Is GMR Airports Deal With Groupe ADP Sweeter Than What Tata-GIC Proposed?

The Indian airport operator will sell a 49 percent stake to Groupe ADP for Rs 10,780 crore to reduce debt. That comes nearly a year after a consortium led by a Tata Group company, Singapore’s sovereign wealth fund GIC and SSG Capital Management had agreed to invest around Rs 8,000 crore for a 44.4 percent stake in GMR Airports in March 2019—valuing the airport division at Rs 22,480 crore, including earn-outs.

The new deal values GMR Airports at Rs 26,475 crore, including earn-outs. Groupe ADP pegged earn-outs up to Rs 4,475 crore, linked to achievement of certain operating performance metrics as well as on receipt of certain regulatory nods over the next five years.

Here’s a look at some key differences between the two deals:

Valuation

• Valuation of GMR’s airports division in the proposed Tata-GMR deal: Rs 22,480 crore including earn-outs.
• Valuation of GMR’s airports division in the Groupe ADP deal: Rs 26,475 crore, including earn-outs.

Stake Offered In GMR Airports

• Stake sale in the proposed Tata-GMR deal: 44.44 percent.
• Stake sale in the GMR-Groupe ADP deal: 49 percent.

Proceeds

• Tata-GMR deal: Rs 7,000 crore towards second sale; Rs 1,000 crore towards primary.
• GMR-Groupe ADP deal: Rs 9,780 crore towards secondary sale; Rs 1,000 crore towards primary.

Valuation Internals

The equity value of Rs 26,475 crore, including earns-outs, and a debt of around Rs 11,000 crore for the division, takes its total enterprise value to Rs 37,500 crore. Assuming Ebitda in the fourth quarter to be same as in the previous three-month period, the FY20 Ebitda comes at Rs 2,540 crore—around 15x EV/Ebitda multiple for the deal, according to BloombergQuint calculations.

The airport division’s operating profit jumped 26 percent year-on-year for the nine months ended December 2019 on the back of robust performance of Delhi International Airport Ltd., according to the company’s third-quarter investor presentation.

To be sure, the Tata Group-backed deal d GMR Airports at 18x in March 2019. That was based on the declared numbers of financial year 2018-19. With the increase in net debt of the airports division due to expansion plans for Delhi and Hyderabad airports, the EV/Ebitda multiple that Groupe ADP has paid is slightly lower than the multiple that TATA-GIC combine was willing to pay then, as per BloombergQuint’s calculations.

Outlook

The proceeds from the sale will help GMR Infrastructure in its deleveraging process. If the equity consideration of Rs 10,780 crore is utilised completely, then the net debt of the company will come down from Rs 25,660 crore as of December 2019 to Rs 14,880 crore, assuming 100 percent of equity consideration will be utilised towards debt repayment.

According to Rohit Natarajan, assistant vice-president of Research at Antique Stock Broking, the proceeds from the Groupe ADP deal should help pare corporate debt, unlike the Tata-GIC deal, where regulatory hurdles made deleveraging difficult.

“Without disputing on the relative valuation of the Tata-GIC-SSG's deal with ADF, the bigger picture is that GMR group’s corporate debt of around Rs 9,000 crore coming down,” he said.