This document contains certain forward-looking statements based on the currently held beliefs and assumptions of the management of GMR Infrastructure Limited ("GIL"), which are expressed in good faith, and in its opinion and judgment, are fairly reasonable. For this purpose, forward- looking statements mean statements, remarks or forecasts that address activities, events, conditions or developments that the Company expects or anticipates which may occur in the future. Because of the inherent risks and uncertainties in the social and economic scenarios, the actual events, results or performance can differ materially and substantially from those indicated by these statements. GMR Infrastructure Limited disclaims any obligation to update these forward-looking statements to reflect future events or developments.
Infrastructure Growth Macroeconomic Indicators
FY22 was a year of various ups and downs from the pandemic and geo-political perspective. On the pandemic front, the year began with the devastation of the Delta wave but the subsequent recovery was quick as the world got more accustomed to pandemic related disruptions. Thereafter the intensity of COVID strain reduced to certain extent and medical/ vaccination infrastructure availability caught up with the requirements. While intermittent pandemic waves did create challenging scenarios, but on the whole during the year, the global economy was continued to recover. Policy makers across the globe also played a major role in economic recovery by infusing required growth liquidity in the economy through various incentives and policy measures.
As a result of these efforts and in part on account of base effect, global economic growth rate came at approximately 6.1% for 2021 as compared to a de-growth of 3.2% in 2020.
The year was a roller coaster ride for the Indian economy as well. We ended FY21 on a strong footing with post-COVID recovery in sight. Accordingly, India recovered from its worst ever GDP decline of 24.4% in Q1FY21 to 20.1% growth in Q1 FY22. Similarly, most macroindicators had recovered impressively from COVID lows.
Shortly after entering the new financial year, we were hit by a second wave (delta variant) of pandemic in April 2021, which caused widespread disruptions with the Indian economy again coming to a standstill. However, the wave was short-lived and had dissipated by July 2021. We were back on path to recovery and most macroeconomic indicators posted a V-shaped recovery crossing even post wave 1 levels. A third wave hit us in Q4 FY22, but that too was shortlived and hardly dented Indias economic recovery which proved to be resilient.
During this period, the government came up with various initiatives and spending programs to boost economic growth. RBI also played an important role by maintaining healthy level of liquidity in the market and keeping repo rate at 4% level. As a result of these measures and on account of previous years low GDP base, India recorded a GDP growth of 8.7% during FY22 versus a de-growth of 6.6% in FY21.
Other economic indicators like Index of Industrial production i.e. IIP, Manufacturing and services PMI indices etc. also remained upbeat in the second half of the year. However, the impressive GDP growth and low interest rates along with the disruption of global supply chains brought with it the problem of inflation. By March22, WPI (wholesale price index) inflation had reached 14.95%, while CPI (Consumer price index) inflation was at 6.95%. A large proportion of inflation may be attributed to rise in commodity and crude oil prices, which were buoyed by renewed demand.
During the year, Indian government broke new GST collection records; INR 1.42 lakh Crore in March 2022. Also, Indias forex reserves reached new levels of USD 642 Bn in October 2022. Performance of India rupee also remained satisfactory, being largely range bound at a level of ~INR 74 - 75 per USD.
While the pandemic and its negative impact on global economy seemed to be receding, the world was presented by yet another challenge in the form of geo-political disturbances towards the end of the financial year. During the last week of February 2022, Russia initiated a military operation in Ukraine. The conflict between the two countries has now gone on for months and at this stage there is still uncertainty about the timelines for the resolution of this conflict.
The conflict has resulted in various European nations and USA imposing stringent economic sanctions on Russia including sanctions on export of various commodities. This has led to a further rise in commodity prices, which were already at multi-year highs in spite of the fact that China with its Zero-COVID policy is yet to fully open up its economy. It may also be noted that the Russia - Ukraine conflict is gradually leading to economic fragmentation of the world, which has further exacerbated supply chain disturbances. Owing to such issues, a fragile post-pandemic economic recovery is being adversely affected. As per IMF, economic damage caused due to this conflict will lead to a significant economic slowdown in 2022 global growth. Accordingly, IMF has cut its global GDP growth target for CY22 from 4.4% to 3.6%. Euro area may be worst affected on account of energy security concerns, thus GDP target for Euro area has been slashed from 3.9% to 2.8%.
