Can GMR stocks fly higher after GQG's stake buy?

GMR Airports Infrastructure (GIL) has experienced a notable 15% increase in its stock over the past five sessions, spurred by foreign portfolio investor GQG Partners Emerging Markets Equity Fund's acquisition of a 4.7% stake. This move follows the announcement in June 2023 that GMR Airports, managing Hyderabad and Delhi airports, will merge with GIL.

The latest surge in the stock price to a 52-week high of Rs 72.30 on December 11 is attributed to GQG Partners' stake purchase, valued at Rs 1,671 crore. Other investors, such as Nomura India Investment Fund and Stichting Depositary APG Emerging Markets Equity Pool, have also recently acquired stakes. Promoter holding stands at 59%, while foreign institutional investors hold around 28.01% as of September 2023.

Analysts highlight various factors contributing to investor interest, including the increase in air traffic and improved financial performance. October 2023 reported a 19% YoY rise in passenger traffic, reaching 9,841,859, and a 5% MoM growth. Financially, GIL has witnessed improvements in its balance sheet, cash flow, and operating efficiencies, according to Nirav Karkera, Head of Research at Fisdom.

GIL, operating through GMR Airports Ltd (GAL), reported aero revenue of Rs 251.6 crore and non-aero revenue of Rs 703.5 crore in Q2FY24. The net loss reduced to Rs 190 crore, and net income grew 25% to Rs 1,607 crore. EBITDA for the September quarter increased 34% YoY to Rs 848 crore. The company's net debt is currently Rs 23,600 crore, reflecting a 6% decrease from the previous fiscal year.

The planned merger with GMR Airports is anticipated to enhance GIL's financials, with the GMR Group maintaining the largest stake. The company also raised Rs 3,125 crore for the Bhogapuram International Airport and increased aeronautical charges for Manohar International Airport, Goa.

While the stock has surged over 360% in the last year and 78.16% YTD, analysts have varying recommendations. Sunny Agrawal, Head of Research at SBI Capital Securities, sees long-term potential, anticipating earnings growth from increased passenger traffic and new airport additions. ICICI Securities has a 'buy' call with a target price of Rs 63, emphasizing the stable regulatory regime of the airport business. In contrast, Kotak Securities has a 'reduce' call with a target price of Rs 55, citing risks such as limited cash flows and competition.

Analysts caution that, despite the opportunities presented by rising passenger traffic, risks include debt implications, particularly for projects like Bhogapuram airport. They emphasize the importance of monitoring the company's ability to convert debt into positive outcomes. Kotak Institutional Equities also notes risks like limited cash flows, competition dynamics, and concerns about new investors entering at high valuations. Investors are advised to conduct thorough due diligence before making investment decisions.