Terminal 3 @ Delhi Airport: GMR & Development of Indian Infrastructure
Please note that we are not authorised to provide any investment advice. The content on this page is for information purposes only.
The following is a report prepared by two stock analysts who were evaluating the investment potential of GMR Infrastructure,
The analysts were looking at GMR’s work on Terminal 3 – aka T3 at Delhi Airport – a symbol of the so-called “Modern and Bold India,”
The following is a report prepared by two stock analysts who were evaluating the investment potential of GMR Infrastructure,
The analysts were looking at GMR’s work on Terminal 3 – aka T3 at Delhi Airport – a symbol of the so-called “Modern and Bold India,”
considering it is among the world’s largest airport terminals and constitutes the largest infrastructure asset in India today.
While the language may be a bit technical, it does give some insight into two important subjects:
a) how companies are assessed; and, more importantly from a “big picture” angle, b) the dynamics of Indian infrastructure growth.
For more on this crucial subject, see tomorrow’s Featured Analysis,
which compares the dynamics of Chinese and Indian urbanization for the next decade and a half.
Until then, you may find some surprising insights here, to which Economy Watch was so kindly directed
by our constant reader / critic / friend, Deepak Moorjani.
T3 showcases execution capability
Visit to Terminal-3 at Delhi Airport
We visited Terminal-3 (T3) at Delhi International Airport (DIAL),
owned and operated by the consortium led by GMR Infrastructure (54% stake).
T3 resembles the face of a ‘Modern and Bold India’,
given the gigantic structure set up at a mammoth investment of USD3billion
to provide an experience comparable with the best in the world.
T3 is among the worlds’ largest airport terminals; the largest infrastructure asset in India:
T3 has a passenger handling capacity of 34m per year, taking DIAL’s effective handling capacity to 60m passengers per year.
This compares with passenger traffic of 26m in FY10.
After a long time in Indian infrastructure, capacity has been created to address future growth.
Terminal area stands at 502,000 square meters comprising of nine levels, and includes
-
20,000 square meters of retail concourse,
-
78 aerobridges (capable of handling A-380),
-
168 check-in counters,
-
12,800 bags/hour baggage handling system (among the world’s largest), and
-
92 travelators (including one that is 118 meters long – the longest in Asia).
GMR has entered the elite list of business groups capable of executing a USD3b project, on time:
Successful execution of T3 has demonstrated the unmatched execution capabilities of the GMR group.
T3 (capacity of 34m passengers) was built in 37 months.
This compares with
-
60 months for Beijing Olympics airport (45m passengers),
-
60 months for Heathrow T5 (25m passengers), and
-
76 months for Changi (22m passengers).
Thus, T3 construction sets a global benchmark.
There were several execution challenges, including
-
co-ordination with 58 government agencies,
-
vendors/professionals from 19 countries,
-
37,000 workers at peak,
-
providing housing to 27,000 employees,
-
2,500 encroachments, etc.
An interesting learning curve for GMR group; an inspiring success story:
Successful execution of a mammoth project such as T3 provides interesting learnings to the GMR group, which can be replicated in other large projects.
To illustrate:
GMR group awarded Hyderabad airport construction on EPC basis, T3 construction on open-book basis and Turkeyairport EPC was done in-house.
Again, in Hyderabad airport, non-aero revenues were awarded to concessionaires, while DIAL has stake of 26-49% in the JVs operating non-aero concessions.
Similarly, while the early land parcels at DIAL were awarded to developers based on NPV of fixed rentals / upfront deposits, going forward the company could take up commercial projects on joint development basis.
Revenue maximization possibility exists; near term earnings may get impacted:
Passenger traffic at DIAL has grown from 16m passengers in 2007 to 26m in FY10, a CAGR of 27%.
Share of non-aero revenues have increased from 21% initially to 32% now,
and now the management targets a share of 60%, going forward.
This provides interesting value maximization opportunities.
We await further understanding from the management on the possibilities.
Near term earnings will be impacted, given higher interest and depreciation.
Re-adjustment of the aero revenues to cover increased cost of USD3b (v/s earlier estimate of ~USD2b) could lead to a tariff shock for the consumers in the medium term.
Valuation and view: We expect GMR Infrastructure to report consolidated net profit of Rs4.2b in FY11 and Rs5b in FY12.
At CMP of Rs60/share, the stock trades at of 52x FY11E and 44x FY12E EPS.
Maintain Neutral.
For more on Indian infrastructure, be sure to check out tomorrow’s Featured Analysis. And thanks again, Deepak 😉 .
