| Delhi International Airport Limited | ||||
| Rating outlook revised to 'Positive'; Rating Reaffirmed | ||||
| Rating Action | ||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||
| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has revised its outlook on the long-term bank facilities of Delhi International Airport Limited (DIAL) to ‘Positive’ from ‘Stable’ and has reaffirmed the rating at ‘CRISIL A+’.
The outlook revision factors in healthy traffic and non-aeronautical revenue recovering over fiscal 2020 level, favourable ruling in the aeronautical tax case and no adverse movement on the unpaid revenue share issue. The ‘Positive’ outlook reflects an expectation that along with such recovery, there would be no material outflow of unpaid revenue share payments to Airports Authority of India (AAI; rated ‘CRISIL AAA/Stable’) for fiscals 2021 and 2022. CRISIL Ratings expects that traffic will be over 75 million and non-aero revenue (without commercial property development [CPD] income) will be over Rs 2,700 crore for fiscal 2024.
In July 2022, the Supreme Court passed its judgement in favour of DIAL in the aeronautical tax calculation case. This is expected to increase the cash flow of DIAL in Control Period 4 (beginning from April 2024) by a material value (finalisation of the amount is pending conciliation and calculation).
The rating continues to reflect the strong market position of DIAL as the operator of the Indira Gandhi International Airport in Delhi, a ring-fenced structure, moderate debt servicing and healthy financial flexibility. These strengths are partially offset by exposure to project implementation and regulatory risks and financial profile recovery being dependent on non-aero revenue recovery. |
Key Rating Drivers & Detailed Description Strengths: Strong market position as the operator of the Indira Gandhi International Airport The company runs the largest airport (with around 67.3 million passengers handled in fiscal 2020) in India, with no other airport in northern India competing materially for international traffic. From 2010 to 2020, operational performance remained sound; passenger traffic registered compound annual growth rate of over 12%.
Lockdowns, restrictions on movement of people and overall economic slowdown have impacted traffic, with DIAL handling only 22.6 million passengers in fiscal 2021 vis-à-vis 67.3 million in fiscal 2020. Traffic recovered in fiscal 2022 to touch 39.3 million passengers (74% increase from fiscal 2021) and is expected to reach pre-pandemic or fiscal 2020 levels in fiscal 2023. Strong market position within a defined catchment area is expected to restore passenger volume and lead to healthy growth, as seen in the past. Furthermore, revival in the economy and corporate travel are likely to provide growth of 15-20% in fiscal 2024 (over fiscal 2023 volume).
In November 2019, Zurich Airport won the bid to develop Jewar International Airport (likely to be commissioned by 2024), which is proposed to be located about 72 kilometre (aerial distance) from DIAL. The attractive location, large catchment area and regulated business model of the airport provide true-ups and ensure safeguard against impact on traffic and non-aero revenue growth in the long term.
Ring-fenced structure DIAL is structured as a special-purpose vehicle and is ring-fenced from its parent, the GMR group. Supervision by AAI for all strategy decisions and related-party transactions and presence of a trust and retention account with a payment waterfall mechanism ensure priority of debt repayment and restrict free movement of funds within group companies. Ring-fencing from the GMR group is further established by the presence of Groupe ADP (S&P A/Negative) as a ~49% equity shareholder in GMR Airports Ltd, a holding company of DIAL. Any change in this understanding will be a rating sensitivity factor.
Moderate debt servicing over long concession life and healthy financial flexibility DIAL has a healthy track record of cash accrual generation, which supports debt servicing over the long concession life, expiring in 2036 (extendable by another 30 years). Though drop in passenger footfall due to Covid-19-related restrictions led to significant reduction in cover metrics, with debt service coverage ratio (DSCR) falling below 1 time in fiscal 2021, growth in passenger traffic and non-aero revenue will likely lead to significant recovery in the DSCR profile in fiscal 2023. Traffic and non-aero revenue are expected to touch fiscal 2020 volume in fiscal 2023. Passenger traffic for the first eight months of fiscal 2023 was 41.4 million, which was 91% of the traffic in the corresponding period of fiscal 2020. Non-aero revenue (excluding CPD income) as of October 2022 was Rs 1,344.1 crore, comprising nearly 61% of the non-aero revenue in fiscal 2020.