While India has been playing a balancing act in line with its policy of non-alignment, it has not been immune to negative economic consequences of this conflict. Rise in crude oil prices has been the most drastic impact for India on account of the conflict. It has further led to various complications including rising inflation, weakening Indian Rupee, higher import bill and reducing forex reserves. To counter rising inflation, and in line with similar steps taken across the world by Central Banks, including in USA, UK and Europe, the RBI has also taken various steps to reduce liquidity, with the major one being an increase in repo rates by 140 bps in three instalments to 5.4%. One of the consequences of these events has been a significant FII outflow from Indian stock markets and the depreciation of the Indian Rupee to levels of up to 80 per USD.
On account of such adversities, various financial institutions have cut Indias GDP target for FY22 from around 8-9% to around7-8%. IMF also cut Indias GDP target for CY22 from 9% to 8.2%. CY23 GDP growth forecast for India has been pegged at 6.9%.
While pandemic risks rising from COVID among others still persist for the Indian economy as well as the world, the Russia - Ukraine conflict has overshadowed that risk in terms of economic impact. As a result of this ongoing conflict, which is expected to persist in near to medium term, crude oil prices may remain elevated. It could potentially impact the Indian economy in terms of inflation, rising trade deficit, a weakening rupee and also putting adverse pressure on Indias current account deficit. Responding to the inflationary pressure, while the RBI has already hiked repo rates three times, some more rate hikes cannot be ruled out.
On the positive front, India has until now been able to balance its relationships with different geo-political groupings keeping in perspective its own strategic interests. Further, apart from crude oil, India is mostly self-sufficient in terms of other natural resources and food products, which to some extent reduces the risk of inflation spiraling out of control. In addition, Indias post COVID recovery has been impressive and it has been consistently projected to be the best performing major economy for years to come. Thus, we remain largely confident that in spite of a few short to medium term head winds, given government policy initiatives especially in the infrastructure sector, Indias long term growth story remains intact.
Infrastructure initiatives announced
While a number of initiatives have been taken up during the Covid period, in a significant development in October 2021, the Indian government launched the PM Gati Shakti initiative, a national master plan for multi-modal connectivity. The platform brings together 16 ministries for integrated planning and coordinated implementation of infrastructure connectivity projects. The platform aims to incorporate infrastructure schemes taken up by various central ministries and state governments including the likes of Bharatmala, Sagarmala, Inland waterways etc. The ultimate aim of the platform is to improve connectivity and in turn make Indian businesses more competitive. Seven engines that will drive the platform are Roads, Railways, Airports, Ports, Mass Transport, Waterways and Logistics Infrastructure.
PM Gati Shakti also featured as a priority initiative during the Union budget 2022-23. Further, during the Union budget 2022-23, Indian government took up various initiatives to boost economic growth while also focusing on all-inclusive welfare, technology enabled development and kick starting capital investment cycle.
Few of these initiatives include:
• loan guarantee schemes for MSMEs, where guarantee coverage under Emergency Credit linked Guarantee Scheme (ECLGS) was expanded by INR 50,000 Cr to INR 5 lakh Crores;
• 35% increase in capital expenditure target to INR 7.5 lakh Crores for FY23 vs FY22; Public capital investment outlay at 2.9% of GDP;
• significant allocation to production linked incentive (PLI) scheme for 14 identified sectors, a scheme that aims to boost domestic manufacturing and investments into India under the governments Atmanirbhar Bharat initiative;
• allocation to State governments in the form of interest free loans so as to catalyze economic investment;
• blended funds for sunrise sectors;
• increase in defense capital procurement from domestic businesses;
• expansion of national highways network by 25,000 km during the year etc.
Impact on Sectors in which GIL Operates
The global aviation sector was among the worst affected due to COVID pandemic during FY21. However, significant recovery was witnessed during FY22. Even with recurring COVID waves, domestic traffic exhibited an impressive recovery. For many intermittent periods, Indian domestic traffic even clocked near pre-pandemic passenger traffic. International traffic also recovered to nearly 60-65% levels by end of FY22. It may be noted that Asia-pacific region has seen a good recovery of inter-region traffic, however, intra-region traffic i.e. within Asia pacific region has been slow to recover. With progressive relaxations in travel restriction, this traffic is also bound to recover in near term.
Even in a pandemic hit world and amid all geo-political disturbances, we believe that aviation market sector in India remains attractive. Earlier, Government had announced that 100 new airports are to be developed by 2024 under UDAN regional connectivity scheme. The scheme has progressed well and even amid pandemic-hit couple of years, government has managed to operationalize 67 airports under the scheme as on April22. The UDAN - regional connectivity scheme has been very effective in connecting more cities and thus tapping the largely under-developed broader aviation market in India. We believe that this scheme will be a major driver towards increasing Indias air traffic as it increases the overall aviation network of the country. In addition, as government continues with privatization of existing airports, investment opportunities in Indian aviation sector are immense. Further as per Budget 2022-23 announcement, issuance of e-Passports using embedded chip will be rolled out in 2022-23 to enhance convenience for the citizens in their overseas travel.
