Moody's Investors Service has assigned a first-time corporate family rating of Ba1 to GMR Hyderabad International Airport Limited (GHIAL) and the outlook for the rating is stable. GHIAL has a long-term concession to operate Hyderabad airport, which is one of the leading airports in India. "The Ba1 corporate family rating primarily reflects GHIAL's strong market position and its strategic location in the city of Hyderabad, which is India's fourth most populous city and a major economic centre," Moody's vice president and senior analyst Abhishek Tyagi said.
These factors position GHIAL well to benefit from continued growth in travel over the next two to three years. GHIAL's credit profile is also underpinned by its low business risk due to low concession revenue share payment to the government, he further said. However, the rating is challenged by the limited track record of India's regulatory framework and GHIAL's significant capital expenditure to expand its capacity, which will elevate financial leverage and raise execution challenges, the rating agency said.
"Reflecting its strong market position, we expect the airport to benefit from increased travel demand in the country as income grows, particularly because an increasing proportion of the airport's revenues - being non-aeronautical revenues -- will be driven by rising passenger volumes," Tyagi said. GHIAL has one of the lowest concession fees in India, at 4 per cent of the gross revenues -- which can be passed on as a part of operating expenses as per the regulations.
This compares with 45.99 per cent and 38.7 per cent revenue shares for Delhi and Mumbai airports, respectively. GHIAL has a significant expansion programme in the range of Rs 2,200 crore to Rs 2,500 crore which will be implemented over the next four years. The stable outlook reflects the airport's strong liquidity and Moody's view that the company's financial profile over the next 12 to 18 months is manageable at the Ba1 rating level.
"The ratings could be downgraded if there is a deterioration in financial leverage that is beyond our base case expectation, and which could be due to a larger expansion programme, or missteps in implementing the expansion project, or a reduction in aeronautical and/or non-aeronautical revenues relative to our base case expectation," it added.