Does GMR Infrastructure have a Potential to be a multi-bagger

Be careful here. The business is under severe stress due to closure of Airports.

Even when it starts, bulk of the shopping eating etc might not come back immediately.

On top of that many of its customers could go bankrupt and hence posing risk of Bad Debts.

Further, there could be renegotiation of rates with Aviation cos , where GMR itself will have to lower fees.

Overall , this pandemic has conveyed how technology can be a substitute for Biz Travel and that isnt well for Aviation in long term.

As far as Road and other assets are concerned - yes they might be of hardly 2-3 Rs per share

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Negen Capital PMS founder Neil Bahal wrote the following in his newsletters:

Jul 9 Newsletter

Currently, in order to own GMR Airports (which is a lovely business), an investor also has to forcefully own GMR’s Infrastructure business which is honestly, ‘undesirable’ according to me as an investor.

*Think of it like buying a Ferrari which is glued on with a Dump Truck. It does NOT look good when I imagine it in my head.

GMR owns 2 marquee Airports in India (Delhi Airport and Hyderabad Airport). It also owns Airports in Goa & Nagpur.

*In total, GMR Airports handle roughly about 25% of all flight traffic out of India. Thats impressive.

The Airport business also has a MNC partner in the form of the French Airport operator called Groupe ADP. They recently acquired 49% stake for big money.

The Airport business has an impressive ROE of 19% which could easily increase with time and a cleaner structure.

They are currently doing ‘significant capex’ all across their airports. They will also get incremental revenue from Nagpur, Goa and Bhogapuram Airports.

Basically, in all likelihood, GMR’s Airport business will grow for many years to come via ‘Structural growth’. It will have nearly no ‘Cyclicality’ to its earnings. Airports just seem to me as a ‘must have’ in any quality long term portfolio.

*This is just my view, and I could be wrong.

Also, as per me, the Airport business is reasonably valued at the moment and upon a clean demerger, its valuation should just keep rising due to rerating because we all just want the Ferrari without the Truck attached to it, dont we?

*Although, I would love to see lower prices here as its not ‘no brainer’ cheap too.

I cannot imagine any institutional investment committee green lighting the purchase of GMR as a conglomerate today. Ours included.

*But, as a clean demerged, standalone entity, it could probably be a ‘Must Have’.

Sep 17 Newsletter

The update here is that the Sydney Airport in Australia is seeing a fierce takeover battle and you wont believe the ‘price’ which has been agreed to buyout the airport.

50x Ebitda!

*No, I have NOT mixed Rum in my Coffee, I assure you.

*To give context, GMR’s Airport business controls nearly 25% of all passenger traffic in India.

*India being a fast growing economy, will see excellent growth in Airline traffic for decades to come.

*GMR earned 2200cr EBITDA in FY20 (pre covid normal numbers). If we assume, in normal circumstances, the Airport’s consolidated earnings will grow 22% for next 3 years, we should see a 4000cr EBITDA FY24.

*GMR owns 51% of the business and it’s stake will rise to 58% post earnouts soon.

*So, lets say, we give GMR’s fast growing, structural growth Airport business a 25x EBITDA multiple, we get 4000cr * 25 = 100,000 crore. We consider 58% of this and arrive at 58,000 crore valuation (Debt is regulated hence I dont deduct).

Bottom line - Currently, GMR total market cap is 19400 crore. You do the math.

*Also, do not forget, we may/could/maybe get 2-5rs / share for the left over Infra business which I believe could be available free.

The idea as always is to own 'High Quality compounders but at a good Price’

Risk: I could be wrong, very wrong. This is not buying advice on GMR. This is only educational content. Kindly consult with your financial advisor before acting on this newsletter.

*Negen Capital PMS owns GMR Infra and could have biased views.

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Some highlights

  • Delhi Airport, the largest in the country, is undergoing a capacity addition of 34 million passengers annually, which will take the capacity from 66 million to 100 million with a planned commissioning date of September 2023. This has required a capex of Rs 105 billion.
  • Hyderabad is seeing its capacity more than double with an addition of 22 million, taking the airport from 12 million to 34 million. The work is slated to be completed by December 2022
  • Goa, where the group is developing a greenfield airport at Mopa, will start with 7.7 million annual passengers and is slated to open between August to October 2022
  • The growth has been faster at Hyderabad with a CAGR of 15.5 percent for the same period, with just the car park contributing to 20 percent of the revenues. (sounds just insane!!)
  • By 2023, Mopa airport will be operational. Goa sees 8.5 million passengers annually. This will be followed by the airport at Bhogapuram, which will serve Vizag. The city sees nearly 3 million passengers. With the court ordering MIHAN to hand over Nagpur airport to GMR, another 3 million passengers will be added.
  • The company is in the process of a demerger of its businesses, with GMR Infrastructure Limited handling the Airport business while GMR Power and Urban Infra Limited will take over the Non-Airport business.
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Please avoid this Group altogether. Dont put your hard earned money here. I cannot divulge further details but I feel there are better bets in the market in infra. This post is not data supported but by latent knowns and interactions and scuttlebutt.

