Jefferies Sees 36% Upside for GMR Airports, Says Hyderabad Tariff Outlook Remains Intact
Key Takeaways
- •AERA reduced the Hyderabad airport UDF to ₹515 for departing domestic passengers from ₹750 and to ₹1,030 for departing international passengers from ₹1,500.
- •The revised fees are lower than the ₹580 domestic and ₹1,150 international rates proposed by GHIAL, the GMR subsidiary operating the airport.
- •Jefferies maintains its bullish stance on GMR Airports with a price target implying 36% upside, saying the Hyderabad tariff outlook remains intact.
- •GMR Airports, the listed airports arm of GMR Group, operates the Hyderabad airport through GHIAL and Delhi's airport through a joint venture.
- •AERA revisits tariff orders at defined intervals, making future regulatory decisions key to GMR's aeronautical revenue outlook.
Jefferies maintains a bullish stance on GMR Airports, with a price target implying 36% upside, stating that the outlook for tariffs at Hyderabad's Rajiv Gandhi International Airport remains intact following the regulator's latest decision on user development fees (UDF).
The Airports Economic Regulatory Authority (AERA), which sets tariffs for major Indian airports, has revised the UDF charged at the Hyderabad airport. AERA determines aeronautical charges for airports handling significant passenger volumes through periodic tariff orders, and revisions to these fees directly shape operators' regulated revenue. For domestic passengers departing from the facility, the UDF has been reduced to ₹515 from the existing ₹750 — a figure that also comes in below the ₹580 proposed by GMR Hyderabad International Airport Ltd (GHIAL), the operator of the airport. For international departing passengers, the UDF has been cut to ₹1,030 from ₹1,500, compared with GHIAL's proposal of ₹1,150.
GMR Airports is the listed airports arm of the GMR Group and operates several airports in India, including the Rajiv Gandhi International Airport in Hyderabad, as well as Delhi's Indira Gandhi International Airport through a joint venture. GHIAL is the subsidiary that runs the Hyderabad airport. User development fees are levied on departing passengers and form a key component of airport operators' aeronautical revenue, which is why brokerage assessments of tariff orders bear directly on the earnings outlook for airport companies.
According to Jefferies, the revised fee structure does not alter its positive view on the Hyderabad tariff trajectory, supporting its price target on GMR Airports shares, which implies 36% upside from prevailing levels. Tariff orders of this kind are typically revisited by AERA at defined intervals, meaning subsequent regulatory determinations for airports in GMR's portfolio remain the key follow-up events for the company's aeronautical revenue outlook.
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