Flying with prosperity – India has witnessed a sharp increase in prosperity, especially in the more prosperous parts. This is reflected in the increase in the number of millionaires in recent years. The rise of the affluent has led to a significant premiumization of consumption. This is reflected in increasing international travel (largely driven by metropolises) and also in the rise in non-aero spending. The increase in non-aero spending is taking place in duty-free shops and airport shops. GMR, with its presence at two of the major airports (Delhi and Hyderabad), is well-placed to benefit from this trend, says JM Financial. “As GMR Airports is currently the only listed entity, it will benefit from investor interest in this space until other entities list on the exchanges,” the broker said in a December 19 note.Evolving Spending Patterns – The increase in international travel is a critical driver due to the limited spending options of domestic passengers at non-metro airports. It is the metro airports where JM expects a strong increase in non-aero revenues. “In particular, we are already witnessing some changes; for example, compared to only tax-free expenditure on arrival, we are witnessing purchases even on departure. Spending is also increasing due to the penetration into new categories; for example, through the sale of usually only alcohol, we are witnessing a gradual increase in the sale of cosmetics, fragrances and confectionery,” it added. Analysts estimate that non-aero revenue at major metro or JV airports could grow at a CAGR of 10% in FY26-28E. This is driven by both higher air passenger numbers and increased spending penetration, especially at metro (non-AAI) airports.
Cash flows strengthen – With GMR Airport set to exit its investment intensive phase in the current monitoring period for Delhi International Airport (DIAL), investment intensity is expected to moderate. While the Hyderabad airport is likely to remain in an investment phase for the next decade, strong passenger traffic, combined with significantly lower royalty expenditure (4% versus 46% for DIAL), should continue to support healthy cash generation at GHIAL. With capital intensity declining across assets, analysts expect deleveraging at consolidated GMR levels, leading to lower interest costs and paving the way for a sustainable positive PAT from FY26 onwards.
Land Bank Leverage – GMR Airports has a significant unused land bank of over 40 hectares at DIAL, which the management plans to monetize through a development-led model. While the proposed net present value monetization may be negative for the Airports Authority of India (AAI), it is significantly value-added for GMR, with the potential benefits currently not factored into the estimates. Hyderabad airport, with a significantly lower royalty outlay of 4% compared to 46% at DIAL, is structurally better suited for land development as it remains NPV positive. The successful development of commercial office space at DIAL could therefore become a key driver in unlocking value for GMR Airports.
MRO, Freight Unlocking Potential – The establishment of Safran’s LEAP engine overhaul plant in Hyderabad is likely to support the growth of GMR’s MRO business by creating ecosystem-driven spillover benefits. While GMR’s current focus remains on line and component maintenance rather than heavy checks or complete engine overhauls, the presence of a global OEM like Safran could help capture incremental MRO revenue over time. Separately, GMR’s push to build cargo hubs in Hyderabad and DIAL offers additional opportunities, although the outlook remains cautious given the limited focus on transshipment, high manual handling at major airports and the disproportionate impact of US tariffs on air freight compared to port freight.
Improve governance levels – The corporate structure has been gradually simplified. This addresses investors’ concerns about investing at holding company level, as was previously the case. Promoter share commitments have taken off and leverage data is showing improvement. The separation of the urban development entity and the airport entity post-Covid has also been an important step, the brokerage said.
The brokerage also predicts challenges for GMR. The stock has significantly outperformed the Nifty, driven by expectations of a favorable fare decision for DIAL in the next monitoring period, which could boost revenue per passenger and earnings visibility. However, risks are emerging due to traffic diversion to Noida (Jewar), Hindon’s impact on domestic flows, and shifting of international traffic to Mumbai amid airspace disruptions and the upcoming launch of Navi Mumbai airport.
Another potential overhang is the planned listing of Adani airports. Currently, GMR offers the only pure listed exposure to the airport theme, but a standalone listing of Adani Airports could intensify competition for share in investors’ portfolios. With Mumbai and Navi Mumbai positioned as alternative international hubs on western routes, Adani-controlled assets could challenge GMR’s market positioning in the medium term.
(Disclaimer: Recommendations, suggestions, views and opinions expressed by the experts are their own. They do not represent the views of the Economic Times)
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