Edited Transcript of GMRI.NS earnings conference call or presentation 1-Aug-20 5:30am GMT

Aug 4, 2020 (Thomson StreetEvents) — Edited Transcript of GMR Infrastructure Ltd earnings conference call or presentation Saturday, August 1, 2020 at 5:30:00am GMT Centrum Broking Limited, Research Division – Analyst of Infrastructure and Airlines I now hand the conference over to Mr. Saurabh Chawla for the opening remarks. Thank […]

Aug 4, 2020 (Thomson StreetEvents) — Edited Transcript of GMR Infrastructure Ltd earnings conference call or presentation Saturday, August 1, 2020 at 5:30:00am GMT

Centrum Broking Limited, Research Division – Analyst of Infrastructure and Airlines

I now hand the conference over to Mr. Saurabh Chawla for the opening remarks. Thank you, and over to you, sir.

Saurabh Chawla, GMR Infrastructure Limited – Executive Director of Finance & Strategy and CFO [2]

Thank you, and good morning to everybody. I welcome you all to the annual results call for fiscal year ’20. I hope everybody is safe. Their families are safe, and I pray that everybody remains safe.

It is an indeed a challenging time for our country and the world, given these unprecedented COVID pandemic conditions. And as you know, the government of India has locked up — enforced lockdown from March 2020, which was extended to June 2020 to control these conditions. The lockdown had an adverse impact on the group businesses, airports, energy and highways. However, the good news is that the businesses are all on a recovery path.

Let me brief you on how our business is adapting and realigning to the current conditions. To start with, on the Airport side, restrictions on operations of domestic flights are lifted on May 25, 2020. The airports were closed from March 25 to May 24, 2020 except for cargo and evacuation plus special flights for passengers. Scheduled commercial international flights continue to be suspended till further notice.

Our some of key developments, which should be — which has had a positive impact on our business in these troubling times (inaudible) are, one, the Vande Bharat mission which the government of India started early May 2020. (inaudible)

and very recently announced is the establishment of air bubbles. The Ministry of Civil Aviation established bilateral air bubbles between U.S., France, Germany and India on July 16. Air bubbles are arrangements between 2 countries aimed at restarting commercial passenger services. More air-bubbles are expected to come up in the near term.

Thirdly, (inaudible) is the induction of Test-on-Arrival or pre-embarkation (inaudible) across international airports. International airports like Heathrow Airport have initiated COVID-19 Test-on-Arrival or pre-embarkation, based on new testing technology which actually give results in 20 minutes with 98% accuracy, for passengers which could provide solution for safe travel. I don’t know if you notice this, (inaudible) also talked about India Israel initiative and they’re testing this in a day so air fresh can be provided in 2 minutes and with high accuracy. These initiatives will actually help (inaudible) our efforts in the very near future. (inaudible) for approval. And all these technologies will ensure that it will bring the confidence level back to the lockdown that is traveling safe.

As I said this, I would still like to reiterate that actually the aviation or air travel is the safest form of travel. It has very, very low-risk of transmission. It’s been observed through various studies compared to other mediums of transport. (inaudible) fresh air and also internal air which is filtered through HEPA filters. So I think there’s very disciplined way of maintaining hygienic conditions whether…

(technical difficulty)

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Operator [3]

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Mr. Chawla, this is the conference operator. I’m so sorry to interrupt. Sir, we just noticed the audio is not very clear. Allow me a few seconds, I will just reconnect you, sir.

Requesting all the participants to please stay connected. We are just trying to reconnect Mr. Chawla. Requesting you all to please stay online. Please do not disconnect your lines while we have the line reconnected for Mr. Chawla. Requesting all the participants connected for the GMR call please stay online. We will just try to reconnect the chairperson back to the conference. Thank you.

(technical difficulty)

Ladies and gentlemen, thank you for patiently holding the line. We have the line for Mr. Chawla reconnected. Over to you, sir.

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Saurabh Chawla, GMR Infrastructure Limited – Executive Director of Finance & Strategy and CFO [4]

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I don’t know where I left. But basically, I was alluding to the fact that air travel is the safest form of travel. And as customers, as flyers gather confidence based on various technologies and processes that are adopted by the airport operators and by the airlines, we will see this sector come back much faster than all the kind of analysis that has been seen in the public space till now.

So in summary, what I would say is that the airports are back on a recovery path post the lockdown, and this has been currently primarily led by the domestic traffic.

Coming to specific airports, I’ll talk about the Delhi Airport. Delhi Airport, daily average, which was recording at about 13% of pre-COVID levels in the first week of reopening, has now improved to about 17% in the ninth week, whereas domestic average ATMs, which were at about 24% in the first week, have now improved to about 28% in the ninth week. As a matter of fact, yesterday, both Delhi and Hyderabad actually received the new highs post the COVID crisis.

International traffic, passengers and ATMs have improved from about 14% and 19% of pre COVID to about 3 — from a pre-COVID level up about 3% to 5%. On the other hand, the cargo domestic daily average which was at about 17% pre-COVID levels for the first week has improved to 41% during the ninth week. Cargo international daily average tonnage, which was at about 48% at pre-COVID levels for the first week has improved to 78% during the ninth week, and this is for Delhi Airport.