Even airlines seem upbeat on the future growth prospects and continue to add more aircrafts to their fleet. In line with this optimism, Indian airline sector witnessed key developments during the year. On one hand Air India was acquired by TATA group, while a new airline Akasa was launched in August FY23. Also, Jet Airways is well on the way to re-start operations.
Key developments at GIL
Over the past few years, we have consolidated our position, focused on addressing, rationalization and management of corporate debt and stressed assets while building a platform for growth for the future. We have taken many significant steps in implementing our stated strategy to strengthen the balance sheet through improved cash flows from increased profitability, debt reduction through asset monetization, value unlocking and prudent working capital management while creating avenues for growth.
This year, in a bid to create value for investors and attracting sector focused investor capital, GIL completed its restructuring initiative, under which, the group has undergone a vertical de-merger of its airport and non-airport businesses. Post the de-merger, GIL has emerged as Indias only pure-play listed airport company. Companys non-airports business have been shifted to another listed entity GMR Power and Urban Infra Limited , with a mirror shareholding of GIL. The restructuring has resulted in simplification of corporate holding structure and enable airport and non-airport businesses to chart their respective growth plans independently.
Further to capitalize on our partnership with Groupe ADP, GMR Group and Groupe ADP signed Industrial partnership agreement in July 2021. The agreement was signed with a view to leverage on their expertise and resources and in turn to improve service level and product offerings to passengers and airlines. Key focus areas for exchange of knowledge include - Engineering, Construction & Design; Airport services and offerings; Passenger experience; Airport operations; Innovation; Sustainability; Talent and capacity building.
In terms of business development, GMR emerged as the winner for bid to develop and operate Kualanamu International Airport in Medan, Indonesia in November 2021. We hold 49% in the airport SPV, while remaining 51% is held by PT Angkasa Pura II, a state owned airport operator of Indonesia. The project scope includes operation, development, and expansion of the airport over a period of 25 years.
In another development with respect to Nagpur airport, where GMR had emerged as the highest bidder in March 2019 and subsequently the bidding process was annulled by the authority in March 2020, Honble Bombay high court quashed the award cancellation letter and directed the concerned authority to sign concession agreement for Nagpur Airport with GMR. In another relief to GMR, Honble Supreme Court too upheld the HC order.
All during the year, to cope with frequent turbulence in passenger traffic numbers, our teams performed exceptionally not only in terms of operational flexibility, but also in terms of financial resilience. As a result of such efforts, we have on one hand, sustained the operational aspects of the airport and maintained safe and efficient operating conditions while, on the other hand, ensured financial sustainability of the airport.
With respect to our airport construction projects, capacity expansion projects at Delhi and Hyderabad airports are in full swing. Further, significant progress has been achieved at our MOPA airport in Goa, which is scheduled to start operations within this financial year.
While we continue to expand our footprint across India and other geographies, various initiatives have also been taken towards achieving excellence on the ESG front. Even during pandemic, we continued to strive towards excellence. Recently, Delhi airport became the first airport to run entirely on renewable power including hydro and solar power. At Hyderabad airport, we commissioned a 5MW capacity solar plant in addition to the already existing capacity. Our flagship Delhi Airport is also setting new standards on the front of environment safety and sustainability. While Delhi Airport has now become Asia Pacifics first Level 4+ (Transition) accredited airport announced by ACI Europe Annual Assembly & Congress, Hyderabad Airport was awarded a Level 3+ neutrality status. Further, Delhi Airport received the Platinum Recognition in the Green Airports Recognition run by ACI Asia Pacific in over 25 million passenger category, while Hyderabad Airport received Gold recognition in below 25 MPPA category.
In terms of Skytrax world airports ranking, Delhi Airport jumped from rank 50 in 2020 to 45 in 2021 and further to rank 37 in 2022. On the Airport Service Quality (ASQ) rating given by ACI, Delhi Airport continued to score 5.000 for CY2021. Similarly, Hyderabad Airport also improved its ranking from 71 in 2020 to 64 in 2021 and further to 63 in 2022. On India basis, Delhi and Hyderabad Airports have been ranked 1st and 2nd respectively. On the Airport Service Quality (ASQ) rating given by ACI, Hyderabad Airport continued to score 5.00 for CY2021.
