balance sheet: Our main focus is to strengthen our balance sheet: Saurabh Chawla, GMR Infra
After the last few years of restructuring, the structure is quite leaner and more efficient now as we understand. What is the focus area for the management and how is it that you see the next three to five years shape up for the GMR Group?
Well, I think the major part of the restructuring is over. We had demerged the airport business from the non-airport businesses more than a year back and what we see right now is the last leg of that process. So, merging of the private airport platform in which Groupe ADP is a 49%, merging that with the ListCo is the last leg of that process. So, the path that we had embarked about five years back was primarily to de-lever our balance sheet and to make our businesses a pure place.
Those were the offerings that we wanted to take to the capital markets. We have significantly de-levered our balance sheet, and now, as I said, with the merger of this private airport platform into the ListCo, this will be the last leg of that exercise. On the GMR Energy side and the roadside of the business, which is the demerged businesses, our work is still yet to be done, but that is a separate conversation we can have sometime in the future.
Let us take things then one by one, because you talked about de-leveraging, give us some more details. What is the current debt post the fund flow in FY24 and what would be the sustainable debt level you think say by March 24?
Honestly, I will tell you the numbers which were as on December 31st in the ListCo. The consolidated numbers in the ListCo, which is the GMR Airports Infrastructure Limited. The gross debt was about Rs 299 billion, and we had cash and cash equivalence of about Rs 49 billion. So, my net debt on the books was about Rs 250 billion, that was the status of debt at the ListCo in a consolidated form. Having said that, 7% of this debt, which is about Rs 19 billion, was the corporate debt. So, our strategy was that at the HoldCo where you do not have stable cash flows, we wanted to pare down that debt itself and this issuance of foreign currency convertible bonds will ensure that this debt is also settled once for all. So, this 7% debt of Rs 19 billion that will get fully settled at the corporate level.
The second aspect, which is important, is that with this reverse merger of the airport platform with the ListCo, the operating assets come closer to the shareholders. So, usually you have at least 15% to 20% HoldCo discount that happens from the operating entity levels into the HoldCo and here because it will be merged, the airport platform will be merged with the ListCo, that discount will pare away over a period of time.
The cash flow efficiency of the upstreaming of cash flows as and when the free cash starts to happen, that will drive value for the shareholders. It will drive dividend flows to the shareholders as we go forward. So, this is a very important aspect that we need to keep in mind. At the airport operating levels, because these are operating assets, the debt over there is taken care by the operating cash flows that come in those assets and they are quite fine as we speak forward because most of the capex now is completed and traffic is coming back with a bang, so that is the way forward.
You said that bulk of the capex is now over, so are you going to slow down on the expansion now? What is the capex and expansion plan from here on?
We are always looking for opportunities. But I think it is a parallel exercise. Our main focus is to strengthen our balance sheet and this corporate debt deleveraging is a major exercise in that direction. As we speak right now, the capex plan for Hyderabad is almost over. The expansion to more than 30 million passengers has been completed and as traffic continues to grow in that part of the country, you will see much better metrics emerging from Hyderabad and very interestingly you see Hyderabad has got revenue share of just 4% and hence we expect actually dividend flows to start happening by end of fiscal year 24 or fiscal year 25. That is our expectation as far as Hyderabad is concerned. Delhi also, we are in last leg of its completion of our capex. The capacity for Delhi airport is being taken up from 55 odd million passengers to about 100 million passengers. This is the last large capex that is being undertaken at Delhi airport with four different runways and cross-taxiway to improve the efficiency of aircraft movements.
So, once this is completed, which is expected by September-October of this current calendar year, we are on our way to scale up these businesses.
Government is pushing a lot of new airports. Will GMR bid for it, anything in the pipeline?
First of all, let me clarify over here it is not restructuring. In India, the word restructuring has a bad connotation because you go to lenders and you tell them that I do not have money to pay you, so restructure debt. This is a path forward to make our corporate structure leaner and meaner and make it far more efficient.
So a merger of a private entity, a platform entity in the list is not restructuring as such. It is to make the whole corporate holding structure far more efficient. To answer your question, are we looking for new airports? Yes, we are looking for new airports. In India itself, we have today two large airports which are under operation. Mopa has opened up, it is doing more than 10,000 passengers per day, it is already exceeding our expectations of traffic and right now, international traffic has not yet begun at Mopa. We are going to begin a development of a new airport in Bhogapuram which is Vishakhapatnam. That is going to start sometime during this calendar year itself. We are in the process of completing the project financing for that particular airport. And we have a small airport in Bidar. So there is enough on our table right now, but yet we will always be looking at opportunities to see how we can get into more airports within the country. It is the fastest growing aviation market in the world. It is a large market and as India’s economic growth gathers steam as per capita income goes above $2500, there will be an increase in movement and shift from rail travel to air travel and we want to capture that opportunity for sure.
The Kotak Report that has come out has compared GMR Airports to the airports of Thailand, making a case that it is valued as a perpetual business. So what is your take on the business valuation going forward?
No, I think Kotak has spoken, it has given various benchmarks and I really do not want to comment on that. It is a third party independent report as such. But the underlying theme is correct. If you look at EV/EBITDA multiples, we are probably the cheapest airport available on a platform level in India and India is a far bigger market than Thailand is. And again, like I pointed out to you, we are at that inflection point where most of our investments within India are completed, especially in the two large airports of Delhi and Hyderabad. So we are very, very uniquely positioned to give shareholder value as we go forward. So far, GMR Infra has been valued as a conglomerate, we have created a pure play and now we have merged these two entities to create a first pure play listed entity where the operating assets are very close to the shareholder then hence the expansion of the multiple is a given.
So let us wait and see. I think that is our focus and that is what I think some of the analysts on the Streets are also recognizing and I think the recent uptick in the stock price is also reflecting that.
What is the timeline of the fund flow from Group ADP and how exactly is the money going to be used?
The money of the FCCB, 2900 crores has already come in and it came in before 31st of March. And about 100 crores of the 550 crore earn out, that is also coming. So the total inflow of cash from Group ADP of 3000 crores has already come in. And in effect, actually, we are not only net debt zero but at the corporate level, there are surpluses which are there. So that action plan has already happened.
Any further monetization plans at perhaps the asset level of the whole co-company?
No, we are not looking for any monetization. We are only looking at improving our profitability and cash flows. At the airport level itself, at the asset level itself, we had already stated some time back that we could look at partnership at the asset level with some of the financial majors. And with respect to that, if you look at in Goa, we had signed an agreement with the Indian Sovereign Fund, NIF.
So we are open to at the asset level, we are not looking at monetizing any shareholding, either at the operating asset level, or at the hold company level, not at this stage.