In Hyderabad, domestic daily average passenger flow is — which was at about 8% of pre-COVID levels for the first week has now improved to 24% in the ninth week. And the daily average ATMs are now at about 33% from about 11% in the first week. Cargo domestic daily average tonnage improved from about 8% of pre-COVID levels in the first week to 54% in the ninth week. So overall, the whole business is coming back to life. And as technologies and innovations around us continue to improve and as they get adopted, we believe and we anticipate strong recovery in the air traffic back to — within fiscal year ’21 back to the pre-COVID levels.

Mind you that government till now actually has only allowed 33% capacity, domestic capacity for airlines. Very recently, they have increased it to 45%. So as airlines also gear up and as passengers gear confidence, capacities will be further opened and that will bring business back to the airports.

On the Energy business, which falls under essential services as notified by Ministry of Power, they continue to supply power supply even during lockdown, but now it is also seeing positive traction. PLF at both our Warora and Kamalanga plants, which were at 49% and 52% during April 2020 have now improved to 82% and 69% in July 2020. Good news is that on providing the — good news is that also on providing liquidity by the government. As you know, this sector suffers from a lot of receivables — overdue receivables from the Discoms. So the government has taken some positive actions towards that. And hopefully, as receivables levels go down, the overall health of the energy sector will improve.

The Ministry of Coal has also accepted Usance Letter of Credit as a payment mechanism. That is also very helpful from the supply of coal to the power plants. Additionally, we believe that about INR 900 billion of liquidity is going to be injected for Discoms, and the government will also help in expediting the recovery of the receivables.

On the Highway business, we are seeing momentum back, Hyderabad-Vijayawada and Ambala-Chandigarh expressways recorded 85% and 75% traffic as compared to pre-COVID levels in July 2020. Revenues in the remaining 2 projects are not impacted as they are annuity projects.

I would also like to take this opportunity to share some positive news of the Highway business. We have made significant progress on the arbitration claim settlements with respect to our key road projects, Hyderabad-Vijayawada and Chennai ORR. We expect the award to materialize in the near future.

GMR as a group is continuously adapting to the situation. We are focused on following measures to mitigate the challenges posed by the COVID conditions and the key one is cash conservation. We are conserving cash very aggressively. We have rescheduled our CapEx plan. We have slashed down our operating expenses. We are consolidating our infrastructure, especially in airports, to reduce operating costs. For example, in Delhi, we had closed Terminal 1 and Terminal 2 and are operating both domestic and international flights from Terminal 3. We are reviewing our budgets very ruthlessly and reducing operating costs substantially. But this is not at the compromising — to compromise on the security and safety of investors. So we continue to actually invest in new technologies and new processes to actually bring much better standards of hygiene at our facilities.

During the first quarter of fiscal ’21, we also achieved a major feat of our strategic partnership with Groupe ADP. As you are aware, we have successfully completed the strategic partnership with Groupe ADP even in unprecedented time of COVID-19 pandemic.

Everybody, most of the capital market players were expecting that this deal may not go through. But thanks to our partners and their firm commitment and their belief in GMR, this transaction really got completed. We have received the first tranche on February 26 for an effective ownership of 24.99%. And only recently, we got the second tranche for the investment of the balance 24.01% of GAL. The second tranche of INR 4,565 crores includes INR 1,000 crores of primary equity infusion in the platform airport which is GAL, which received on July 7.

Given that the airports are all shut across the world, it was commercially agreed that it is prudent to defer some part of the proceeds of the transaction in the form of an earn-out. So it’s more like a deferred payment. So about INR 1,000-odd crores was deferred, and they were deferred up to between 2022 to 2024. And basically, they are pegged into kind of earlier earn-outs, which now total about INR 5,535-odd crores. So over the next 3 to 4 years, we are expected to receive substantial amounts of money through the achievement of these earn-outs.

Post the second tranche of completion, now Groupe ADP owns 49% in GMR Airports. As part of the terms of the transaction, GMR retains management control over the Airport business. The proceeds from the strategic partnership have been primarily reduced — are primarily used in servicing the debt and purchase of private equity investors in GAL. The infusion of cash will help further deleverage the group and result in improved cash flows and profitability over the medium term.

Completion of this transaction is now leading us to our next step. We had alluded in March-April of 2019 that we would like to create pure-play businesses, especially the Airport business and put it into a different vertical. And hence, we are looking towards a mirror demerger of the Airport business from the rest of the business. In the recently concluded Board meeting, we presented various options to the committee of the Board. The Board has asked us to look at many other possibilities to — on which the management will work and go back to the Board for their evaluation and recommendation.

Two structures are being evaluated. One structure is where it’s a mirror demerger which results in 2 entities, the Airport and Nonairport. Another structure has been also evaluated, which actually converts into 3 different entities, which is Airport, Energy and Highways. So basically create pure plays, which gives a lot of flexibility to not only raise capital for deleveraging, but also to even get strategic players to participate in that.

The key — as I said earlier, the key criteria for demerger would be for creation of the pure plays, thereby attracting investors or strategic players. We are on the right path, of course, to build our airport portfolio in partnership with ADP. Recently, we signed the concession agreement for the development and operations of the greenfield international airport at Bhogapuram in Andhra Pradesh with the government of Andhra Pradesh. The concession period is of 40 years and extendable by additional 20 years through international competitive bidding process, with GMR Airports having a RoFR of 10%.

I would also want to share a positive development on our unsolicited proposal submitted in March 2018 (inaudible) comprehensive capacity enhancement at Ninoy Aquino International Airport in Manila. Manila International Airport Authority, the project implementing agency, has granted GMR Megawide Consortium an Original Proponent Status for developing the Ninoy Aquino International Airport.

