GMR Airports Infrastructure: Should you buy, hold or sell this stock? 

GMR Airports Infrastructure Ltd shares are in news after the company entered into agreement with Fraport AG Frankfurt Airport Services Worldwide to acquire an additional 10 per cent stake in Delhi International Airport (DIAL). The  acquisition would be for a negotiated aggregate consideration of $126 million. It would increase GMR Airports’ stake in DIAL to 74 per cent from 64 per cent.

While Jefferies reportedly maintained its ‘Buy’ rating on the stock with a target price of Rs 106 per share, Kotak Institutional Equities upped its fair value on the stock by 7 per cent but maintained its ‘Sell’ rating on the stock, saying the Delhi Airport stake buy-out is potentially the last of the positive surprises.

Kotak suggested a target price of Rs 74, which it said incorporated the last two big surprises -- potentially GAL winning the Delhi Duty-free business and stake consolidation in DIAL.

“We focus on the need for investors to look beyond the naïve approach of considering GMR Airports as a monopolistic play on non-aero growth for long, as (1) there are limited capacities at the top-3 airports, (2) limited role incremental assets can add to the portfolio value, (3) there is a need to compete incrementally with the Noida Airport and (4) there is growing support for the other listed group entity,” it said.

The brokearge said investors need to be mindful of the impact of the 13.8 billion diluted share count to arrive at the correct trading multiple — 25 times FY2027 EV/Ebitda in its assessment.

Kotak argued that GMR Airports' dominant share of value comes from existing assets, which will not see passenger (pax) growth beyond the next decade. Such a period will see pax with lesser spending profile drive growth, limiting growth in non-aero revenues per pax.

It said the incremental asset wins in Mopa (Goa) and Bhogapuram (Vizag) are much smaller markets versus the existing Delhi and Hyderabad assets.

GMR Airports’ Delhi Airport deal at $126 million is one-sixth of Kotak’s fair value for the Delhi Airport.

“The remaining stake in the Delhi and Hyderabad airports at 26 per cent each is with government entities and may not come at a steep discount. With the Delhi Duty-free concession already won, the one event remaining is of Delhi aero yield (by December). We ascribe a low probability to the same breaching Rs 450 per pax from the current Rs 150 per pax — would still imply a high 5-6 per cent increase in air fares to/from Delhi Airport,” Kotak said.