At GMR, our commitment to the cause of Nation building is through creation of quality assets. We are proud to have been associated with landmark infrastructure projects in India like Delhi Airport, Hyderabad Airport etc. We will strive to continue developing more such marquee infrastructure assets in service of the nation.
Airport Sector Outlook and Future Plan Airport Sector
The aviation industry across the globe is facing an unprecedented situation due to the COVID-19 outbreak. Initially, this resulted in near wipe out of passenger traffic across airports in India and across most parts of the world before a gradual opening up and recovery. In FY22, the resurgence of COVID-19 led to the reset of traffic to the minimum level in April - May period. Second half of the fiscal year started on a positive note with recovery in traffic with domestic capacity restored to 100% in October 2021 but had a temporary setback due to a 3rd COVID wave. Restriction on scheduled international operations continued throughout the year and was finally lifted on 27th March 2022. Thus, during the year, international traffic was mostly dependent on flights under bilateral air bubble arrangements within countries. While domestic traffic reached almost to the pre-COVID level in a gradual route to recovery by March 2022, International traffic reached to about 60% - 65% of pre-COVID level by fiscal year end. Cargo volume recovery was much stronger and reached to pre-COVID levels in FY22.
In addition to the pandemic, Russia - Ukraine conflict has also presented significant impact on global aviation industry in the form of various country to country travel related and air-space restrictions. However, as per our assessment, direct impact of this event on Indian aviation space may not be significant given the relatively low proportion of passengers travelling to and from India being from Russia and Ukraine. However, there is potentially an indirect impact from the perspective of higher fuel costs and consequent impact on airline tariffs which may impact affordability.
Given that India has been a large domestic market, its recovery has been relatively stronger. Further, given that air travel was established as a safe mode of travel, it appeared to encourage many first-time travelers to travel by air. International travel has struggled to pick up across the world given restrictions imposed by various governments. These restrictions were particularly stringent in Asia Pacific region, as a result of which while inter-region international traffic recovered well, intra-region traffic recovery struggled.
During the year, we were also able to expand the network to cover destinations that were not covered earlier. This is likely to further accelerate growth trends post recovery as new destinations and flyers join the system.
The rapidly evolving situation related to COVID-19 required a robust response by airport operators to ensure the safety of passengers, staff, and operations at airports. GMR is proud to mention that it has done exceedingly well in the current situation and has proactively implemented contingency plans and adapted wherever needed by developing new ones. We have focused all our efforts towards facilitating a safe and reliable journey for our passengers.
Few such initiatives that were implemented at our airports include:
• Contactless passenger processing by leveraging technology;
• Camera based contactless ID and travel document verification by CISF at terminal entry;
• Contactless CUSS access and usage via smart phone for boarding pass printing;
• Contactless F&B ordering and digital payments via GMR airport app HOI and digital wallets;
• Contactless car park transactions via Fastag (electronic toll collection) and digital wallets;
• Digital Information Desk;
• Hands-free elevator control.
• Contactless water dispensers and sanitizer dispensers;
• Safety measures at Retail and F&B outlets viz. contactless payments, disinfection units, more self-service options, disinfection and sanitization of goods, etc.
Above measures have enabled a recovery in passenger confidence. It may also be noted, that amid rapidly changing regulations across countries in view of the pandemic, airports were forced to adopt and implement new regulations at a very short notice. Our airports excelled in implementing such protocols while also ensuring passenger convenience, operational efficiency and financial stability. Such challenges have instilled a spirit of operational flexibility at our airports.
Further, in a bid to foster a culture of innovation within the organization and build a philosophy of open innovation that enables free flow of ideas and resources between GMR and external ecosystem partners, your Group had earlier launched a platform called GMR Innovex. To pursue such goals, we continue to interact, engage and collaborate with start-ups, academic research Institutes, ecosystem players and other companies in developing both digital & non-digital next generation solutions. With a major focus on airports and with a broad array of industries under its span, we continue to explore opportunities in a multitude of technologies like Video Analytics, Machine-Vision, Blockchain, Drone-Tech, Smart Tagging, Contactless Technology, RPA, EV, Autonomous, AR/VR, IoT and more.
In Philippines at our CEBU Airport, as a result of tight travel restrictions imposed by the government and CEBU predominantly being a tourist destination, recovery of air traffic has been relatively slow. However, now that most of the travel restrictions have been removed, we have observed a significant uptick in domestic traffic towards the end of the year. International traffic has though been under pressure and is yet to see a significant recovery, which we expect during FY23.