The platform is well positioned to capitalize on evident growth opportunities for further privatization of airports in India and other regions. In India, there are a lot of opportunities on the anvil. The government of India has cleared 6 projects for bidding, Bhubaneswar, Indore, Varanasi, Amritsar, Raipur and Trichy. For Chennai, second airport, RFP consultants have been released. Internationally also opportunities are on the rise. As matter of fact, this COVID condition will accelerate lot of privatization of airports across the world.

The presentation with all the financial numbers are already with you, and I look forward to highlight and respond to them during the quarter — during the Q&A session.

At this juncture, I would like to open the forum for the Q&A session. I have my colleagues, both from the corporate and from the businesses who would be — who will be more than willing to answer your specific questions. I just urge you that you keep the questions at a high level and any micro balance sheet or P&L-specific questions can be taken offline with our IR team, with Amit Jain and his team members. Thank you so much.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We take the first question from the line of Atul Tiwari from Citigroup.

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Atul Tiwari, Citigroup Inc., Research Division – VP & Analyst [2]

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Sir, my first question is on this earn-out mechanism. So how does it exactly work? So this INR 5,500 crores of earn-out, so that money comes to GMR Infrastructure as cash if you hit those milestones or your stake in the GMR Airport goes up? And if it is the stake going up, then assuming you are able to earn all of this earn-out, what can be the maximum stake? And what are the some of the milestones? What kind of milestones are we talking about? What do they exactly relate to in this?

(technical difficulty)

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Saurabh Chawla, GMR Infrastructure Limited – Executive Director of Finance & Strategy and CFO [3]

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Hello? Can you hear me?

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Operator [4]

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Yes, sir, we can. Well, members of the management, we have the question on line.

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Saurabh Chawla, GMR Infrastructure Limited – Executive Director of Finance & Strategy and CFO [5]

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Hello? Can you hear us?

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Operator [6]

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Sir, we can hear you now.

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Saurabh Chawla, GMR Infrastructure Limited – Executive Director of Finance & Strategy and CFO [7]

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Okay. So from an earn-out perspective, I think in the first closing that we had with ADP, the earn-out amount was about INR 4,500 crores. It was basically achievement of certain milestones related to real estate and development related to certain regulatory announcements and interpretations, which — where there were differences. And hence, there was a delta in the valuation side, which between the 2 parties we had agreed. So the structure, I think the first one is structured in a manner in which we will get additional equity in the platform, which is GAL. So currently, we are 51%. If we achieve all the earn-outs amounting to about INR 4,500-odd crores, which was agreed in the first — in the first ADP closing, we will — our equity will increase from 51% to about 58%, that’s number one. We, of course, always have the opportunity to monetize that additional 7% and bring ourselves down to 51% if we choose to.

The second earn-out which has been agreed in the second closing is primarily linked to achieving certain EBITDA numbers, which are EBITDA numbers for fiscal year ’22, ’23 and ’24. Those are specific EBITDA thresholds that we have agreed with ADP. And any percentage of achievement of the EBITDA for that fiscal year, the same proportion of cash will get released for GMR. So it’s — in the second earn-out, it’s primarily cash that we will receive because that was the understanding, whereas in the first one, we will get equity. That’s the broad difference between the 2.

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Atul Tiwari, Citigroup Inc., Research Division – VP & Analyst [8]

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Okay. And sir, for the first round, so you said that it’s a combination of real estate and regulatory announcement. So any rough idea how much does that relate to the regulatory announcement? Asking because the real estate obviously is under your control, but the regulatory announcements is not under the control of the company strictly. So any rough bifurcation, how much does it relate to operational/real estate development? And how much is the regulatory announcement?

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Saurabh Chawla, GMR Infrastructure Limited – Executive Director of Finance & Strategy and CFO [9]

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So if I remember correctly, there are about 7, 8 different triggers. So I won’t be able to give you very accurate. But I would say about 40% would be regulatory related, 40-odd percent, and 60% would be business related. That’s how I would put it.

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Atul Tiwari, Citigroup Inc., Research Division – VP & Analyst [10]

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Okay. And sir, my final one is, after the second round of money came in, in July, at the GMR stand-alone level, how much is the gross debt and net debt currently?

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Saurabh Chawla, GMR Infrastructure Limited – Executive Director of Finance & Strategy and CFO [11]

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Hello?

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Atul Tiwari, Citigroup Inc., Research Division – VP & Analyst [12]

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Sir, my second question is after the second round of money came in, how much is the gross and net debt at the parent company level, GMR Infrastructure stand-alone?

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Saurabh Chawla, GMR Infrastructure Limited – Executive Director of Finance & Strategy and CFO [13]

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You’re talking about the corporate debt?

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Atul Tiwari, Citigroup Inc., Research Division – VP & Analyst [14]

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Yes, corporate debt, sir.

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Saurabh Chawla, GMR Infrastructure Limited – Executive Director of Finance & Strategy and CFO [15]

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So if I go to the presentation to give you exact number, you’re talking about when — as on March 31, or you’re talking about currently?

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Atul Tiwari, Citigroup Inc., Research Division – VP & Analyst [16]

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Currently after the money was received for the second tranche of ADP.

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Saurabh Chawla, GMR Infrastructure Limited – Executive Director of Finance & Strategy and CFO [17]

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So I don’t have readily available the numbers for the, let’s say, June 30 because our preparation for the call was actually for the March 31. I can — Amit, would you have the numbers for the June 30?

