Kotak Securities Initiates Buy On This Midcap GMR Group Stock, Sees Strong Gains In 2023

Stock outlook & Returns on investment

The current market price of the stock is Rs 39.10 apiece on NSE, 0.28% up from its previous close. The 52-week low is Rs 31.75 apiece and the 52-week high is Rs 49.15 apiece, respectively. It has given 4.65% negative return in a week, and 3.35% in a month, respectively. Whereas, in 3 months, it gave a 10.64% positive return. However, in the past 1 year, it has given 15.86% negative returns. In 3 years, the stock gave 85.27% positive returns and in the past 5 years, it gave the highest 92.59% positive return. 

Group ADP may shift stake to listed entity, enabling GMRI to take out corporate debt sooner

In a recent meeting, GMRI shared the prospects of an earlier-than-FY2025 closure of its payout from Groupe ADP. It shared the business case of Groupe ADP converting its stake in GMR Airports (unlisted) into GMRI (listed) to benefit from the uptick in valuation of GMRI's valuation. We note that the difference in investment value for Groupe ADP in GMR Airports and its implied market value is equivalent to ~15% of market capitalization of Groupe ADP (Exhibit 1). In the scenario of Groupe ADP advancing such a development, it would be required to pay the deferred payout and an additional stake to GMRI. In our assessment, such quantum negotiated between the two parties can help GMRI take out its Rs20 bn corporate debt.

Retail concessions and asset monetization can help GAL take out standalone debt over time

GMRI also shared the impending end of the duty-free and cargo concessions in Delhi airport over the next two years. Though GAL benefits from stakes in JVs in such a context, it expects to bid by itself for these contracts from hereon-see Exhibit 4 for upside. It is relying on its good experience in the Kannur Airport JV where it went solo, experience as a JV partner and ability to procure goods in bulk for its portfolio, and related support of Groupe ADP. In our view, the fact that the bidding happens on a revenue share basis to Delhi Airport, wherein GAL is a majority shareholder also adds to GAL's ability to beat competition for the upcoming retail concessions. Separately, GAL will also benefit from the pending Rs13 bn proceeds of stake sale in Cebu and potential equity stake sale in 100% owned assets-Goa, Bhogapuram, and Nagpur. The recent infusion of Rs6.3 bn by NIIF in a pseudo-equity route in Goa and option of extending this to other airports of GAL lends confidence. In our assessment, a combination of the above factors can help take our GAL's ~Rs35 bn standalone debt over the next 3-4 years.

Asset-level funding already tied up for capex of top-3 projects; retain FV at Rs43

Kotak Securities has said, "Our assessment of cash flows suggest enough cash and EBITDA to take care of capex and interest cost of Delhi, Hyderabad and Goa airports for FY2023/24 (Exhibit 6). Large debt repayments start from FY2026, a limited issue given very long tail period of concessions. We retain our Rs 43 FV net of (1) a decline in FV linked to annual-report adjustments, and (2) an increase in FV due to the option value of retail concession for GAL."

Disclaimer

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