth of 79 per cent, driven by first time revenues from airports.

The power business, which fetches around 55 per cent of revenues, did well in the December quarter to post a revenue growth of 48 per cent and better margins of 26 per cent. That trend should continue but the firm’s profits for 2008-09 may end up around Rs 230-Rs 250 crore.