We have created a growth platform of our Airports Business for PanIndia and other parts of the world. Our objective is to build a strong ecosystem of AeroNon-aero Real Estate and other ancillary businesses in the airport sector. Leadinginvestors worldwide are recognising the strength of our Airport platform as well. We haveentered into a strategic partnership with marquee investors led by GIC (Sovereign Fund ofthe Government of Singapore) and the Tata Group wherein they are proposing to investर 8000 Crore in GMR Airports Ltd (GAL). Our ability to raise USD bonds at verycompetitive rates in the International markets for both Delhi and Hyderabad Airportsdemonstrates the confidence that International Financial markets have in us. This providesmuch required long term low cost financing for our Infrastructure assets.
Chairman GMR Group
Dear Fellow Stakeholder
It gives me great pleasure to welcome you all to the 23rdAnnual General Meeting of the Company.
You may recall that in my message from last year I had mentioned thatFY 2018-19 would be an important year in our journey. I am extremely delighted to let youknow that it really was a turning point for us. We have made significant progress onseveral of our strategic initiatives. These initiatives along with our investment inpeople and processes have strengthened the foundation of your Group. I strongly believeall these efforts have made us more capable of reaching new heights and will enable uscreate value for all stakeholders.
Last year was fraught with many challenges for the global as welldomestic economy. Trade tensions between US and China lingered and these along with a fewgeopolitical factors impacted world growth. The global economy slowed down to 3.63 growthrate from 3.83 in 2017. After several years of easier lending environment somegeographies including US indicated a shift instance towards tightening of interest ratesin 2018 which dampened worldwide economic expansion to some extent. Subsequent exchangeson trade wars between major economies especially US / China made central banks takepre-emptive action against slowdown by reversing their tightening stand on the monetarypolicy. At home the GDP growth slowed to 6.83 in FY 2018-19 down from 7.23 in FY 2017-18.Q4 FY 2018-19 growth slipped to 5.83 which was a 5 year low. Slowing economic growth canbe primarily attributed to challenges of NPAs in the banking sector and liquidity squeezein the NBFC sector. On the positive side oil prices which rose above USD-75 per barrel in2018 have been within manageable range providing comfort to our policy makers. The countryjumped 23 positions to be at 77th from 100th position on WorldBank's Ease of Doing Business rankings. As the new Government continues with thereforms we expect a conducive environment for investments beginning second half of theyear. India has emerged as a favoured destination for capital markets among emergingmarkets in recent times. The new Government has set for itself a vision to make thecountry a USD 5 Trillion economy by 2025 which requires the economy to grow over 83 onaverage for the next five years. The Government has already initiated a number ofstructural reforms such as implementation of Goods & Service Tax and introduction ofthe Insolvency and Bankruptcy Code (IBC) RERA Act etc. which are expected to have asustainable positive impact on the economy. These steps should be beneficial to thecountry in the long run.
Union Budget envisages allocation of र 100 Lakh Crore forinfrastructure over the next five years. The Finance Minister has also announced herintention of setting up an expert committee "to study the current situation relatingto long-term finance and our past experience with development finance institutions andrecommend the structure and required flow of funds through development financeinstitutions." This focus on Infrastructure Financing is a critical move as thesector development has been held back on this account. The Government plans to augment itsown resources for this massive funding requirement through a slew of measures. TheGovernment intends to tap into long term bonds market. This along with Public PrivatePartnerships attracting global pension funds and sovereign funds multilateral fundingagencies etc. is aimed to provide sustained long term capital availability for theinfrastructure sector.
India remained the world's fastest growing domestic aviationmarket for the fourth year in a row in 2018. The domestic air traffic grew at 18.63 in2018 as against 11.73 in China which was ranked second in terms of YoY air trafficgrowth. There is underlying strength in this sector given the favourable trend in theoverall macro indicators.
The Government's visionary program of "UDAN" is beingsuccessfully implemented in phases. The Government has also recognised the huge potentialin Public Private Partnerships and has opened up an increased number of domestic airportsto be operated and maintained under PPP model. A new policy framework is being developedwhich will take into account pre-determined tariffs in order to provide regulatory clarityto potential investors. Once implemented this will address revenue volatility anduncertainty which currently impact the attractiveness of the sector and could potentiallybring in higher levels of investment.
As mentioned in the beginning FY 2018-19 has been a remarkable year inour journey of scaling new peaks and building an Institution in Perpetuity. We have madesignificant progress on various fronts.
