GMR Infrastructure : Q2 FY 2022

"GMR Infrastructure Limited Q2FY22 Investor / Analyst

Conference Call Transcript"

Saturday, 13 November 2021

Moderator:	Ladies and gentlemen, good day and welcome to GMR Infrastructure Limited Conference Call
	to discuss Q2 FY 22 Results. As a reminder, all participant lines will be in the 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 '*' then '0'
	on your touchtone phone. Please note that this conference is being recorded.
	We have 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 may involve risks and uncertainties. Also, recording or
	transcribing of this call without prior permission of the management is strictly prohibited.
	I now hand over the conference to Mr. Saurabh Chawla for the Opening Remarks. Thank you
	and over to you, sir.
Saurabh Chawla:	Good afternoon ladies and gentlemen. I welcome you all to the second quarter fiscal 22 earnings
	call. I hope everyone on the call and their families are safe. As you know, economic activity
	indicators had peaked in March 2021 but they took a hit during quarter 1 fiscal year 22 due to
	the second Covid wave. However, the second Covid wave has receded much faster than what
	was anticipated. Economic activities and businesses are now back as Covid daily cases are now
	significantly down below the 13,000-mark number against the second wave peak of almost 4
	lakh cases a day. This augurs well for our businesses during the quarter.
	Before briefing you about the business performance, I would like to highlight key focus areas
	which have kept us busy during the quarter 2 fiscal 22:
	Firstly, on demerger:
	We have received all approvals from the financial creditors and shareholders. Rest of the steps
	in the demerger process are procedural in nature. We expect the final order from NCLT soon,

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most likely by the end of December 2021 and fixing a record date of GPUIL listing and subsequent listing on the stock exchanges by quarter 4 of fiscal year 22.

Secondly, we have made significant progress on our CAPEX programs. Delhi, Hyderabad, and Goa airports have achieved 50%, 67%, and 44% completion as of October 31st, 2021. In Goa, we are targeting to achieve a COD by mid-August of 2022.

Thirdly, we have executed industrial partnership agreement with Groupe ADP. This is a significant step into building the world's largest airport alliance to welcome passengers and leverage both the group's expertise to continuously improve operations.

Fourthly, on the liquidity raising and cost saving initiatives, we have completed the divestiture of Kakinada land parcel and the port. From this transaction, we received the first tranche of considerations which is about 1,700 crores out of a total 2,700 crores.

In order to cater to rising demand, we have resumed operations at terminal 2 in July 2021 and terminal 1 in October 2021 at Delhi airport. We had earlier closed these terminals to save costs amidst lower passenger footfalls due to the first and the second Covid waves. We also agreed to restructure the transaction with Bharti Realty for 5 million square feet, primarily dividing into 2 phases - phase 1A of 2.73 million square feet and phase 2 or 1B of 2.16 million square feet. These rentals for the Phase 1A is effective from September 1, 2021. Phase 1B is expected to be effective by fiscal year 23. We have received significant amounts from this transaction prior to September 30th. In order to improve the performance of the power business, we have entered into a PPA with Gujarat State Electricity Board for 150 megawatt in Warora. We have also pursued resolution of receivables at Warora and Kamalanga and received favorable order from APTEL with respect to the Bihar DISCOM.

Coming to the business fronts:

GMR's businesses have recovered significantly post second wave of Covid. I want to first talk about the airport business which contributes significant numbers to our revenue and EBITDA. As highlighted earlier, traffic has rebounded quickly post second Covid wave than initially anticipated and it is on a fast-paced recovery path. In Delhi airport, domestic and international daily average passengers have turned around and has reached 81% and 42% during the week ended November 7th.

In Hyderabad Airport, domestic and international daily average passenger has reached 73% and 50% during the week ended November 7th. Cargo business continues to be resilient and is now above 100% of pre-Covid level for both Delhi and Hyderabad airports. It is encouraging considering Government of India has imposed curbs on the capacity for airlines which were at about 50% in June 1st, later revised to 65% from July and 72.5% in August. Now, the government has lifted the capacity restrictions for all domestic flights and they can now operate up to 100% capacities.