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GMR infra is one of the wealth destroyers due to misplaced bets , high leverage , real estate sector downturn etc . promotors group name has came in multiple allegation , paradaise paper , CBI investigation into delhi airport transaction etc (read old news from 2014), huge share pledge .So in terms of corporate governance GMR is a big miss . only comfort is an MNC partner will be also part of the board of GMR airport and it will be interesting to see the board structure

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GMR Infra investor presentation

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Wealth Destroyers… yes, i agree. But Corporate governance issues - there have been transgressions here and there, but nothing serious which invited major rebuke by SEBI. All other accusations are only rumours and nothing proven even to a minor extent till date.

They have been wealth destroyers mainly because of mainly putting their fingers in multiple pies - like infra (non-airport), power, ports (sea and airports), and the resultant high debt burden. But they embarked on massive clean-up exercise for the past 5 years and have been disciplined enough only to focus on airports business and keeping all others on an asset-light mode with an aim of monetization when the situation is favourable and demerger of airport business. Their execution skills, especially in the airports business are top-class, and this is where their current full focus is. There are lot of tailwinds for this airport business going forward - this being profitable with interest from global players, monetization of land around airports providing additional revenue streams, new airports like Goa, Vizag coming into the portfolio etc. Once demerger is done, there will be huge interest in the stand-along entity and that will result in rerating of the demerged entity

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Nagpur Airport is also one major airport they have now got in their portfolio & it even has an International Terminal.
GMR will be turning it into a world-class facility with 30 million capacity from the existing 3 million.

It is alongside the SEZ Area called MIHAN where Major IT companies like TCS, Infosys, Tech Mahindra, Persistent etc have started constructing their next big IT parks.
Thus this airport has a lot of potential.
Just see the sheer scale of the already in-construction 142 acre Infosys Campus- Mihan

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Had seen news update about demerger and goal to reduce debt to zero. Wasnt able to find any official communication still. Any update on the same?

Company has mentioned above in there presentation posted in BSE announcement. Meanwhile FII has increased holding by almost 2%

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Surpised to see there is no mention of their IPL team Delhi Capitals in their Annual report.

It’s a part of GMR group in my view and not a part of GMR infrastructure.

Every business of the GMR group is there in the Annual Report of GMR Infra except Delhi Capitals (IPL) & UP Yodhha (Pro-Kabaddi).

Though it is there in the list of their subsidiaries, but no info on anything other than the name :-
“JSW GMR Cricket Private Ltd.”
(For those who don’t know it’s jointly owned by GMR & JSW)

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Good results from GMR airport business. Very good improvement in revenue and EBIDTA on yoy and qoq basis. Investor presentation - https://www.bseindia.com/xml-data/corpfiling/AttachLive/0083e7a9-54b6-4539-a955-bbf4d07e1b00.pdf

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The company is waiting for the final order from NCLT for demerger process. Once this is done, it should take around a month for final demerger.

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GMR Infra final meeting for demerger of GMR airports with be held on 6th December.
NCLT announcement - https://nclt.gov.in/gen_pdf.php?filepath=/Efile_Document/ncltdoc/casedoc/2709138024452021/04/Order-Challenge/04_order-Challange_004_16369788931042960301619250cdd3192.pdf

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What will be the impact on GMR Airports in its Delhi operations ?

All big cities in the world have 2-3 airports… for NCR, current airport is not enough… and air traffic is expected to increase exponentially going forward… even current airport is increasing its capacity…Noida airport will take atleast 4-5 years more to start operations in full scale, and likely to service most part of Western UP, Noida and parts of Delhi… they will coexist… I don’t see huge impact because of that… if you are talking about GMR as a company, Delhi is just one of its airport… it has currently Delhi, Hyderabad, Philippines, Bidar… with another 4 airports (Greece, Vizag, Goa, Indonesia) coming onstream in next 2-4 years… Also another major revenue stream which is often ignores is the land development rights it has around these airports, which it has already started monetizing in a big way.

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GMR was announced as the winning bidder for the development and operation of Kualanamu International Airport in Medan, Indonesia