GHIAL

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Evaluation of GMR Hyderabad International Airport Limited (GHIAL)

Evaluation of GMR Hyderabad InternationalAirportLimited (GHIAL)

GMR Group is one of the global infrastructure majors headquartered in Bangalore, India. Its

major business segments include Energy, Highways, Urban Infrastructure (also includes the projects

in Special Economic Zones (SEZ)), Agri-business and recently, in 1999, the company forayed into

the airports sector as well.3 With its entry into the Airports sector, it has launched itself as a forerunner

in the core infrastructure areas of India.4 In a competitive bidding process conducted by the

Government of Andhra Pradesh (India), it won the bid to construct GMR Hyderabad International

Airport (GHIAL) which was the Group’s first project.

“The experience at the new airport will slowly convince the people that they are enjoying world-class

facilities.”1

– Kiran Kumar Grandhi, Managing Director, GHIAL

“This is the beginning of new chapter. India’s truly first world-class airport will be commencing

operation in the month of March.”2

– Praful Patel, Union Civil Aviation Minister, India

This case study was written by Swapna Pragada (Research Associate) and Dr. Lokanandha Reddy Irala, IBS, Hyderabad. It is intended

to be used as the basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation.

The case was compiled from published sources.

© 2009, IBSCDC.

No part of this publication may be copied, stored, transmitted, reproduced or distributed in any form or medium whatsoever

without the permission of the copyright owner.

Ref. No.: FM0017

1 Kurmanath K.V., “The making of country’s first private greenfield airport”, http://www.blonnet.com/2008/03/15/stories/

2008031551320700.htm, March 15 th 2008

2 “India’s first greenfield airport in Hyderabad ready for operation”, http://www.thaindian.com/newsportal/india-news/indias-

first-greenfield-airport-in-hyderabad-ready-for-operation_10017335.html, February 13 th 2008

3 Chowdhury Anirban, “GMR: From commuting on a cycle to building global airports”, http://www.rediff.com/money/2007/jul/

13spec.htm, July 13th 2007

4 “Corporate: Projects”, http://www.gmrgroup.co.in/branchindex.aspx?branchid=5


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GMR Hyderabad InternationalAirport Limited (GHIAL):ASubsidiary of GMRGroup

GMR Group won the competitive bidding process for the development of Greenfield International

Airport at Shamshabad in Hyderabad, India conducted by the Government of Andhra Pradesh and

the Government of India in the year 2003 (Annexure I).5 Thus, GHIAL started as a public-private

partnership between the public participants – the State Government of Andhra Pradesh and Airports

Authority of India (AAI) – and the private players – GMR Group and Malaysia Airports Holdings

Berhad (MAHB). In the project, GMR and MAHB had stakes of 63% and 11% respectively whereas

the Government of Andhra Pradesh and Airports Authority of India had a share of 13% each.6 The

project has an initial license period of 30 years and GHIAL has the choice to extend the period to 30

more years.

GMR designed GHIAL to meet international standards in terms of provision of facilities and

services. It was initially designed for a passenger capacity of 7 million passengers per annum (mppa).

However, in the year 2005, the passenger handling capacity of the airport was altered due to 40%

increase in the air-traffic.7 After modifications in the scope of the project, the airport’s capacity was

increased to an extent of handling 12 mppa and 100,000 tonnes of cargo per annum. The revised

project plan also included the construction of a fuel farm and a 308-room 4-star business hotel in the

airport. The revamping of the capacity and the construction of the additional facilities increased the

estimation of the project from INR 17,600 million to INR 24,780 million.8

The project was funded in the debt-equity ratio of 4:1. The airport construction was funded by

Abu Dhabi Commercial Bank, Andhra Bank and Vijaya Bank. The equity share also included a

grant of INR 1,070 million from the Government of Andhra Pradesh.9 For the development of

additional facilities, a debt of INR 2,000 million ($50 million) and External Commercial Borrowing

(ECB) of INR 5,180 million ($128.6 million) were raised by GHIAL.10 The debt raised through ECB

has a repayment time lag of 2 years from the date of commencement of the airport operations and

the repayment schedule is spread over 14 years.