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International destinations and frequencies were also increased during the bubble arrangements and more destinations are expected to be added in the near term. Passenger confidence to travel is on the rise with decline in Covid cases, increased pace of vaccination and relaxation of the testing norms. Passenger profile mix is also shifting with increased passenger travel from Tier- 2 and Tier-3 cities versus metros, friends and family or leisure travel versus corporate travel. Even corporate travel has also recovered to about 50 odd percent levels compared to pre-Covid and corporate travel is gaining momentum in the near term as executives have started to travel for meetings and conferences.

On the international side, there is more and more structural shift that is happening on the nonstop flights. We expect the traffic to gain further momentum with reducing trend in Covid cases, lifting of government restrictions on airline capacity and increased pace of vaccination. India's daily new Covid cases are now below 13,000 and vaccination pace has picked up where more than a billion doses have been given as on November 10, 2021. Metro cities which are core to our business have recorded over 95% vaccine coverage. More states in India have lifted travel restrictions with Covid cases receding and various states have also lifted RT-PCR testing requirements for fully vaccinated citizens. Globally too, weekly Covid cases have declined to

1.3 million as of November 8th versus peak of 5.7 million in April 2021 as vaccination drive is on a full swing which will further boost international traffic. Globally, about 7.3 billion vaccine doses have been administered so far. Significant part of the populations in various countries are inoculated with at least 1 dose - US is about 66%, UK about 74%, and 79% in Canada. Air bubble arrangements will continue for next few months aiding recovery of international traffic. Currently, air bubble arrangements are with 28 nations including US, UK, Canada, Germany, France, UAE, etc. International countries have also started to ease travel restrictions. For instance, US has lifted travel restrictions for fully vaccinated travelers. Far East countries, especially Singapore, Australia, and Thailand are now opening up for fully vaccinated passengers. UK is set to lift travel restrictions for passengers vaccinated with WHO listed vaccines. While Covishield vaccine is already approved by most countries, Covaxin has recently received WHO approval. UK including 96 countries will start accepting Covaxin. This will enable more Indians to travel outside India.

Fleet addition by major Indian airlines, takeover of Air India by TATA, entry of new airlines including restarting of Jet Airways will aid expansion of the operating capacity. Financially strong airlines will aid for further growth in the future. We anticipate domestic traffic to reach pre-Covid levels by end of this current fiscal year 22 and international by the end of fiscal year 23 in our Indian airports.

On the energy business, power demand and coal supply are improving as the lockdown is easing up. Kamalanga clocked the best operational performance in 1st half with a PLF of 82%. PLF improved to 90% in October and 96% in November as we speak. Warora's PLF of 51% in 1st half was impacted by lower supply of linkage coal from the mines, lower exchange rates, and delayed realization from DISCOMs. However, post 1st half, PLF has improved to 66% and 89% in October and November respectively due to better availability of coal. On Kamalanga, we also

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received a favorable order from APTEL. As per the APTEL order passed on August 6th, all amounts due and payable to Kamalanga by Bihar DISCOM due to various Change-in-Law events shall be paid along with the carrying costs in accordance with law. Kamalanga is entitled to recover expenditure involved in procurement of alternate coal due to shortfall in domestic coal supply corresponding to scheduled generation pertaining to Bihar PPA thereby restoring Kamalanga to the same economic position as before as if no Change-in-Law event had occurred. Bihar DISCOM has filed an appeal in the Supreme Court against the APTEL order and the appeal is currently pending in the Supreme Court. It is yet to be listed for admission.

PT GEMS is truly a gem in our portfolio today. Performance continues to be strong in this mining business despite volumes being impacted by unseasonal rains. EBITDA margins was up from USD 5 per ton year on year to USD 9 per ton in quarter 2 fiscal year 22 driven by a 42% Y-o-Y increase in realizations. GEMS has paid record dividend of USD 180 million in 1st half of calendar year 2021. Subsequently, it has also paid dividend of about 60 million during August of 2021. GMR, as you know has 30% stake in this mine company.

