Ladies and gentlemen, good day, and welcome to GMR Airports Infrastructure Limited conference call to discuss Q2 FY 2023 results. As a reminder, all participant lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. With us today, Mr. Saurabh Chawla, Executive Director, Finance and Strategy. Before we begin, I would like to state that some of the statements made in today's discussion may be forward-looking in nature and involve risks and uncertainties. Also, recording or transcribing of this call without prior permission of the management is to be avoided. I now hand the conference over to Mr. Saurabh Chawla for opening remarks.
Thank you, and over to you, sir.
Thank you, and good afternoon, ladies and gentlemen. Thank you for joining this second quarter fiscal 2023 earnings call. Just as a forewarn, I'm suffering from a bad throat, so if I start coughing, one of my colleagues, Navneet , he will take over and complete the opening remarks that I wanted to indicate to you. Global economies continue to face major challenges and geopolitical crises, persistent and broadening inflation pressures. Central banks across the world continue to roll back accommodative monetary policies to fight inflation by hiking interest rates. Indian economy, however, remains as an outlier and remains as a bright spot as most economic activity indicators remain resilient even amid monetary tightening. Since the last GST collections in October of 2022 crossed INR 1.5 lakh crores, which is the second highest ever, indicating robust underlying economic activity.
Coming to our performance for Q2 FY 2023, GMR Airports' net revenue increased by 17% YOY to INR 1,126 crores in Q2 fiscal year 2023, driven mainly by traffic improvement in our operational airports. EBITDA decreased by 5% YOY to about 473 crores, mainly due to the restart of payment of monthly annual fee or MAF from the Delhi Airport with effect from April 2022 prospectively. Net loss after tax has reduced from 502 crores in Q2 fiscal year 2022 to 195 crores in Q2 fiscal year 2023. I would like to highlight the following key points in our business over the quarter. We signed a deal with Aboitiz InfraCapital Inc. for divestment of our stake in Cebu Airport.
The transaction will be undertaken at an enterprise value for Philippine peso of PHP 49.7 billion, and we will receive an upfront amount of about PHP 9.4 billion Philippine pesos. We will continue to operate as a technical services provider until December 2026 and would also be entitled to additional deferred consideration based on subsequent performance of the airport for the same period. Our decision to divest our stake in Cebu Airport is also in line with GMR Airports' strategy to focus on churning capital and redeploying capital in other high-growth opportunities. With respect to the progress with respect to capacity expansion of our airports, mainly Delhi, Hyderabad and Goa, we have achieved about 73%, 78% and 91% completion as of September 30, 2022. Goa Airport is targeted to be inaugurated shortly.
As you may be aware, Director General of Civil Aviation has already issued aerodrome license for the Mopa Airport, paving the way of starting commercial flight operations. Expansion projects in Delhi and Hyderabad are targeted for completion by September 2023 and March 2023 respectively. In the Crete Airport project, 93% of the earthwork has been completed on the airport site. Works are progressing on multiple fronts of runway, taxiway, apron, parking area, fire station and other buildings. Terminal building concreting works are also in progress for base slab, foundation and columns. Flood protection measures are in progress at the airport and access roads. As of September 30, 2022, 15.9% of physical progress has been achieved on the Crete Airport project.
In Goa, we have already filed for a multi-year tariff proposal for the first control period starting from April 1, 2023 to March 31, 2028, with inclusion of partial period of September 1, 2022 to March 2023. AERA has currently issued an ad hoc tariff on August 26, 2022, where the landing and parking charges, including VTP, have been approved, and the UDF has been approved at INR 450 per departing domestic passenger and INR 11,000 departing international passenger. The ad hoc tariff is applicable up to March 31, 2023, or the determination of final tariff, whichever is earlier. On the Medan Airport and the PT Angkasa Pura Aviasi or APA, a joint venture company of GMR Airports Limited and Indonesia's state-owned airport operator PT Angkasa Pura II or AP2, formally took over the operations in Medan Airport in July 2022.
The Ministry of Transport Indonesia has also approved increase in passenger service charges, PSC. Domestic PSC has been increased by 27% and the international PSC has been increased by 16% with effect from August 1, 2022. On the passenger traffic, Q2 of FY 2023 has been relatively weak quarter, and that's a seasonality effect out of there, with further negative impact due to higher air fares. In the month of October 2022, domestic traffic at Delhi Airport and Hyderabad Airport stood at 93% and 95% of 2019 traffic levels, while international traffic was at 84% and 83% respectively of 2019 traffic levels on the international side. Recently fueled aircraft capacity are flying due to supply chain issues of components arising out of the Russia-Ukraine conflict.