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Amit Jain, [18]

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The June numbers, we don’t have — we are not disclosing it right now.

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Saurabh Chawla, GMR Infrastructure Limited – Executive Director of Finance & Strategy and CFO [19]

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Okay.

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Atul Tiwari, Citigroup Inc., Research Division – VP & Analyst [20]

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Okay, sir. No worries. I will take it later.

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Saurabh Chawla, GMR Infrastructure Limited – Executive Director of Finance & Strategy and CFO [21]

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So broadly, just to again highlight the — all the cash that we are getting, so whether it’s INR 4,500 crores in the second tranche, INR 1,000 crores, of course, will go to GAL, but INR 3,500-odd crores coming in the second tranche will again go for debt reduction only. So there is no other debt reduction and debt servicing. So I mean, obviously, there’s accrued interest also associated with it. That is where the primary purpose of monetization of this investment in the GAL platform.

So numbers, I mean, we have the 31st March numbers, you can — broadly be that 3.5 from that on the corporate side of it.

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Operator [22]

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We take the next question from the line of Mohit Kumar from IDFC Securities.

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Mohit Kumar, IDFC Securities Limited, Research Division – Analyst [23]

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I had 2 questions primarily. The first one is on, again, on the debt numbers. The debt from Q3 FY ’20 to Q4 FY ’20 hasn’t seen a substantial reduction despite having — got the Groupe pay at least first tranche of investment. So can you please throw some light on the same?

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Saurabh Chawla, GMR Infrastructure Limited – Executive Director of Finance & Strategy and CFO [24]

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Your question was not very clear. We’ve not seen substantial reduction. That’s what you’re saying?

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Mohit Kumar, IDFC Securities Limited, Research Division – Analyst [25]

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Yes, sir. Substantial reduction of Q3 to Q4 FY ’20. Q3 FY ’20, the gross debt was INR 322 billion. And by the end of Q4, it was INR 321 billion, as per the presentation.

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Saurabh Chawla, GMR Infrastructure Limited – Executive Director of Finance & Strategy and CFO [26]

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Yes. So the monies that were received from Groupe ADP for the first tranche, that was broadly about INR 5,250-odd crores. And from that, if I were to take out the purchase of fee which was not debt, but it was the private equity people that was about INR 350 crores. And the balance was, again, primarily used to free up the debt, which was there as on 1st of January. The number that went up slightly is because we took fresh loan also subsequent to the closing of the first ADP transaction. So [we got again back into the mode of it.] And in order to shield ourselves and keep ourselves secure, we secured additional debt which eventually actually got paid down in the second closure. So it was kind of a bridge loan to the second closing. And that’s why if you were to look from third quarter to the fourth quarter closing, you will not see a big number. But when you see the closing that is coming on June 30, that you see some reconciliation of that number.

Last but not the least, this also does not — your numbers does not include some of the intra-group payables. So the cash was utilized again when GAL stopped being 100% consolidated entity into GIL and at that time of the first closing, certain intra-group payables are also settled. So that will be a small difference which you will see when you see the reconciled numbers then.

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Mohit Kumar, IDFC Securities Limited, Research Division – Analyst [27]

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Okay. Understood, sir. Sir, my second question is on the — given this fact of COVID, is there a rethink on the cap expenditure and time line of the Delhi Airport and Hyderabad Airport and has there been any discussion with the regulator on the same?

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Saurabh Chawla, GMR Infrastructure Limited – Executive Director of Finance & Strategy and CFO [28]

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So I’ll give this question to G.R.K. Babu, CFO, to give this answer.

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Gadi Radha krishna Babu, Delhi International Airport Limited – CFO [29]

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If I understand the question, you are talking about the DIAL?

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Mohit Kumar, IDFC Securities Limited, Research Division – Analyst [30]

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No, I’m talking about Delhi Airport expansion program and Hyderabad Airport expansion program. Given that there’s COVID, given that the passenger demand is quite low right now, is there a rethink on the cap expenditure time line from the — on the Delhi Airport and the Hyderabad Airport? And has there been any discussion with the regulator?

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Gadi Radha krishna Babu, Delhi International Airport Limited – CFO [31]

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No. I think we have not discussed anything with the regulator because we are not foreseeing any maximum delay. There is not much delay except for the period of 5, 6 to 9 months. Other than that, we are not expecting any delay in completing the project.

At the same time, if you look at the DIAL, CT3 has already been released by the regulator. They have already acknowledged with the expansion of the DIAL, and they have given the time up to March 2023. So it was already recognized there.

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Mohit Kumar, IDFC Securities Limited, Research Division – Analyst [32]

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Okay. Sir, last question, what is the kind of CapEx required in Bhogapuram and the international airport which you won in the recent quarter? What are the time lines?

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Gadi Radha krishna Babu, Delhi International Airport Limited – CFO [33]

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Bhogapuram Airport and their concession agreement is yet to be signed. I mean the details are being worked out. But we will have a 6-month time from the date of signing the current financial closure. Thereafter, within 3 years, we have to complete. Even if we expect by March the financial closure is completed ’21, that means by ’24 we are supposed to complete. The project cost is under consideration.

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Mohit Kumar, IDFC Securities Limited, Research Division – Analyst [34]

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What about the Ninoy Aquino International Airport?