On the highway business, Hyderabad-Vijayawada expressway traffic increased by 27% year on year to about 10.4 million vehicles during quarter 2 fiscal 22 period. On quarter-on-quarter basis, traffic has increased by 24% in quarter 2 of this year. Toll at Ambala-Chandigarh expressway has been suspended since October 12, 2020, due to the farmer agitation. In this regard, GMR Ambala-Chandigarh expressway has declared a force majeure event under the concession agreement and has notified NHAI. As per the concession agreement, GMR Ambala-Chandigarh expressway is entitled to compensation for this force majeure event by way of extension in the concession period, the reimbursement of O&M cost, etc. Claim for the force majeure up to 31st March 2021 have been filed, and Ambala-Chandigarh has received part payment from NHAI. Balance claim amount is under verification and is expected to be received in due course.

On the status of arbitration award on Hyderabad-Vijayawada project, the sole arbitrator has reserved his findings on the quantification of claims under Change-in-Law and is expected to publish his report on the claim quantification by the end of this quarter.

On the dedicated freight corridor project, construction work has picked up pace. As you know, GMR along with its partner, SEW Infra, has been executing an EPC contract to construct a part of the eastern corridor. That is 181 km of Mughalsarai to New Karchhana in UP and 236 km of New Karchhana to New Bhaupur, again in UP. Around 76% of package 201 and around 89% of package 202 have been completed.

I would also like to briefly touch upon the best practices and recognitions received on the ESG front by GMR Group. On the airports front, Delhi airport has won prestigious awards of National Energy Data and Excellent Energy Efficient Unit at the 22nd National Award Ceremony for excellence in energy management organized by the Confederation of Indian Industry Green Business Center. Hyderabad airport successfully renewed The ACI airport health accreditation

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	program for the year 2021-22 and has also commissioned its second 5-megawatt solar power
	plant in July of 2021.
	On energy business front, some of the safety performance highlights are Kamalanga plant's lost
	time injury frequency rate and the lost time injury severity rate of 0.00 continues in quarter 2.
	Same goes with Warora. Both plants expanded footsteps towards sustainable ash utilization by
	sending the byproduct to cement manufacturers and brick manufacturing through railway rakes.
	Ash utilization achieved in both plants is more than 100%. GEMS was also awarded as one of
	the best of the best top 50 companies in 2021 by Forbes Indonesia. President Director of the
	company received the top leader on CSR commitment in 2021.
	The presentations with all these information and all financial and numbers are already available
	with you. If not, it can be downloaded from our investor relations section of our website. We are
	available to respond to your questions on this call and also offline post the call. I would like to
	now open the forum where my colleagues from the corporate finance and the businesses, the
	sector CFOs can answer your queries.
Moderator:	We will now begin the question & answer session. Ladies and gentlemen, we will wait for a
	moment while the question queue assembles. The first question is from the line of Apoorva
	Bahadur from Investec. Please go ahead.
Apoorva Bahadur:	Congratulations on the demerger. Sir, now that we are so close to the event, can you please share
	what is the plan for splitting the corporate guarantee which we have given for Rajahmundry?
	How much between airport and non-airport businesses?
Saurabh Chawla:	As you are aware, Rajahmundry restructuring happened a few years back, right? And the
	corporate guarantee is on GMR Infra for the non-sustainable portion of it. This guarantee will
	continue both on GMR Airports and also on GMR non-airports after the demerger. This shall
	continue.
Apoorva Bahadur:	For the full amount on both?
Saurabh Chawla:	Yes. Naturally, from a credit perspective, the first recovery goes to the entity which owns the
	business directly, but yes, as a credit enhancement, the GMR Airports' guarantee will continue.
Apoorva Bahadur:	Secondly, on this FCCB which has not been converted yet, how should we look at the split of
	debt and then the obligation of conversion of shares between, again, both airport and the non-
	airport businesses? Basically, how much could be the potential valuation in the airport business
	because of FCCB in future?
Saurabh Chawla:	A very simple math's in this. If you were to assume on a fully diluted basis, you can assume
	FCCB to be fully converted and the same proportion allocated to both the airport and the non-
	airport. As you are aware, this is a vertical demerger. So, there is no specific allocation. It is the

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