Airports in India: ready for take-off?

For a while now, any growth story pertaining to India starts with “India’s growing middle class, rapid urbanization and increase in economic activity coupled with global disruption in supply chains augurs well for the growth of this sector.”

While these triggers hold true for Airports in India too, there are sector specific trends and policies that explicitly endorse its potential.

International Air Transport Association (IATA), a trade association of the world's airlines, suggests that India is expected to become the world's third-largest air passenger market by 2030. Yet, as measured by the Seat per Capita, India remains one of the most underpenetrated markets. This translates into significant headroom for growth.

To materialise this potential and boost domestic airline travel, the government introduced UDAN, a regional connectivity scheme, which connects underserved airports to key airports through flights which broadly cost as little as Rs 2,500 per hour. Since the introduction of UDAN, air travel affordability got a boost along with air transport infrastructure development.

Further, the government is looking to invest ~INR 1 trillion to develop 100 airports over the next four years (FY22-FY26). Off this, INR 22,000 crore will be spent by the state-run Airports Authority of India on building terminals and other infrastructure at existing airports. The capex intensity on airports is expected to increase by 51% over FY23-27E with the private sector expected to account for 2/3rd of the increased capex. This will really give Airport management a fillip.

Now it’s true that in the short run, international traffic to India is likely to be impacted by geopolitical conflict (post the Ukraine war). But domestic traffic is less likely to be affected; UDAN has already provided an initial boost to the domestic airport business. The increase in the number of flights flying to non-metro routes will help improve domestic connectivity and in turn traffic growth. In the longer run, the new tourism policy has introduced concrete measured to improve the perception of India as a safe and preferred travel destination. This will help in increasing international traffic growth.

So, clearly, the airports business is at an inflection point.

But how can stock investors cash in on the upward ride?

Through its flagship company, Adani Enterprises Ltd. (AEL), the Adani Group forayed into the airports sector in 2019. Adani Airports won the mandate to modernize and operate six airports – Ahmedabad, Lucknow, Mangaluru, Jaipur, Guwahati and Thiruvananthapuram – through the Airports Authority of India’s globally competitive tendering process. As things stand, Adani Airports will operate, manage and develop all six airports for 50 years. Talk about assured long term revenue visibility!

Then, more recently, in February 2020, the company signed a Concession Agreement (CA) for three airports and subsequently commenced operations in Mangaluru International Airport (Mangaluru), Chaudhary Charan Singh International Airport (Lucknow) and Sardar Vallabhbhai Patel International Airport (Ahmedabad). Again, greater visibility of more revenue streams; a long term investor’s delight.

What’s more, AEL management has developed a four-pronged strategy to increase aero revenues and a separate strategy to accelerate non-airport revenues from its airport business.

Download our report to know more about the airline industry’s take-off and how Adani Airports is hurtling along on its own runway, with a dream portfolio of airports and a fail-safe strategy for the long-term.

You may also like to read: Green H2: Hype less Hydrogen

Disclaimer:

The blog is for information purposes only and anything mentioned herein shouldn’t be construed as a fundamental reason to buy/hold/sell any stock. Furthermore, the information provided in the blog and observations made therefrom shouldn’t be treated as the extension of recommendations made on the other properties of Ventura Securities. If you follow any research recommendations made by our fundamental or technical experts, you should also read associated risk factors and disclaimers.

We strongly suggest you to consult your financial advisor before taking any decision pertaining to your finances. Asset allocation becomes extremely relevant.

We, Ventura Securities Ltd, (SEBI Registration Number INH000001634) its Analysts & Associates with regard to blog article hereby solemnly declare & disclose that:

 We do not have any financial interest of any nature in the company. We do not individually or collectively hold 1% or more of the securities of the company. We do not have any other material conflict of interest in the company. We do not act as a market maker in securities of the company. We do not have any directorships or other material relationships with the company.

We do not have any personal interests in the securities of the company. We do not have any past significant relationships with the company such as Investment Banking or other advisory assignments or intermediary relationships. We are not responsible for the risk associated with the investment/disinvestment decision made on the basis of this blog article.