Our airlines are now increasing their short-term capacity through wet leasing contracts, which should help ease capacity constraints. Traffic is expected to gain further momentum with addition of routes and airline capacity, and we strongly believe long-term growth story remains intact. In Medan Airport, traffic recovery has been driven by steady growth in both domestic and international traffic. Domestic traffic recovered to 81% of 2019 levels and 75% on the international side. Total traffic has recovered to about 79% in Medan Airport. In Cebu Airport, domestic daily passenger is 55%-60% of pre-COVID levels, while international recovered at 15% as on Q2 FY 2023. On the airport land development, in Delhi Airport we awarded the contract to Chalet Hotels, the owner, developer and asset manager of hotels for developing a hotel at Terminal 3.
The terminal hotel will have 300-400 rooms. It's positioned in the five-star deluxe space. The development of terminal hotel at T3 will bring hospitality to travelers at the gates of international terminal, and it will provide significant benefit to transit passengers for domestic and international. In Hyderabad Airport, the lease deed has been executed with Amity University for lease of 20 acres of land for setting up of university with an option for additional 5 acres for a school to be exercised in the next 12 months. In Nagpur Airport, the Supreme Court of India has upheld the judgment of the Nagpur bench of Bombay High Court that had previously quashed and set aside the letter issued by MIHAN India Limited, annulling the bidding process of Nagpur Airport.
Accordingly, the authorities are expected to execute the concession agreement at the earliest for Nagpur airport with GMR . As an ESG company committed to being at the forefront of environmental protection and sustainable development, our top priority is to be one of the world's most environment- friendly and sustainable airports. For instance, in our Delhi Airport, our goal is to become net- zero carbon emission airport by 2030, way ahead of IPCC's 2050 target adopted by most major industries across the world. During the course of the year, we received a National Award for Excellence in Energy Management by CII Clean Business Centre . The Hyderabad Airport won the CII National Awards for National Energy Leader and Excellent Energy Efficiency unit. Both the airports have maintained ASQ scores at 5 during the quarter. Our presentation with all financial numbers are already available with you.
If not, it can be downloaded from the IR section of our website. We are available to respond to your questions on this call and offline post the call. Now I would like to open the forum, and my colleagues from the corporate and businesses can answer your queries. Thank you so much.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask any question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handset when asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Mohit Kumar from DAM Capital. Please go ahead.
Good afternoon, and thanks for the opportunity. My first question is, when do you expect to receive money from the sale of Mactan’s Cebu and what is use of cash? Are there any other opportunities to monetize any more asset to reduce the debt, especially the corporate debt?
To answer your question, I'll answer the second question first. Sale of Mactan’s Cebu is not going to reduce corporate debt. It reduces the debt of the platform entity, which is GMR Airports Limited, the ADP's partner. They are a foreign partner, recent partner at partner level. It really doesn't reduce the corporate debt, which is at Delhi International Airport Limited, which is about INR 2000-odd crores . The second aspect is that primarily the money will be received most likely by end of December. We had indicated and advised the market accordingly. The regulatory approval processes are underway. We have two approvals awaiting, and hopefully I can cut in the next few weeks those will also be received, and then we can move into closing quickly.
Last but not the least, as you know, within the quarter itself, we have taken over operations at Medan while we had the transaction to sell Cebu. If you look at the strategy, we make substantial amounts of gains on our sale of Cebu. We have to recognize we have many years of investment at Medan. It's basically a portfolio management exercise where we are encashing a certain amount of our investment to reinvest that money into future opportunities. At this current stage, it will be Medan. That's how we look at this particular portfolio. We are always on the lookout for opportunities both domestic and international. We are all aware that the next round of divestments will be coming from the government of India.
That may open up a privatization of almost, you know, 14 other airports, seven medium size and seven small airports . In addition to that, there are opportunities, especially in Southeast Asia, specifically in Indonesia, which we are quite excited about and would like to participate. Given these opportunities, we always want to have a lean balance sheet so that one can use the surpluses available in that balance sheet for investments going forward. That's the broad idea as well as our strategy for tomorrow. Yeah. One other issue is that our EBITDA is still not enough to generate the required DSCR at this point. Even if we have to, we are looking forward to generating a positive cash flow, especially EBITDA and DSCR.