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Gadi Radha krishna Babu, Delhi International Airport Limited – CFO [35]

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Sorry?

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Mohit Kumar, IDFC Securities Limited, Research Division – Analyst [36]

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What about the Manila International Airport?

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Gadi Radha krishna Babu, Delhi International Airport Limited – CFO [37]

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Manila International Airport is — I think what Saurabh has explained (inaudible) is a proponent. It is — it has to pass the February 11. It is only a proposal. It’s very early stage right now.

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Operator [38]

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We take the next question from the line of Aditya Mongia from Kotak Securities.

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Aditya Mongia, Kotak Securities (Institutional Equities) – VP [39]

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Am I audible to you?

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Saurabh Chawla, GMR Infrastructure Limited – Executive Director of Finance & Strategy and CFO [40]

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Yes.

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Aditya Mongia, Kotak Securities (Institutional Equities) – VP [41]

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The first question that I had was, if you could give some sense — can you give some sense on passengers on how they have fared with pre-COVID level? Could you give some sense of non-airway you could have fared in a similar way? What I’m essentially trying to get is — kind of feed through is while the number of passengers coming today are small, what is the kind of spending trends that you are seeing?

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Gadi Radha krishna Babu, Delhi International Airport Limited – CFO [42]

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The spending level — I mean, the passenger as of today, Saurabh has already mentioned, and really to convert into numbers, today, Delhi Airport, we’re seeing almost around 38,000 to 40,000 passengers per day and Hyderabad is looking at 12,000 to 15,000. It is ranging.

The spending, we are not seeing much change. But the only thing is the people who are actually spenders are continuing to spend. Actually, there is [one, by accident] spending by the people. But the penetration is not that much and we are just looking at it, how we increase the penetration.

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Aditya Mongia, Kotak Securities (Institutional Equities) – VP [43]

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Okay, sir. So your line was not very clear, but what you said was that the spending is similar, but the penetration is not as good as it was earlier?

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Gadi Radha krishna Babu, Delhi International Airport Limited – CFO [44]

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Yes. That’s correct. The impression is the people were — they are spending — actually, they are spending much more than that. Actually, we are keeping the ticket value higher. The only thing with penetration, we are just looking at it how to make penetration more. I think we are making all efforts to improve that social distance is maintained and all the precautions are available, so that the comfort level goes up for the passengers and (inaudible). Today, they have more facility available for spending at airport rather than in markets where you have to go into the mall. I think this is a better area, and we have seen a very good especially movement in the Delhi Airport and Hyderabad is also picking up much faster.

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Aditya Mongia, Kotak Securities (Institutional Equities) – VP [45]

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Sure, sir. The second question which I had was there is a thought process that airports may eventually benefit in terms of passengers who otherwise thought it was fine to travel by rail now think it is safer to travel by air. What I’m essentially trying to kind of get from you is that, a, what needs to be done to accelerate this process from, let’s say, airlines and airports? And you may be working in tandem on that. And b, in terms of nonair, do you see any meaningful changes in our strategy going forward, given that there may be more passengers with the, let’s say, limited ability to spend versus earlier?

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Gadi Radha krishna Babu, Delhi International Airport Limited – CFO [46]

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I think there are more general questions, but with regard to the passengers, especially how to increase and especially people traveling by train going to be air travel, we are observing that there is a good growth of number of people. The only thing is now because of the (inaudible) Chennai, Bangalore and Mumbai and Kolkata, that is where the passengers are finding it difficult to travel. That’s why the routing has happened. What we are expecting is once these lockdowns go away, the passenger traffic will bounce back much faster than what we are expecting. Because as you rightly pointed out, people traveling by train are mostly preferring to go by air. We are already observing the profile of the passengers.

Regarding the spend, of course, we are just looking at it how to increase upon. I think we won’t be able to give much guidance on that as of now.

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Aditya Mongia, Kotak Securities (Institutional Equities) – VP [47]

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Sure, sir. The last question that I had was on the corporate debt. So I’m just talking about the net debt numbers and the corporate debt implied by the pie that you shared. From 3Q to 4Q, it does appear that the decline has been a modest INR 3,500 crores, what was INR 9,000 crore debt at the end of 3Q, corporate debt, including the — has become INR 5,600 crores. However, the payment that you received was much larger. So I’m just trying to get a sense of how to kind of take the sense. How to see through why the declining debt on the corporate level is lower and much lower than the pay out that happened?

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Saurabh Chawla, GMR Infrastructure Limited – Executive Director of Finance & Strategy and CFO [48]

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Well, I — Hello?

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Aditya Mongia, Kotak Securities (Institutional Equities) – VP [49]

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Yes, you are audible, please go ahead.

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Saurabh Chawla, GMR Infrastructure Limited – Executive Director of Finance & Strategy and CFO [50]

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Yes, so as I alluded earlier, there was a component of intra-group debt also in that corporate debt, okay, which apparently because of consolidation was not fully, fully visible. So what we received from Groupe ADP was a number which is about INR 5,250 crores. Out of that, about INR 3,600-odd crores was used to pay down the debt immediately because that was the debt in the legal entity called GISL, okay? And there was a purchase of PE of about INR 1250-odd crores. So if you were to total this, you’ll come to about INR 3,600 crores and INR 1,250 crores, would take it to about INR 4,850 crores, right? Another about INR 400-odd crores was the accrued interest and other transaction expenses and things like that. And the balance number is what GISL actually also paid down the group entities because of the transaction in which GISL was going to become our Groupe ADP entity. That’s how the primary money came up. So that is a delta number which is there, which is where you are finding that gap. So what I would request is maybe Amit can give you offline detailed breakup as to why that number has not come out.