It planned to boost up its revenues from the airport by concentrating on non-aerospace business

as well.According to T Srinagesh, chief operating officer, GHIAL, “Non-aero business will initially

account for about 50% of the total revenues, but would eventually go up to as much as 75%.”11

Also, in order to entice manufacturers of high-end products like computer chips, electronics, gems

5 “Rajiv Gandhi (Hyderabad) International Airport, Andhra Pradesh, India”, http://www.airport-technology.com/projects/

hypderbadIndia/

6 “Public Private Partnership”, http://www.hyderabad.aero/airport/partnership.html

7 “GMR Infrastructure Limited 11 th Annual Report 2006–2007”, http://www.gmrgroup.co.in/Investors/pdf/

GIL11thAnnualReport2006-07.pdf, page 37

8 Ibid.

9 Ibid.

10 “Rajiv Gandhi (Hyderabad) International Airport, Andhra Pradesh, India”, op.cit.

11 “GMR now eyes non-aero business”, http://www.financialexpress.com/news/gmr-now-eyes-nonaero-business/161745/, March

30th 2006

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and jewellery, it also planned to set up budget hotels and an airport-based SEZ. All these plans

increased the attractiveness of the GHIAL project and the revenues it would generate after the

completion of the project.

In December 2008, the project of GHIAL was evaluated by J. P. Morgan and it presented the

estimated cash flows of GHIAL in one of its report (Annexure II). It also estimated the appropriate

discount rate (weighted average cost of capital) as 9%.12 The prospects of the project in the long

run are yet to be seen.

12 “GMR Infrastructure Ltd.”, http://0301.netclime.net/1_5/145/0b8/1a8/GMR%20Infrastructure%20-

%20J%20P%20Morgan%20-%20Dec%209,%202008.pdf, December 9 th 2008, page 3


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Annexure ISpecifications of GMR Hyderabad International Airport (GHIAL)

Key Data

Start Year 2003

Project Type Greenfield airport

Location Hyderabad, India

Estimated Investment INR 24,780 million

Completion Opened March 23rd 2008, first plane landed as a test on

February 12th 2008

Key Players

Sponsor GMR-Hyderabad International Airport Limited (GHIAL),

GMR Group (63%), MalaysiaAirports Holding Berhad (11%),

Government of Andhra Pradesh (13%), Airports Authority of

India (13%)

Financing Abu Dhabi Commercial Bank, Andhra Bank, Vijaya Bank

Contractors Larsen & Toubro, China State Construction & Engineering

(Hong Kong), Menzies Aviation Plc, LSG Sky Chef and Sky

Gourmet, Reliance Industries (RIL), Novotel, Accor Group,

Nuance-Shopper’s Stop Consortium, Plaza Premium Lounge,

MunichAirport Int.

Navigation VOR, NDB, VOR DME, ILS (CAT I on both ends)

Traffic

Passengers per Year 12million

Featured Suppliers

UFIS Airport Solutions - Integrated Solutions for Airport Operation and Management

Source: “Rajiv Gandhi (Hyderabad) International Airport, Andhra Pradesh, India”, http://www.airport-technology.com/

projects/hypderbadIndia/specs.html

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Annexure IIEstimated Cash Flows of GHIAL (in INR million), Financial Year (FY)

2009–2012

2009 2010 2011 2012

Passengers (in million) 5.9 6.4 7.3 7.6

Aero revenue 1,432 2,117 2,445 2,515

Non-aero revenue 1,286 1,594 2,091 2,687

Total gross revenues 2,718 3,711 4,536 5,202

Less: AAI revenue share 116 161 197 224

Net revenue 2,602 3,550 4,339 4,978

Net revenue/passengers(in million) 441.0 554.7 594.4 655.0

EBITDA margin (%) 69 75 76 74

EBITDA 1,793 2,655 3,309 3,706

Depreciation 1,416 1,507 1,587 1,977

Interest 1,716 1,804 1,447 1,984

PBT -1,339 -656 275 -255

Tax 0 0 -26 0

PAT -1,339 -656 301 -255

Government grant 1,070 1,070 1,070 1,070

Operating cash flow 1,793 2,655 3,335 3,706

Free cash flow 2,863 3,725 4,405 4,776

Compiled by the author from “GMR Infrastructure Ltd”, http://0301.netclime.net/1_5/145/0b8/1a8/

GMR%20Infrastructure%20-%20J%20P%20Morgan%20-%20Dec%209,%202008.pdf, December 9th 2008, page 3

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