Honestly speaking, we are still in the recovery mode and also an investment mode, right? EBITDA had contracted post-COVID. If you look at our numbers, we are still reaching at about 90% pre-COVID levels as of September 30. We have improved further in the month of October and then as we speak in November. You will see a significant improvement in the EBITDA levels as we go further. That should more or less suffice not only you know interest payments, but also servicing and paring down of debt. Eventually in two to three years' time, you know, there's significant amounts of free cash to equity holders. It's a long-term play. It requires an investment of almost two to three years in normal circumstances.
In COVID, these investment periods become much longer. Hence, you know, the business plans are outstretched to a particular level. In our case, we've been able to bridge over these cycles because of our long-dated bonds, where we have been servicing just on a semi-annual basis. There is a stub that we get refinance after five or 10 years , depending upon the tenure of the bond. That is a strategy we could lay out at least for next two to three years. You will see going forward, you know, Q-on-Q improvements in the EBITDA numbers as traffic keeps coming back, as new airports open up, especially Goa should open up in the month of December.
We will have expanded capacities available in Hyderabad in March 2023 and September 2023 in Delhi. You will see significant improvements in the EBITDA levels. Understood. Thank you. That's all up front.
Thank you. A reminder to the participants, anyone who wishes to ask a question may press star and one. The next question is from the line of Abhiram Iyer from Deutsche Bank. Please go ahead.
Hi, sir. Congratulations on good set of numbers. May I ask the reason for, you know, the working capital inflows that come in primarily due to an increase in deferred revenue. May I ask what this is about, in case of, you know, the airports, specifically Delhi and GMR Hyderabad? That's one. The second is more of a broader term question. How do you see the EBITDA profile of the individual airports sort of evolve once the CapEx is completed, say, in the medium to long term?
GRK Babu do you wanna take the question, please, on the working capital?
The working capital mainly in case of Hyderabad Airport, [audio distortion] . As far as the guidance is concerned, the working capital facilities are being used as and when required.
Sorry, just to clarify, the increase in deferred revenue for DIAL would be. It's around INR 400 crores now. Could you just give an idea on what this account is?
Just hold on one minute. These deferred revenues are basically the AS adjustments which we have taken. Basically the deposits which are received in case of the Delhi as well as Hyderabad, which have been discounted as per accounting standard. That is what we have been accounting regularly.
Got it. Does that imply that we have received the actual deposit this quarter? Or this half rather, around INR 200 crores, INR 270 crores?
No. No. We have received some payments from Bharti. That is basically the balance amount which we have to receive from them has been received. Of course, only the additional advance development cost money as well as the entirety advance license fee also has been received in this quarter.
This quarter, okay. What you were expecting in 2023 you have received already now?
That is out of the plan as per the original agreement which we have signed. The next payment which is due from them will be in the month of either March or April 2023.
Got it. Any idea on the quantum there?
In the month of April 2023, we are likely to get both ADC as well as the refundable security deposit, which is around INR 600 crore.
Got it, sir. Thank you. The second question is on EBITDA, long-term, EBITDA strategy.
I think it's our long-term EBITDA. Long-term, thank you, yeah. As I explained earlier itself, we are still recovering from the COVID conditions. Despite, I would say longer recovery time period, we are generating between let's say different asset levels. Hyderabad of course has a much higher EBITDA contribution primarily because it has a low revenue share, whereas Delhi has a very high revenue share and still has a healthy EBITDA of about 45 odd %. As the traffic continues to improve, the non-aero will also improve. Hence the EBITDA levels should improve significantly over the next, I would say year or so.
Once the airports expansion are fully completed, you know, the areas are fully monetizable for the non-aero side of the retail businesses of ours, you will see significant improvement of EBITDA going forward. We are, I would say, at probably midway or from a COVID recovery path to an optimum EBITDA contribution from both the airports, Delhi and Hyderabad, which are basically the main contributors to EBITDA as of now. Until, of course, Goa and Medan start to contribute to the EBITDA.
Perfect. Thank you.
Thank you. The next question is from the line of Tony Watson from Far East Investment Management. Please go ahead.
Hi, good afternoon, and thanks for the call. Just a quick question on activity levels at Delhi and also Hyderabad. It seems traffic has plateaued in the last quarter. Any thoughts as to why that has come about?