Airport Land Development
On account of its strategic location in the cities, the real estate, available as part of the concessions for our airports, continue to hold tremendous potential.
During the past five years, we continued our focus on acceleration in land monetization & development through a focused master-planned and economic roadmap. In the next five years, ALD will continue with development and monetization by exploring asset classes with district impact. Additionally, we also envision to create independent financing capabilities and creation of multi-airport asset platforms viz. for hospitality and retail.
Non-FSI based revenue generation through digital assets, real estate asset management and EPC based on customer needs is expected to gain momentum in the next couple of years. We intend to create a robust pipeline for these to enable monetization of these assets down the line.
Continuous improvement of infrastructure services and technology driven operational excellence to remain key focus areas in the future.
Economic Regulation & Airport Tariffs Tariff at Delhi Airport:
AERA has issued tariff order no 57/2020-21 for third control period on December 30, 2020 allowing Delhi International Airport Limited ("DIAL" to continue with BAC + 10% tariff for the balance period of third control period plus compensatory tariff in lieu of Fuel Throughput Charges. The regulator has further confirmed the right of DIAL to charge the minimum tariff of BAC + 10% for the balance period of the concession when the determined tariff is lower than BAC +10%. DIAL had also filed an appeal against some of AERAs decision in third control period order on January 29, 2021 with TDSAT.
In addition, DIAL had earlier filed a limited appeal before the Honble Supreme Court of India on July 21, 2018 against the TDSAT order dated April 23, 2018 with respect to First Control period. Judgement on this was pronounced by Honble SC on 11th July22, as per which all appeals are dismissed, except on the issue relating to aeronautical tax pertaining to aeronautical services. Honble SC accepted DIALs contention and decided that the Annual Fee paid by DIAL should not be deducted from expenses pertaining to aeronautical services before calculating the T element in the formula.
Tariff at Hyderabad Airport:
AERA had issued tariff order no 12/2021-22 for third control period i.e. 01-04-21 to 31-03-2026 on August 31, 2021. AERA decided to consider YPP for CP-3 as INR 429.74. AERA approved the following UDF from INR 281 to INR 750 per domestic departing passenger and from INR 393 to INR 1,500 per departing international passenger. Due to current pandemic scenario, authority has restricted increase in tariff and allowed GMR Hyderabad International Airport Limited (GHIAL) to recover the shortfall of eligible ARR for third control period to the tune of INR 669 crore In fourth control period as part of true up exercise.
GHIAL had also filed an appeal against some of AERAs decision in third control period order on September 30, 2021 with TDSAT.
Tariff at Goa Airport:
In the matter of MOPA Airport, GMR Goa International Airport Ltd. (GGIAL) has filed Multi Year Tariff Proposal for first control period on 7th Jan2022. For the purpose of MYTP GGIAL has considered the first control period. In the interim, GGIAL has asked for an ad-hoc tariff till CP1 tariff is finalized.
Growth Outlook - New Opportunities
Though aviation sector has been impacted due to the pandemic and Russia-Ukraine conflict, at GMR Airports we have strategized to convert these challenges into opportunities. Groups resilience and agile strategies have been helpful in navigating through the current challenges and at the same time charter new growth territories.
In line with our larger strategy for airports business, we believe that Airport business has huge underlying strength and it will continue to be a growth engine. Now with combined expertise and reach of both GMR and ADP, we are strategically much better placed to further scale up the airports business in Indian and new foreign territories. Some of the geographies offer airports only on O&M model. To ensure the flexibility in our approach, we have directed our focus on both the models i.e. airport concession model and O&M model. O&M Model is an asset light model and offers lesser risks.
Domestically, GMR is actively pursuing opportunities for new airports as and when they arise. As per the national monetization plan, government is planning for privatization of 25 airports in four phases. In our immediate sight is the opportunity of next round of regional airports privatization. We will be actively pursuing the upcoming round of airport privatization.
Outside India, the Group is strategically focusing on promising geographies of South Asia, South East Asia, Middle East, Africa, Central Asia, Eastern Europe and Latin America. We are actively evaluating and participating in multiple airports privatization opportunities in these geographies.
Recently, GMR has won the bid to develop and operate the Kualanamu International Airport in Medan, Indonesia. The project marks our entry in the fast growing Indonesian aviation sector in the ASEAN region. This reinforces GMR capabilities to penetrate the fast growing and emerging markets in the world.
This year GMR is actively pursuing airports opportunities in the Middle East, Central Asia, South Asia, South East Asia, Eastern Europe and African region.