Last but not the least, we, of course, again, took some debt, as I said to you earlier, to shore up our cash and ensure that we see through this COVID crisis till we have the second closing done. So that was additional debt that was taken and that’s just after the closing of the ADP transaction.

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Operator [51]

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We take the next question from the line of Ashish Shah from Centrum Broking.

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Ashish Shah, Centrum Broking Limited, Research Division – Analyst of Infrastructure and Airlines [52]

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So my first question is on any deferments that we might have given to the airlines. I mean, what we understand is that probably the airlines are not able to pay the charges for the operations. So if you can throw some light on what are the kind of deferments and the terms? And when are we expecting those deferments to unwind? And second, linked to this, is there any possibility or any thought in the government to also give us a deferment on our revenue share, which can help us have better liquidity in these difficult times?

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Gadi Radha krishna Babu, Delhi International Airport Limited – CFO [53]

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Deferment to the airlines, we have not given, neither in Delhi nor in Hyderabad, (inaudible) were parking and passenger fee. There was no directive from the government nor — though there were some requests from the airlines, but (inaudible). We do not have any issues. Air India only some delays are there, but (inaudible).

Regarding possibility of getting the deferment of the annual fee payable by this time, we have made a request, and they have asked for a Board resolution to be given. We have not yet heard, but (inaudible) has already got for a period of 3 months. So we are also expecting to get for period of 3 months for the deferment of payment of the annual fee. That is as far as the DIAL is concerned.

In case of the high — the payment of the revenue share of deferment, which is payable to MoCA, we have already got 4 months extension of time up to October 31.

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Ashish Shah, Centrum Broking Limited, Research Division – Analyst of Infrastructure and Airlines [54]

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Okay. And just a last one on the Kamalanga sale. So now that it has been sort of called off at this moment, any thoughts on when do we expect to have another transaction in place? Or at this moment, we don’t think it will be feasible to go ahead with that sales process?

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Saurabh Chawla, GMR Infrastructure Limited – Executive Director of Finance & Strategy and CFO [55]

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Well, I think, purely, why the transaction has not happened reflects in the corporate communication itself. In the COVID conditions, everybody wants to be a little conservative on the growth and have a conservative balance sheet. So we are obviously open to all possibilities and including the possibility of post-demerger exercise as in turn it is approved by the Board, can we look at doing something else strategically. So those are possibilities which are there. From an operating perspective, plans are doing much better than what they were earlier and — as the government continues to bring reform in the sector, as money starts to flow from the Discoms, the business will only become healthier.

So while it is still a noncore business for us, but clearly, from — why does it used to have on our balance sheet and on our P&L as that gets mitigated. And we will still continue to look for opportunities in different listed entity through a demerger process or getting a strategic player or selling off those assets. Those are something which we’ll continue to look at. But nothing in any defined time line. So I don’t want to raise any expectations. It’s still noncore, but that’s where it is.

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Operator [56]

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We take the next question from the line of Atul Tiwari from Citigroup.

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Atul Tiwari, Citigroup Inc., Research Division – VP & Analyst [57]

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Sir, I wanted to understand the impact of current reduced passenger volumes in the airport. So is it fair to assume and is the regulatory situation clear that the current under recoveries that the airports are doing, in Delhi and Hyderabad, on account of the aero revenue that regulator will compensate for when the next round of tariff setting happens? Or is it still an open question? Because in some of the other sectors like power, we have seen government asking the companies working on regulatory mechanism to give discounts to the customer. So that is one. And the second one is on Hyderabad. So after the new tariffs kick in, any rough idea what is the impact on per passenger yield currently? So the number of passenger is down. But in terms of the per passenger yield, how much is the difference versus the earlier tariff?

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Gadi Radha krishna Babu, Delhi International Airport Limited – CFO [58]

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When it comes to the tariff, I think that airports (inaudible). In case of the airport, as of now, it is basically a target revenue control period. And that is the way the number of passenger to get (inaudible). Right now, Delhi is operating at these airports (inaudible). And the third control period tariff determination is under the process. Our regulator has already asked also what are they view — they have asked for the views of all the stakeholders, how the traffic and the ATMs are going to pan out for the next 3, 4 years.

Basing on that, the tariffs are required to go up or there is no option. But the only thing is maybe a time line, they may give little breather to the airlines which we are not aware as of today. But our target revenue is a basis and yield for constraint that will go up if the traffic comes down. That is the fundamental principle, it is not same.

As far as Hyderabad is concerned, we have implemented the second control period tariff on April 1, 2021. As per the DGCA, if you see the tariff order, the yield per passenger has been mentioned as INR 209 per passenger excluding (inaudible). So because of the fall in the number of passenger, our revenues keep coming down, but this amount of the shortfall (inaudible) in the current control period which we are expecting from 1st April, 2021 onwards. For that necessary application is just filed with the regulator.

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Atul Tiwari, Citigroup Inc., Research Division – VP & Analyst [59]

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Okay. So sir, on this Hyderabad one, you said — so from the 1st April, roughly the yield per passenger is about INR 209. And how much was it previously? I mean from what level it has come down to INR 209?

