Tariff issue creates uncertainty over DIAL's cash flows: S&P

Delhi International Airport Ltd (DIAL) will maintain its competitive position but uncertainty continues to surround its cash flows on account of pending tariff decision, S&P said today.
Standard & Poor's Ratings Services also said that DIAL, which operates the Delhi airport, is expected to maintain its good operating efficiency.
The agency affirmed its 'BB' long-term corporate credit rating on DIAL with a stable outlook. The 'BB' long-term issue rating on the company's senior secured notes was retained.
"The affirmation reflects our view that DIAL will maintain its competitive position, and will generate strong cash flows, given the high tariffs," S&P's credit analyst Mehul Sukkawala said in a statement.

However, uncertainty continues to surround the extent to which the company's cash flows could fall based on the pending tariff decision for the second regulatory period, he added.
"We expect DIAL to remain the largest airport in India by passenger and cargo volumes. The growth in passenger traffic in fiscal 2015 (year ended March 31) was higher than we had expected.

"We anticipate the growth trend to continue in fiscal 2016. We also expect DIAL to maintain its good operating efficiency on operational parameters even though EBITDA (Earnings Before Interest,, Taxes, Depreciation and Amortisation) margins will remain depressed because of 46 per cent revenue sharing with the Airport Authority of India (AAI)," the statement said.

According to S&P, the regulatory risk for airport operators in India to be higher than that for other rated airports elsewhere in Asia-Pacific.
"This is highlighted by Airports Economic Regulatory Authority's (AERA) delay in passing regulatory orders and pending decisions on tariff disputes. The delay is now because of the pending decision from an appellate tribunal on DIAL's appeal," it noted.
Further, the agency said that DIAL's future cash flows can vary significantly from current expectation depending on the decision of the tribunal and the regulator's tariff for the second period.
"Given the number of factors that will impact the final decision, we estimate that tariffs could fall 60-85 per cent starting April 1, 2016," it added.

The rating agency said it continues to believe that AAI's strategic shareholding and right to approve DIAL's key decisions and related party transactions insulates it from the weak credit profile of its majority shareholder GMR Infrastructure Ltd.