GMR Airports Business is conceptualized as a platform with airport concessions being the core and a range of adjacent businesses built around the same. Our rich experience over the past decade of operating in diverse markets in the developing world has given us a unique understanding of drivers and a rich understanding of the various adjacency businesses.
As a result, we pushed forward with Groups vision to diversify and expand in the airport adjacency space. We are currently evaluating multiple opportunities in the cargo, duty free and services business across the geographies and believe that in the short to medium term we will have more adjacency businesses to add to our overall portfolio. We have created a richly experienced team at GMR Airports to drive our vision for airport adjacencies.
We broke ground in this direction with launch of Kannur Duty Free operations in February 2021, notwithstanding challenges due to the COVID pandemic. We also evaluated duty free opportunities in Mumbai, Indonesia, South Korea, and other geographies and this has enhanced the groups understanding of international duty free space.
At the same time, Group is also looking to unlock value from its existing non-aero commercial businesses. Earlier, we launched a range of initiatives to enhance the value creation in our non-aero businesses. As a first step, we launched non-aero Centre for Excellence (CoE) for duty-free and cargo businesses. Under the CoE initiative, we are going to channel the collective non-aero wisdom of the group to achieve commercial excellence.
As we look forward into post -COVID future, we have a robust pipeline of airports and five strategic business units of adjacency opportunities and we believe that they will add significant value to the Group and all stakeholders.
Indira Gandhi International Airport (IGI) - Delhi Airport operated by DIAL
Focus Areas for FY 23
In FY22, IGI handled 39.3 Mn passengers and 0.92 MMT of cargo with substantial growth over previous year. During the year, IGI Airport expanded its passenger and cargo market share from pre-COVID level to 20.8% and 29.4% respectively amongst Indian airports. DIAL was once again recognized as the Best Airport for service quality in the region by ACI and Best Airport in Central Asia by Skytrax. IGI Airport continues to be the leading Airport among all Indian airports in both passenger traffic and cargo handled.
During FY22, DIALs traffic was impacted by 2nd and 3rd wave of COVID in India. Despite the pandemic, IGI Airport was able to enhance the domestic connectivity within India by connecting to a number of new destinations, and further passenger surveys showed that higher ever number of first time passengers started flying over the past year. Towards the end of last fiscal year FY22, recovery in the domestic traffic to pre pandemic level were seen. Government has also removed restrictions on operation of scheduled international flights which will further accelerate the passenger growth trend post pandemic recovery.
To overcome the crisis, DIAL has been putting efforts towards various fronts such as safe flying and passenger experience, financial resilience, stakeholder engagement and employee health & safety. DIAL has been continuously engaging with the state and regulatory authorities for several initiatives and policy interventions. Further, during such tough times DIAL has learned the skill of operational flexibility to respond to unseen emergencies.
In the event there are no major pandemic disruptions, DIAL expects the recovery to pre-pandemic level of domestic traffic by FY23 and international traffic by FY24. DIAL will continue with the necessary capacity expansion initiatives of its airside infrastructure and terminal capacity as per the approved Master Development Plan in order to cater to the future growth in passenger and air traffic. Phase 3A expansion, which includes, among others, expansion of Terminal 1 and Terminal 3, construction of a fourth runway along with enhancement of airfields and construction of taxiways, will expand IGI capacity to around 100 Mn passengers annually. During FY22, IGI had already operationalized partially the new arrival terminal at Terminal 1 and successfully completed the rehabilitation work of British-era Runway 09/27 and handed over the refurbished runway to Air Traffic Control (ATC) for commercial operations.
DIAL continues to work with all stakeholders including the airlines to further establish IGI Airport as an international hub airport for passengers and cargo. In line with this goal, DIAL will continue to work towards reopening key international destinations gradually in alignment with the removal of international border restrictions. DIAL will continue to work with international carriers to boost long haul flights as well as dedicated freighters coming into Delhi.
Rajiv Gandhi International Airport (RGIA) - Hyderabad Airport operated by GHIAL
Focus Areas for FY23
The pandemic continued to pose challenges in FY22 with multiple waves. Despite these challenges during the year, in FY22, RGIA handled 12.42 million passengers, over 1,14,000 Air Traffic Movements (ATMs), and over 1,40,000 MT of cargo. With the emergence of new COVID - 19 variants and 2nd and 3rd waves of pandemic in the year FY22, traffic and revenues were impacted significantly across the global aviation value chain including India. However, by the end of the financial year traffic was returning to normalcy, and GHIAL is on track to return to its growth path. GHIAL will continue to maintain focus on financial resilience until full traffic recovery, and also take steps towards a return to growth trajectory.