We have created a growth platform of our Airports Business for PanIndia and other parts of the world. Our objective is to build a strong ecosystem of AeroNon-aero Real Estate and other ancillary businesses in the airport sector. Leadinginvestors worldwide are recognising the strength of our Airport platform as well. We haveentered into a strategic partnership with marquee investors led by GIC (Sovereign Fund ofthe Government of Singapore) and the Tata Group wherein they are proposing to investर 8000 Crore in GMR Airports Limited (GAL). Our ability to raise USD bonds at verycompetitive rates in the international markets for both Delhi and Hyderabad Airportsdemonstrates the confidence that international financial markets have in us. This providesmuch required long term low cost financing for our infrastructure assets. We continue tobe the 4th largest private airport operator in the world (by traffic). We havedone so while ensuring that our Airports continue to excel in service rankings across theglobe. GMR Airports achieved traffic in excess of 100 mn passengers for the first time inits history. Delhi Airport was once again ranked #1 in Asia Pacific category of over 40 Mnpassengers per annum of Airport Service Quality Awards 2018 whereas HyderabadInternational Airport has won Best Regional Airport' award in Skytrax WorldAirport Awards 2019 in India and Central Asia. Delhi Airport has become the 5thbusiest airport in Asia and 12th busiest airport across the world. Thenon-aeronautical revenues continued its double digit growth led by Airport retail. Lastyear the Airport Economic Regulatory Authority (AERA) determined that DIAL is entitled tomaintain minimum aeronautical charges equivalent to Base Airport Charges (BAC) in any yearduring the term of concession from December 1 2018. This provides enhanced flow of aerorevenue to Delhi Airport.
Hyderabad Airport has maintained a passenger growth at 173 to achieve alevel of 21.3 Mn passengers in FY 2018-19. To cater to the massive traffic growth a largescale expansion of the airport facilities has been initiated. In the intervening periodin an effort to ensure continued growth momentum for the business without compromising onthe passenger experience the Airport has commissioned dedicated interim terminals forinternational departures and domestic arrivals. In addition a number of other interimcapacity enhancement measures were implemented and operationalized including 20 interimaircraft parking stands which helped to boost the available capacity for base flightdepartures and peak hour operations. To meet the funding needs of expansion plan GMRHyderabad International Airport Limited (GHIAL) also raised 300 Mn from 5 year USD bonds.The airport is at the forefront of some of the digital innovations happening in thecountry for providing better passenger service. Hyderabad Airport is the first airport inthe country to start trials of Face Recognition based end-to-end passenger processingsystems under DigiYatra.
At Cebu Airport a new international terminal was commissioned in July2018 with world class facilities for passengers and state-of-the-art operating equipmentwhich was praised by the Hon'ble President of Philippines for its facilities. Thegrowth in revenues due to commissioning of this new terminal has been above ourexpectations. GMR Megawide Cebu Airport Corporation (GMCAC) is now undertaking renovationof domestic terminal and is expected to complete it by September 2019. Construction workfor Clark Airport
Project that was won last year is progressing as per schedule.
Rising traffic has necessitated the capacity expansion at our airports.We will now be implementing Phase 3A expansion program at Delhi Airport. Phase 3Aexpansion includes among others expansion of Terminal 1 and Terminal 3 construction ofa fourth runway along with enhancement of airfields and construction of taxiways and willexpand capacity to 100 Mn passengers annually. At Hyderabad International Airport majorexpansion plan to increase the passenger terminal building capacity and air side capacityis underway. All Conditions Precedent for our Goa Airport project are complete. We havealso completed Rehabilitation and Resettlement works for Project Affected Families. We areworking with the state government to resolve the issues related to the environmentclearance. At our international airport project of Crete International Airport ourconsortium has signed the concession agreement with the Government of Greece. We havereceived Letter of Award (LOA) for development operations and management of brownfieldNagpur International Airport. Also we have emerged as the highest bidder to developoperate and manage greenfield Bhogapuram International Airport with concession of periodof 40 years that can be extended by another 20 years.
As a pioneer GMR Group always explores creating new businessopportunities. As a part of this strategy we have created Airport Land Development as aseparate business vertical with the objective to monetize real estate part of all ourAirports. Our land assets as part of the concessions are very strategically located andare now becoming major value driver for the business. Last financial year Delhi Airporthas initiated next phase of its Airport Land Monetization and has awarded ~10 Mn sq. ft.in two phases at Aerocity to a consortium led by Bharti Realty Limited at a landmarkvaluation. This Aerocity land monetisation has been one of the largest in the country. AtHyderabad Airport we have launched GMR Business Park which will be a world class fullysustainable integrated office development spanning approx. 8 Lakh Sq. ft. of leasablearea spread over 4 towers. Further we signed up new global customers such as SafranAmazon etc in both industrial and warehousing segments achieving significant progressin land monetization.