DIAL has financial flexibility from an attractive land bank. As a part of its agreement with the AAI, the company has the right to develop about 230 acre of land around Delhi airport; out of this, nearly 69 acre has already been monetised. The company has also entered into a CPD agreement with Bharti Realty for another 4.9 million square feet, for which the funds are being received as per timelines.
Citing article 16 from the Operation, Management and Development Agreement, DIAL is seeking waiver of revenue share payments for fiscals 2021 and 2022. The final verdict pertaining to this is expected in the first quarter of fiscal 2024.
Weaknesses: Exposure to risks associated with delay in tariff order and allowance of capex The regulatory regime for airport operators in India is still evolving. Risks pertaining to timeliness of tariff orders and their implementation persist and will affect airport operators when they seek a true-up either for lower-than-expected revenue or higher capex for past control periods. DIAL is incurring around Rs 10,550 crore of capex by September 2023, which is expected to ramp up revenue entitlement in control period 4, beginning April 2024. The timing of this tariff order and increase in actual cash flow for the ongoing capex will remain monitorables.
Financial profile recovery dependent on non-aero revenue recovery As per the terms of the concession, DIAL has to pay 45.99% of its gross revenue to AAI. Non-aero revenue formed around 70% of the overall revenue in fiscal 2020 and fell sharply on account of Covid-19 to Rs 1,278 crore in fiscal 2021 (against Rs 2,205 crore in fiscal 2020). The high proportion of revenue share compared with some peers makes recovery and growth of non-aero revenue critical for the long-term financial profile. As per current trends, non-aero revenue is expected to recover to levels seen in fiscal 2020 in fiscal 2023 itself and grow by ~20% in fiscal 2024. Lower or higher recovery trajectory than anticipated will be a rating sensitivity factor. |
Liquidity: Strong DIAL had unencumbered cash and equivalents of around Rs 1,350 crore as of September 2022, excluding unutilised fund-based working capital lines of Rs 435 crore. Relief from payment of revenue share to AAI from January 2021 to March 2022 has also helped maintain liquidity. The next bond repayment is in fiscal 2026, which is expected to be refinanced in a timely manner. Capex is expected to be met through earmarked funds for capex, CPD deposits and drawdown of additional debt. |
Outlook: Positive The ‘Positive’ outlook reflects CRISIL Ratings’ expectation that traffic and non-aero revenue will grow over fiscal 2020 (75 million and Rs 2,700 crore of non-aero revenue [without CPD revenue] in fiscal 2024), and there will be no material outflow required in unpaid revenue share payments to AAI for fiscals 2021 and 2022 |
Rating Sensitivity Factors Upward Factors
Downward Factors
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About the Company DIAL was incorporated in March 2006 to operate, modernise and undertake a phased expansion of the Indira Gandhi International Airport in Delhi under a 30-year concession expiring in 2036 (extendable by another 30 years). The company is a joint venture between the GMR group (64% held through GMR Airports Ltd), AAI (26%) and Frankfurt Airport Services Worldwide (10%). |
Key Financial Indicators (CRISIL Ratings-adjusted numbers)
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | |||
| Facility | Amount (Rs.Crore) | Name of Lender | Rating |
| Proposed Rupee Term Loan | 5516 | Not Applicable | CRISIL A+/Positive |
| Working Capital Facility | 384 | ICICI Bank Limited | CRISIL A+/Positive |
| Working Capital Facility | 100 | ICICI Bank Limited | CRISIL A+/Positive |
This Annexure has been updated on 12-May-2023 in line with the lender-wise facility details as on 09-May-2023 received from the rated entity.
Criteria Details
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