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.
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