In the Energy Sector operating performance of assets improved as aresult of our continuous efforts. The sectorcontinuestofacechallengesoncoalavailabilityreceivables from DISCOMs and on regulatoryfront. We have worked closely with all stakeholders and therefore have been able tosuccessfully resolve some of these challenges. We have achieved resolution of GMRRajamundary plant through restructuring of debt with lenders. We have also divested ourentire stake in GMR Chhattisgarh Energy Limited (GCEL) that will deleverage your Companyconsiderably and future financials will show the positive impact out of it. GCEL operatedunder Tolling' Scheme of coal which was saving transportation cost of coal over1500 km. GMR is proud to have proposed this scheme to the Ministry of Power. SHAKTIscheme benefitted GMR Kamalanga plant and strengthens prospects for the coming years byimproving coal availability. Our partnership with Tenaga strengthened further with theiragreement to invest upto र 226 Crore in our under construction Bajoli Holi HydroPower Plant. We were also able to divest our stake in proposed Upper Marsyangdi hydropower plant in Nepal. Our Indonesian coal mine in which we have minority stake isperforming well on the back of revived international coal prices and high demand fromChina and India.
Coming to the Transportation and Urban Infrastructure vertical(T&UI) vertical of our Group our focus is on cash flow improvement. We are working onresolution on some outstanding claims related to our projects for which we expect afavourable outcome by the end of the year. We will continue to explore opportunities formonetizing some of our assets in this segment. In the Railway segment our ongoing workson the DFCC projects have provided us insights into this new domain. The DFCC project is acritical part of infrastructure for the country. Construction work is underway and we haveachieved significant progress including track laying work in the project.
We have also successfully progressed in the development of the SpecialInvestment Regions (SIRs) in Kakinada and Krishnagiri. We were able to convert our captiveport license to build a commercial all weather deep draft port at Kakinada SIR. The portis a key differentiator and will help in marketing our SIR globally as port based SIR in aregion which is close to KG basin and has potential especially for oil and gas relatedindustries. As for Krishnagiri SIR we have secured all the relevant clearances to startthe construction work and we are developing Phase1 A of 275 acres for potential clients toshowcase our capabilities. With the Government of India focusing on attracting potentialindustries for investment our SIRs shall hugely benefit going forward.
Looking ahead for FY 2019-20 we are very enthusiastic about theoutlook for the economy and the Company. With inflation likely to be under control and oilprices projected to be range bound interest rates should stay low providing comfort forcompanies especially engaged in infrastructure sector like ours. Political stability andresolve to build quality infrastructure for the country should make the authorities awardmore projects in the sector. As I have indicated while the Company has made significantprogress in the areas of improving operations and cash generation our priority continuesto be reduction in debt and borrowing costs. As I have mentioned earlier we have raisedfunds by issuing USD bonds in DIAL as well as GHIAL again this year after similar bondsissued in both the airports in previous years. This along with culmination of proposedequity investment in GAL will considerably reduce our borrowing costs and strengthen theBalance Sheet. Given the robust growth aviation sector is witnessing we are activelylooking at different ways to unlock value in the airports business. The potential for theairport real estate assets and SIRs also needs to be realized and we are optimistic thatwe will make significant progress on this front in FY 2019-20. As we plan for the futurethe key areas of focus for our group include the Digitalization of our businesses andbuilding a strong talent and leadership pipeline for expanding footprint and preparing forthe next round of growth. Our Airports have made pioneering efforts in introducing digitalinitiatives in India. To make the organization more agile and streamline processes wehave rolled out financial consolidation and financial transformation projects which willstrengthen and standardize processes across the Group. The key objective of this exerciseis to make our organization more agile and enhance the use of technology as we preparefor the future. All these corporate initiatives will help the Group in improving the fourpillars of our institution i.e. Process People Technology and Governance standards inthe Group.
Sustainability has always been at the core of Group's businessstrategy. Your Group has invested substantially and allocated resources to increaseadherence to environmental standards and pollution control measures and enhanceEnvironment Health Safety levels. We are committed towards reduction of carbon footprintsconservation of resources increased focus on clean and green energy emission reductionetc. Your Group has won many awards and accolades for Environmental Safety and Healthinitiatives over the years. I am proud to share a few awards won in the past year in thisregard:
_ DIAL Won the Golden Peacock award for sustainability & nationaltraining award. DIAL also received the highest environmental recognition for Airports"Platinum" by ACI.
