Asset capitalisation drags down GMR Infra profits in Q3

Losses incurred by GMR Infrastructure for the quarter ended December is primarily on account of heavy capitalisation of its airport assets and lower plant utilisation from its barge-mounted plant in Kakinada. Going forward, revenues from the airport assets in India and abroad can be expected to power earnings.

New assets

Sales for the quarter, expanded 27 per cent to Rs 1,360 crore, while EBITDA grew 10 per cent to Rs 381 crore. Higher depreciation as well as an 81 per cent increase in interest costs on account of debt for new assets resulted in losses of Rs 22.3 crore.

The airport segment was the top contributor with 46 per cent share in total revenues. The segment saw a 66 per cent jump in segment revenues, aided by the new T3 airport that commenced service. According to the management, non-aero revenues have seen a record jump this year at over 60 per cent of total airport segment revenues — a proportion considered desirable in airport business models. The company expects non-aero revenues to continue to buoy the airport segment. Passenger and cargo traffic at the Delhi airport grew at a healthy 12.5 per cent and 23.2 per cent respectively. The Hyderabad airport too, witnessed a strong 17.5 per cent growth in passenger traffic and also saw higher revenue from increase in user development fee for domestic and international passengers.

While the current pace of growth is encouraging, a new worry for GMR has come in the form of the Airport Economic Regulatory Authority's (AERA) recent order to regulate operator's revenue on the basis of ‘single till' approach. This system would take into account aero and non-aero revenues to determine returns of operators as well as airport tariffs. Reports state that players such as GVK Power & Infrastructure and GMR oppose this, as the model is said to cap operator's revenues and does not encourage them to invest in non-aero activities such as hotels, duty-free and other retail shops.

Further action in this space would be crucial especially for GMR's Delhi airport, which is beginning to derive high non-aero revenues. Besides, heavy debt incurred for the recent airport assets are likely to weigh in the consolidated balance sheet with debt-equity ratio hovering at over two times.

Stable power

GMR's revenue from its three operational power assets grew at a more modest 15 per cent. Any jump can be expected only on completion of its Vemagiri project expansion (77 per cent EPC work done). With a majority of revenues flowing through the Power Purchase Agreement (PPA) route, GMR, unlike a few other power asset operators, was not affected by volatility in merchant power tariffs. Receipt of private equity funding for this segment has also meant that ongoing projects can be completed without much debt-servicing.

GMR's road segment saw a 20 per cent drop in segment profits, probably a result of lower traffic. The company may continue to see sedate performance in this space until three more projects under development — including the Hyderabad-Vijayawada project — are completed.

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