On the regulatory front, AERA has issued the tariff order on 31st August 2021 in relation to 3rd Control Period from FY22 to FY26. Further the tariff order also addressed a major issue relating to Prior Control Period Expenses in favour of GHIAL.
During FY23, GHIAL shall direct its efforts to the recovery of passenger traffic and return to growth trajectory with proactive engagement with airlines to accelerate further development of both domestic and international routes.
During this period, a key focus area will also be to speed up the expansion activities and commission the different portions of the expansion project. As part of the capital expansion works in FY22, GHIAL has already commissioned the 4 Rapid Exit Taxiways, and a new GSE Tunnel connecting the remote stands on the east and the expanded terminal building. In the financial year FY23, GHIAL intends to complete the entire expansion of East Pier, West Pier & Processors and bulb portion. GHIAL would ensure seamless integration of expansion with existing operations by following due procedures.
Thus, with its strong business fundamentals, strategic and competitive advantages, and initiatives to sustain and grow the business, GHIAL is well-positioned to return to the growth path.
GMR Goa International Airport Limited (GGIAL)
Being a commissioning year, GGIAL will focus on effective coordination with all the Joint Coordination Committee (JCC) members viz. AAI, BCAS, CISF, IMD, Immigration, etc., and team up with them to augment their requisite infrastructure facilities, people, processes to participate in the Operations Readiness & Airport Transfer (ORAT) program and thereafter deal with operations in their respective areas
Similarly, GGIAL also will facilitate business associates to provide Aeronautical and Non-Aeronautical services ensuring Best in Class International airport besides engaging with Domestic and International Airlines encouraging them to operate from our Airport.
The task of ORAT will be undertaken and GGIAL will put in best efforts with an intention to inaugurate/operationalize the Airport during FY 2023.
With the expressway link under construction, in the interim, GGIAL will dress the existing 2 Lane road with appropriate facilities in coordination with Govt. of Goa so as to establish good connectivity between the Airport and NH66.
With construction progress in line with commissioning targets and above mentioned plans in place, GGIAL is confident of inaugurating the airport and starting domestic and international operations during FY23.
GMR Megawide Cebu Airport Corporation (GMCAC)
The impact of COVID-19 pandemic continued in CY2021 also, significantly impacting Mactan-Cebu International Airport ("MCIA") with annual traffic significantly lower than pre-pandemic levels. The passenger footfall for CY 2021 was recorded at ~1.3 Mn, constituting of ~ 1. 15 Mn Domestic passengers and ~0.15 Mn International passengers, thereby witnessing a 52% decline in overall traffic from CY 2020 and 89% decline from CY2019.
Philippines instituted highly restrictive lockdowns and stringent policy restrictions continued for majority of CY2021. Apart from these restrictions, domestic travel policies were decentralized with no standard travel protocols. These restrictions meant that the MCIA saw meaningful recovery only in the last quarter of CY2021 with the easing of restrictions from the Government. Since then, MCIA witnessed steady traffic ramping which was interrupted by Typhoon Odette that passed through Cebu on December 16,2021. But traffic has continued its recovery with Mar22 traffic at ~30% of prepandemic level.
The airport continued to take measures that aid in traffic recovery while continuing to focus on other measures to control costs. GMCAC took a Zero-based budgeting approach to further realize cost savings. As part of it, GMCAC achieved reductions in fixed priced contracts by moving towards a slab-based pricing approach and a consolidated single-party facilities management to achieve further savings. Post completion of the manpower rightsizing initiatives, GMCAC has closely worked with employees offering professional and personal support. The debt restructuring exercise was completed in May 2021 which was marked by deferral of principal and part of the interest until 2023, providing a relief on GMCACs cash flows.
GMCAC also regularly worked on initiatives that can effectively utilize our infrastructure with activities such as Bazaar Concepts, Health/ Wellness events for Retail and F&B sales generation to improve the use of idle assets and stay relevant and top of the mind of passengers and non-passengers. GMCAC also continued sourcing out prospective concessionaires for its Airport Villages and refresh pool of concepts and brands.
GMCAC continued to implement various technology initiatives such as contactless self-service kiosks and Virtual Information Desks to ensure the safety and well-being of all passengers, employees, and all other stakeholders. The Typhoon Odette caused significant damages to both the terminals. Rectification and repair work was undertaken immediately to support quick resumption of services at the Airport while ensuring the safety of the passengers and users. Pro-active preventive measures were undertaken to ensure minimal disruption to operations.