_ GHIAL won ACI Asia-Pacific Green Airports Silver Recognition 2019towards efforts in environmental sustainability (water conservation through rain waterharvesting). GHIAL also won Excellent Energy Efficient Unit Award by the Confederation ofIndian Industry (CII).
_ Warora Power Plant was awarded with "National Award forExcellence in Energy Management" by Confederation of Indian Industry (CII). It wasalso awarded with the prestigious "Global performance excellence award-2018- Worldclass" in service category by Asia Pacific Quality Organization (APQO) in the 24thInternational conference at Abu Dhabi.
_ Dedicated Freight Corridor Construction (DFCC) project has won ApexIndia Environment Excellence Award 2018.
Your Group's promise of caring for the communities andstakeholders as part of its Corporate Social Responsibility program through GMRVaralakshmi Foundation (GMRVF) has been maintained. The Foundation continues to workacross 25 locations in India and support 1 location in Nepal. GMRVF has successfullyhelped the Group companies and several JVs to fulfil their CSR obligations via severalcommunity initiatives aligned to the GMR businesses. This year GMRVF commemorated thevaledictory of its silver jubilee celebrations at Rajam with Sri Ratan Tata ChairmanEmeritus Tata Sons as the Chief Guest. It is inspiring and humbling to look back onthe 25 years of journey and see that lakhs of lives have been touched and changed.
The educational institutions under GMRVF have performed exceedinglywell during the last year. There are over 10000 students in these institutions. GMRIT(GMR Institute of Technology) continues to earn top ranking among engineering colleges inthe country both at the state and the national level. Both GMRIT & SGCSR Colleges havebeen able to provide more than 645 and 179 placement offers respectively. All the schoolsunder GMRVF have also shown a consistent performance in academics extracurricularactivities and had 1003 results in class X. GMRVF partnered with around 270 governmentschools towards improving the quality of education reaching out to about 60000 studentsacross India. Over 6000 children from 3-6 years of age were provided quality pre-schooleducation through own Bala Badis or partnered Anganwadis. The Gifted ChildrenScheme' of the Foundation provides an opportunity for under-privileged meritoriouschildren to access quality education in reputed schools. The Foundation has assisted 250children under this. I am proud to announce that one of our students Ms. Santosh Vani hasbeen shortilisted to go to the US for a one-year study at Scottsdale Community CollegeScottsdale Arizona with all expenses covered by the US Consulate.
There has been a steady increase in number of patient concessions inGMR Varalakshmi Care Hospital which received the entry level NABH accreditation this yearadding a feather in its cap. A new Mobile Medical Unit was launched this year at Goataking the total number of MMUs to 10. These MMUs provided free medical care to over10000 elderly every month. In line with the Government's Mission of Swachh Bharatthe Foundation runs 20 community toilets and supported over 2000 families forconstruction of Individual Sanitary Lavatories apart from construction of several schooltoilets.
Contributing to the Skill India Mission of the Government GMRVFcontinued to set benchmarks in the area of skilling with several national andinternational delegations visiting the GMRVF's skill training centres to understandthe processes and systems followed. The 13 training centres trained over 7000 youthduring the year with over 833 of them settling in jobs or self-employment ventures. Over900 housekeeping and gardening workers from Delhi and Hyderabad airports were trainedunder Recognition of Prior Learning (RPL) program. RPL is a process used to evaluate theskills and knowledge acquired outside the classroom for the purpose of recognizing thecompetencies against a given set of standards competencies or learning outcomes. Over1500 families have been supported by the Foundation for enhancing incomes through farmand non-farm livelihoods and about 100 women under EMPOWER (Enabling Marketing of Productsof Women Entrepreneurs) initiative have been earning decent incomes. The Foundation won 15National and Local level recognitions during the year which include:
_ CSR Excellence Award for GHIAL from Institute of Company Secretariesof India.
_ Golden Peacock Award for Corporate Social Responsibility for CSRactivities at Warora.
_ Viswakarma Award for Social Development and Impact from ConstructionIndustry Development Council. Let me take this opportunity to thank our customerssuppliers and other stakeholders for their confidence and trust in the Group. I would alsolike to thank the leadership team of GMR Group for taking the Group ahead in the rightdirection. My sincere appreciation is for our all the employees whose hard work andcontinued contribution in such volatile times enable the Group to overcome every obstacle.I look forward to your continued support and encouragement in taking the Group to greaterand newer heights in the future.
G M Rao
Chairman GMR Group