That's a seasonal plateauing of the traffic, because every year you will find that Q2 is slightly, you know, slack in traffic growth. It starts to pick up and peaks again in Q4. That's a normal seasonality trend that you see in at least some of our airports. It's not all India. At least in Delhi and Hyderabad you see it play out every year. Nothing, not a cause for concern. There are a few other external factors which are impacting, flattening out the traffic. There is airline capacity constraints, which I've highlighted in my opening remarks. You know, the supply of aircraft parts are under constraints due to the Ukraine-Russia war.
There are other issues that are associated with it. On top of that, the ticket pricing has been at its peak. We expect, you know, the ticket prices to become far more reasonable to start attracting other customers into the airline industry or traffic. We don't expect similar conditions to continue the seasonality effect. Hopefully I think we'll see a much better traction in Q3 and Q4 going forward.
A quick follow-up question. Slide 9. Same issue appears to be applying to the cargo business traffic. Is that the same set of contributing factors or are there other issues at play there? It seems the downturn in the last quarter on the cargo traffic has been fairly pronounced.
All airports.
Regarding the cargo.
I think, go ahead, yes, go ahead.
Regarding the cargo, it basically the inflows which we used to get from China, because of the lockdowns, various lockdowns at China level, there was a dip in the cargo traffic. I mean, especially the quantities. This is a global phenomenon now. We are expecting that we should come back normally by, I think, next quarter of 2023 to 2024.
Okay, thank you very much, sir.
Just to also highlight in traffic, which I think Praveen very well highlighted, is traffic to China and Far East, including Japan and Korea, has not yet opened up in its entirety. Whereas in Australia, Southeast Asia, Western Europe and North America, it is now reaching levels which are sometimes better than pre-COVID levels and sometimes at pre-COVID levels. The gap that we see today is because, primarily because of traffic into Far East, especially East Asia, which is China and Japan.
Got it. Thanks.
Thank you. The next question is from the line of Nikhil Abhyankar from DAM Capital. Please go ahead.
Good afternoon, sir, and thanks for the opportunity. Sir, I forgot the slide number, but we are showing around INR 213 billion of airport debt, and INR 102 billion is related to Delhi and INR 65 billion is related to Hyderabad. Where is the rest that fit in ?
The rest is in other airports like we have got Goa. We have completed the GMR Airport travel, all that put together.
Also commercial car parking.
Car parking. All those other entities.
Okay. Can we get a break-up of that one?
There's a list of a lot of entities.
Of?
A lot of entities. Broadly it is like GMR Airports, Goa, and there are a lot of these JVs like Hyderabad and all.
Okay. That one will be for INR 63 billion.
INR 63 billion, that will be at the GMR Airports. I think Goa will be next.
Okay. Understood. Sir, how are we looking to monetize or develop the land in and around Delhi and Hyderabad airports?
Delhi has already been explained that the hotel has been modest Aerotel hotel. The balance of land that especially the Delhi is already having the offer of the 5 million sq ft. In the future, we are also looking into other land parcels which are already there at the airport, and most probably we'll try to come up maybe in the fourth quarter, some land parcel in case of Delhi. Hyderabad, it is going on, I think in whatever is the development that has already been taking place. Saurabh Chawla has already explained. The rest are in some pipeline.
Okay. Can we see in H2?
Sorry?
Can we see some activity in H2 regarding that, Hyderabad?
Hyderabad, yes, you will see some activity maybe in the last quarter.
Okay. Sir, final question, sir. Sir, the Cebu traffic is around 57% pre-COVID levels. It seems far below the trend that we are seeing in India. Is there any other explanation for it?
Cebu has not opened up fully like India from the beginning. Cebu, actually as a Philippines, as a country, they have opened up very recently with respect to tourism. Otherwise, they have had only domestic traffic moving from island to island was also very much restricted. Now once they have opened up and domestic traffic is picking up and international still it was very low, and we are expecting that once they have now fully opened up and the season will start in December and January, they should be able to start a little more and more. Otherwise as a country, they have opened up very late, not like India.
Understood. Okay, sir. Itself only, sir. Thank you.
Thank you. The next question is from the line of Teena Virmani from Kotak Securities. Please go ahead.
