GVK or GMR: Who will weather the ‘no ADF’ storm better?

Riken Mehta, Shaheen Mansuri, Sagar Salvi

Shares of GMR Infrastructure and GVK Power & Infrastructure , operators of the Delhi and Mumbai international airports, have lost over 4% in the last three trading days after the aviation ministry decided to scrap the airport development fee (ADF).

ADF, collected from passengers as part of traveling expense, was being used to fund upgradation cost, expansion or development of airports. Both these infra majors have a cost over-run of at least 22% on either bureaucracy-related issues, ever-increasing raw material prices, and specifically case of Mumbai airport, which is still not complete, land acquisition related issues.

ADF charges have always been a major bone of contention between airport authorities and passengers, who were asked to pay as high Rs 600 on domestic and Rs 1300 on international travel.

But it is not only the operators who will lose out. The Airports Authority of India (AAI), which has 26% stake in both these airports, has made around Rs 5,000 crore via ADF. According to ministry, the authority will infuse additional equity, as per the agreement, through other means such as infra bonds.
The jury is still out on whether AAI can really help the heavily debt laden companies. GMR has around Rs 10,000 crore debt (airport segment), while GVK has approximately Rs 2,000 crore to repay to lenders with high cost of borrowing.

GMR and GVK, who need a gap funding of Rs 1,175 crore and Rs 4,200 crore, have been assured by the airport regulator that rates will be revised after assessing the financial impact and their ability to infuse more equity.

Perhaps, this could be the reason why both company stocks recovered today after a steep fall yesterday.

All in all, GMR looks much better placed than GVK in the medium-term in terms of airport business. GMR, which has already completed the Delhi airport modernisation, has started collecting user development fee (UDF). But GVK is still struggling with relocation of the huge slum alongside the airport. As a result, it is missing out on raising money via UDF, which can be collected only after the project is complete to ensure fair returns on the investment made in airport services.
Parameters GMR  GVK
Airport Delhi Mumbai
Traffic (mn PAX) 35.9 30.74
Cargo Tonnage (mtpa) 0.5 0.65
ATM (Air Traffic Movements) 317280 251512
Concession Period 30+30 yrs 30+30 yrs
Debt (Rs in Cr) 10000 2000
Revenue FY12 3574.29 597
PAT -557.5 106.39
Stake in Airports 54% 74%
Price Change Since IPO 9% -28%
Exposure to KFA 80 Cr 60 Cr

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