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Gadi Radha krishna Babu, Delhi International Airport Limited – CFO [60]

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INR 430, that has come down by half. And we have come down because the regulator said there wasn’t (inaudible). That’s why we have agreed upon for this. And these tariffs are valid only for 1 year up to March 2021. In the meantime, as I explained, the third control period application has already been filed for the regulator in the last month for a period of…

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Operator [61]

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We take the next question from the line of [Sarita] from Lalkar Securities. As there’s no response from the current participant, we take the next question from the line of Mohit Kumar from IDFC Securities.

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Mohit Kumar, IDFC Securities Limited, Research Division – Analyst [62]

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Yes, my first question is the does the over-recovery in Delhi Airport for the second control period. Of course, I understand that this to be limited by base charges in the third control period, does this over-recovery gets carried over to the fourth control period to determine the tariff?

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Gadi Radha krishna Babu, Delhi International Airport Limited – CFO [63]

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So you are talking about the excess recovery of the tariffs in second control period. If you look at it in computation paper for third control period, they have completely recovered in tariff. So they have adjusted INR 57 billion in over-recovery after giving the benefits provided by the previous VAT is like return on (inaudible) and some other returns, which they have already provided and brought down the amount of excess recovery to INR 57 billion on NPV basis as on 1st April, 2019. So entire excess recovery of second control period is totally set off, as everything is completed.

Coming to third control period, which the consultation paper is out on which now we are submitting our (inaudible) by July 31, those, we have considered the entire CapEx program and everything, but we have considered only pre-COVID levels (inaudible), which are not valid as of today. That is the reason why the regulator has asked for review of all stakeholders on the traffic as well as ATM. Based on that, the tariff will be determined, whereas the target revenue has been finalized, the tariff per passenger will go up because if the traffic comings down. And though they have mentioned there is a — there will be an excess recovery in third control period because of (inaudible) but because of decreased COVID level traffic. But considering the post level of traffic, we are not expecting any excess recovery in the third control period.

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Mohit Kumar, IDFC Securities Limited, Research Division – Analyst [64]

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Okay. Sir, I’ll take it offline, sir. Second, my second question is this — of course, we spoke about the demerger of GMR Group to — for in the airport and nonairport business. Is there some kind of time line or some kind of time line tentatively you can speak of? This is the time when we’re looking for like fiscal year-end or calendar year-end?

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Saurabh Chawla, GMR Infrastructure Limited – Executive Director of Finance & Strategy and CFO [65]

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So I answer what are the steps required to provincial listing of these businesses. So at this stage, it’s still quite preliminary. We have to first satisfy our committee of the Board, which is looking into the matter. Hopefully, I think we should be able to give you a much better guidance in our first quarter — post our first quarter Board meeting, when the Board will again — the committee of the Board will again review what are the possibilities. So at this stage, I won’t say that it is — for sure, it is not — the completion will not happen within this current fiscal year. It will surely grow into the next fiscal year if we are able to file for the closure around maybe by September or October. But again, these are decisions yet to be taken. So it’s a completion probably, which will happen in fiscal year 2020 or 2021 if we were to get the approval from our Board.

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Mohit Kumar, IDFC Securities Limited, Research Division – Analyst [66]

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The broad increase — but in case you get the approval, the filing may happen by September/October. Am I right?

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Saurabh Chawla, GMR Infrastructure Limited – Executive Director of Finance & Strategy and CFO [67]

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No. Don’t put words into my mouth, my dear friend. What I said is that we have to go back with our analysis and findings to the Board, the committee of the Board, which will meet, I think, by end of August or early September for the Q1 results. And I would be able to give you a much better guidance and much more accurate guidance then as to when the filing can happen if approved by the Board. So that’s what I’m trying to give you. So even if I — in the best case scenario, the Board approves and we do file, let’s say, by end September, October, it is still not a fiscal year ’21 completion, it is a fiscal year ’22 completion. So that’s what I’m trying to highlight.

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Operator [68]

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We take the next question from the line of Aditya Mongia from Kotak Securities.

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Aditya Mongia, Kotak Securities (Institutional Equities) – VP [69]

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The question that I had was just to get a better sense of future prospects and the ability of GMR to be bidding for them. Now in your opening comments, you did talk about certain projects that we are starting on Bhubaneswar, Indore, Varanasi, Amritsar, Raipur, Trichy and Manila. Now further other opportunities to add more assets, could you give some sense of where the funding can come from? And it would be useful if you could highlight in some ways, what Groupe ADP thinks about supporting the JV in terms of funding?

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Saurabh Chawla, GMR Infrastructure Limited – Executive Director of Finance & Strategy and CFO [70]

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So let me answer your second question first. Groupe ADP is very supportive of all the initiatives and growth initiatives, whether it is in India or it is in Asia, that’s where our focus is currently. Having said that, if you look at Groupe ADP, they are also quite conservative from their financial — from the leverage and their outlook. So whilst they fully support on the growth, I’m sure they will take a considered decision as and when opportunities arise. So it’s a combination, honestly speaking, between a very entrepreneurial entity called GMR versus a very process-oriented entity called Groupe ADP. And hopefully, I think we will have the right marriage to take forward any new initiatives.

