GMR Airports stock: Jefferies initiates coverage, sees 15% upside, EBITDA likely to triple in 5 years

Brokerage firm Jefferies has initiated coverage on GMR Airports Infrastructure Ltd, giving a ‘Buy’ rating with a target price of ₹100. The price target suggests a possible increase of 15% from the current levels.

Jefferies says that GMR Airports is transitioning from a utility model to a retail consumption focus, poised to benefit from robust air traffic growth, expanded travel retail opportunities, increased aero tariffs, and the potential of unlocking real estate value.

Additionally, Jefferies suggests that further valuation increases will be driven by streamlining the group's corporate structure, improving leverage ratios, and the support from Groupe ADP.

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“GMR Airport is evolving from utility to a retail consumption play and is slated to benefit from the strong air traffic growth outlook, travel retail opportunity (led by top end consumption), upward reset in Aero tariffs and real estate unlocking opportunity. Further, ongoing simplification of corp structure, improvement in leverage ratios, ADP's backing will support rerating. Expect GMRI's EBITDA CAGR of 32% over FY24-FY27e,” the firm said in a note.

The company is the largest private airport operator in India and operates two of the busiest airports (Delhi/Hyderabad) and has a cumulative 27% share in pax traffic in India. The attractiveness of airports biz is primarily driven by the monopolistic business model, strong air traffic growth outlook in India, lucrative travel retail business potential and ability to monetize real estate.

The brokerage firm also expects PAT to remain positive in FY26 and leverage ratios to moderate. “We expect PAT positive in FY26 and leverage ratios to moderate (Net D/EBITDA to 4-5x FY26 vs 10-12x FY23/FY24e), as large capex related to DIAL/GHIAL is behind. ADP’s presence at strategic & board level will ensure fund-raising capabilities, project execution and bidding capabilities. Key risk: slowdown in air traffic, tariff order delays, adverse regulatory changes,” the firm added.

The significant increase in air traffic at Delhi airport from fiscal years 2025 to 2029, along with higher tariffs at Hyderabad airport and the implementation of new tariffs at Goa airport, will all contribute to the company's revenue and EBITDA growth from fiscal years 2024 to 2027.

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“The pax cap at Delhi Airport has grown recently from 66mn to 100mn and Hyd Airport is slated to increase from 12mn to 34mn. Recently commissioned (4.4mn cap) Goa Airport is amid ramp up. This could drive a 11% pax CAGR over FY24-FY27e. Further, we expect near tripling of Aero tariffs at Delhi Airport for next control period (FY25-FY29), higher tariff at Hyd, and new tariff at Goa Airport (w.e.f FY25) will all boost revenue /EBITDA growth over FY24-FY27e,” it said.

Shares of GMR Airports Infra have risen by 2.4% to ₹89.05. The stock has gained 10.6% so far in 2024 and has doubled in value over the past 12 months.