Hi, sir. My question is related to the large component of minority interest, which is there in the second quarter numbers. I think a significant jump in that minority interest for the last few quarters. What is leading to this significant change Q- on- Q and even on a year-on-year basis?
Yeah. Actually, it's basically because of the stable transition we have recorded impairment loss at a GAL l evel. Because of this impairment cost, this minority interest of the equity share of 49%, it has got increased.
Okay. On the traffic from associate companies also, this has also comparatively lower on a Q-on-Q basis. Is it some kind of seasonality impact which is impacting the performances or the performances are gradually rising but not reflecting over here? We just wanted to understand the reason and any other parameter which can actually help us grow in the coming quarters.
Yeah, can you repeat the question, please?
Look at the profit from associate companies. This is around INR 142 million for the current quarter. For first quarter it was around INR 232 million. Just wanted to check why there is a dip in the profit from associates, the joint venture companies. Any specific reason for this, and how this profit can grow going forward?
No, mainly the associates and joint ventures, Cebu, have declared more loss because of the low traffic at Cebu mainly. Otherwise, all the joint ventures other than Cebu have been doing very well, whether at a minor level or higher level. It is only Cebu which has brought down the numbers.
This loss will not be there for next quarter because now that you have signed a deal for Cebu, this number should rectify in the coming quarter back to the.
Yes. Once the deal is completed, still we will be continuing to be minority shareholders in that company. We have to still account it till 2024.
2024.
2024. Because we can. Right now, as per the transaction of Cebu, we will actually continue to be 33.3% shareholder, GMR and Aboitiz as well as Megawide. Only 2024 October, Aboitiz will become the full-fledged owners, 100%. Till that time, we continue to account it as 33.3%.
Okay. Got it. Thank you so much, sir. Thank you.
Thank you. Next question is from the line of Anshuman Ashit from ICICI Securities. Please go ahead.
Good afternoon, sir, and thank you for the opportunity. The first question is on the CapEx for each one. Could you please give us the number and what is the target for FY 2023 and 2024?
CapEx, this financial year we're expecting to about INR 1,300 crores to INR 1,400 crores overa ll from Delhi and also Hyderabad. Delhi will continue to have expenditure in the next financial year also. Whereas Hyderabad will be completing the entire CapEx by March 2023. Expectation to spend about INR 18 billion roughly for this financial year.
Sir, how much have you incurred in the first half?
First half, Hyderabad has incurred about INR 400 crore-INR 500 crore because of some slow building, but right now it is picking up much faster.
Sir, in Delhi?
Delhi is also about INR 800 crore.
Okay. Sir, second question on the land development both on Delhi and Hyderabad. Could you please give us some more details on the Chalet deal? What is the area that it will be developing and the revenue that we will be earning through this deal? Also on the Hyderabad lease with Amity and also Schneider one which we had mentioned in the last call.
It will be an airport hotel is basically on a land parcel about 2 acres of land, which is just opposite terminal. That is what is coming up. The shell will be constructed by the client and the entire fit-outs will be done by the concessionaire. It is some deposits will be provided by them initially, and subsequently it is on the revenue share basis of their revenue, plus with a minimum guarantee. There are certain conditions which are to be complied with. Otherwise, a minimum guaranteed amount has to be paid by the concessionaire.
Okay. Is it possible for you to share this amount of the amounts?
Offline, we can discuss it. If it is possible, if the documents are provided, then we can able to share with you.
Okay. Sir, one final question is on the earn-outs, which were supposed to be tested once the FY 2022 results would be audited. Where do you stand currently on that front?
FY 2022 or FY 2023 and FY 2024 is actually based on the three-year earn-outs. FY 2022 numbers have already been provided and it is under discussion with the ADIs.
We are on track to?
Yes. We are on track. All the discussions already going on, the numbers have already been shared.
Okay. Thank you, sir. Thanks so much.
Thank you. A reminder to the participants, anyone who wishes to ask a question may press star and one on their phone. Participants to ask a question may press star and one now. As there are no further questions, I would now like to hand the conference back to the management for closing comments.
Thank you. Thank you friends for joining our call. We are available offline to answer any of your queries. Please you can reach out to the IR team or you can send your email and we will get you right back as quickly as possible. Thank you so much and have a wonderful day. Bye-bye.
Thank you. This is Anshuman on behalf of GMR Airports Infrastructure Limited. That concludes this conference. Thank you all for joining us, and you may now disconnect your lines.