Secondly, any of these initiatives that we are talking about, even if you look at Bhogapuram, I mean it’s investments, which are very miniscule as of now. We’ll, of course, scale up — but we’ll scale up over the next 2- to 3-odd years. Same way, any new opportunities of the new airports that are coming, obviously, we will have a close look at them. We are interested and we have the ability to find capital for investment in those entities, including getting investors also within the airport vehicle. So it’s not that GAL, which is the airport platform now will own — to own 100% of equity in that particular airport. GAL may own maybe 75% of the equity and 25% of equity can come from other long-term investors, sovereign funds and pension funds, who desire to be in this particular space. So the various ways and means which we can source to play this opportunity. And — but again, it’s a little early stage right now. Let’s see what the opportunity is, what kind of investments it will require and whether it makes sense or not. I mean that’s the first step that we will have to sit down with Groupe ADP and see, okay, does this investment makes sense or not.

Last but not the least, let me again highlight 1 aspect that sometimes has got missed out in the past, is that our focus now is to create at least the cash or equity in as short period as time for any new projects. Obviously, there will be a time of investment, but there’s also a time of reaping. The focus has to be on that because that is what flows to the equity holders. And the Groupe ADP is very focused on that and so is GMR. So we will be taking those calls as we go forward. But at this stage for me to give you sources of capital will be little too premature.

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Mohit Kumar, IDFC Securities Limited, Research Division – Analyst [71]

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Okay. The second question which I had was this was related question only. In terms of our existing investments, which is Hyderabad and Delhi, is the thoughts of aggregating more speed at an asset level or would you want to highlight some ways in which you can monetize the stake that the GMR airport has in these 2 entities?

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Saurabh Chawla, GMR Infrastructure Limited – Executive Director of Finance & Strategy and CFO [72]

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You’re asking whether GMR would like to monetize or what? I mean, I didn’t — because the decision now is not only of GMR, it is now GMR-ADP.

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Mohit Kumar, IDFC Securities Limited, Research Division – Analyst [73]

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So the question was simply put, I guess that there are 2 parties to this decision. But what I’m trying to essentially assess is, would you want to increase the stake in the asset that you have, which is Delhi and Hyderabad, or would you want to think through monetizing it in some way?

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Saurabh Chawla, GMR Infrastructure Limited – Executive Director of Finance & Strategy and CFO [74]

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So we are comfortable with whatever state we have right now in both the entities. We are not looking at any further monetization in these mature assets, at least in the near term. Let me say it this way. Once it matures further after the expansion and we get a good valuation for some monetization on these 2 assets, which allows us to take that capital of a mature asset and put into a development asset, that’s a call that we will take at the right point of time. But at this stage, we are still in an expansion mode. And true value of these assets are still yet to be realized. So we are not looking at any monetization of — or part monetization of our investment in these 2 assets.

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Mohit Kumar, IDFC Securities Limited, Research Division – Analyst [75]

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Sure, sir. Just 1 question more from my side. It is just helping assess the funding situation slightly better. Given where things are at this point of time, assuming nothing else changes, whatever projects that you have in hand, this includes Manila, this includes (inaudible) would you require any loan coming from — equity-like loan coming from Groupe ADP to fulfill your commitment?

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Saurabh Chawla, GMR Infrastructure Limited – Executive Director of Finance & Strategy and CFO [76]

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Coming into those SPVs you’re talking about or coming to GAL because they are 2 very different things?

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Mohit Kumar, IDFC Securities Limited, Research Division – Analyst [77]

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I am assuming that there’ll be some kind of equity support anyways coming from Groupe ADP for these ventures now that they are an equity partner. Beyond that, do you need any other support coming from Groupe ADP for funding the equity portion of these assets?

So the question is simple. Does GAL generate enough cash flow to take care of its equity commitment after INR 1,000 crores that have come?

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Saurabh Chawla, GMR Infrastructure Limited – Executive Director of Finance & Strategy and CFO [78]

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So INR 1,000 crores is equity which has come is actually capacity for further investment in whether it is Goa — or equity investments into Goa or Bhogapuram, right? So that is where it is truly coming. GAL has, again, capacity to lever it up if it wants to. And — but like I said earlier, in our process and Groupe ADP’s thought process, at this stage, we would prefer if required is that within those entities that I want to monetize that 25% of Goa and get some equity there through sovereign pension fund player in that place or in Bhogapuram, that would be a path to follow.

Both the partners are interested to put actually money directly also into the airport assets. So whether it’s Groupe ADP or of GMR at the right point of time. They are also interested in putting the money into those assets in a direct fashion. But at this stage, the most probable part, if equity is required, would be coming from either the sovereigns or private equity funds or to come and have a direct play in that airport asset. That’s what we think. And that’s — this correlates also to your earlier question that we need to monetize further equity in DIAL and HIAL which I said to you that at this stage, we’re not looking at because we don’t require that one. But let’s say, there is 6 airports which come into play and some do require, then we will get a private player to come and play directly into the asset play while we continue to control significant majority of equity of that airport SPV.

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Mohit Kumar, IDFC Securities Limited, Research Division – Analyst [79]

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Sure, sir. Just 1 last clarification. You said that 51% stake, which you have in airports limited, GAL, can go to 58%. And you have the ability to monetize the stake that you had? Does the Groupe ADP have a right of first (inaudible)? Or can you tell it to any other party if you want to — that additional stake that comes your way, if it comes to it?

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Saurabh Chawla, GMR Infrastructure Limited – Executive Director of Finance & Strategy and CFO [80]

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So there is no RoFR kind of a thing. Yes, in order to find the right value, you will have to open up a dialogue and see where the best bid is arrived. We don’t want to go

(technical difficulty)

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