With domestic traffic on a sequential rise, coupled with return to new normal around the world with countries adjusting to pandemic, and with Cebus international markets well on their way to recovery, the Management is confident that traffic shall rebound sooner than in other tourist-centric destinations. In addition to working with government stakeholders to resume operations and drive tourism revival in Cebu, the focus of the Management this year is to address COVID related concerns i.e., building passenger confidence and aid recovery, make the business leaner and more efficient through zero- based costing, reducing operating costs and ensuring that the airport is ready to embrace the new normal. GMCAC is also working with government to establish policy framework to boost travel.
Crete International Airport
The consortium of GMR Airports and TERNA attained the concession commencement date for the design, construction, financing, operation, maintenance of the new international airport of Heraklion at Crete in Greece on February 6, 2020. The concession period is 35 years including the design and construction phase of five years.
Having attained the concession commencement, the design and construction activities of the project are underway. The Project Company has received substantial portion of land. Contractor has mobilized requisite manpower and equipment. Earthworks are progressing well on multiple fronts of Runway-Taxiway, Apron, Terminal building and external access Roads. All the works are being carried out with strict adherence to COVID-19 protocols and other safety measures.
Overall EPC construction is progressing well and focus for the next year would be on civil concreting works.
GMR Airports Limited entered into strategic partnership with Angkasa Pura II for the operation, maintenance and development of Kualanamu
International Airport (KNO), Medan, Indonesia for 25 years. The JV between GMR Airport and Angkasa Pura II took over the commercial operations on July 7, 2022.
Medan Airport traffic in CY21 was also affected by COVID due to the second wave, with passenger footfall for CY 2021 recorded at ~3.1 Mn, constituting of ~3.05 Mn Domestic passengers and ~0.03 Mn International passengers, which was 38% of the overall traffic in CY 2019. International flights were not operated during the majority of the year due to the COVID related restrictions. Domestic traffic was resilient between April and June 2021, but dropped thereafter due to the third COVID wave. It started recovering from September 2021 and improved till January 2022 when it started witnessing another drop due to restrictions in line with the fourth wave of COVID.
Given the overall recovery in the pandemic situation, management is confident that the traffic would be on the path to recovery. The focus of the Management is to execute an effective transition of the Medan Airport and drive traffic recovery.
Environment Protection and Sustainability
As the Company operates in an increasingly resource-constrained world, being environmentally conscious and efficient are key to our operations. The Company has a Corporate Environment, Health, Safety and Quality (EHSQ) Policy to articulate, guide, and adopt an integrated approach towards implementing EHSQ objectives and the Company remains committed towards the said policy. These established systems certified by reputed certifying agencies have helped to monitor and manage our operations systematically, safely and in environment friendly manner. The Company continues to abide by regulations concerning the environment by allocating substantial investments and resources on a continuous basis to adopt and implement pollution control measures. Our continuous endeavor to go beyond compliance and conserve natural resources helps to march towards attaining excellence in environmental management and efficient and sustainable operations as well. The details of Environment, Health and Safety (EHS) initiatives are provided in the Business Responsibility Report forming part of Annual Report.
Discussion and analysis of financial conditions and operational performance
The consolidated financial statements for the year ended March 31, 2022, have been prepared by giving effect to the Composite Scheme of Arrangement for demerger of Engineering Procurement and Construction (EPC) business and Urban Infrastructure business (including Energy business) of the group into GMR Power and Urban Infra Limited. However as per applicable Ind-AS EPC business and Urban Infrastructure business (including Energy business) is disclosed as discontinued operations for the year ended March 31, 2022 and March 31,2021. For detailed disclosure refer note 34 of consolidated financial statements.
The consolidated financial position as at March 31, 2022 and performance of the Company and its subsidiaries, joint ventures and associates during the financial year ended on that date are discussed hereunder:
1. NON-CURRENT ASSETS
1.1 Property Plant and Equipment (PPE)
PPE has increased from 9,021.22 crore as at March 31, 2021 to 9,400.91 crore as at March 31, 2022 primarily due to additions to fixed assets in DIAL, GHIAL and GMR Hyderabad Assets Limited ("GHAL") offset by transfer of PPE on account of Composite Scheme of arrangements and depreciation charge for the year.
1.2 Capital work-in-progress
Capital work-in-progress has increased from 6,615.65 crore as at March 31, 2021 to 10,162.63 crore as at March 31, 2022 primarily on account of expansion of existing airport at DIAL, GHIAL and GGIAL.
1.3 Investment Property
Investment property has decreased from 534.51 crore as at March 31, 2021 to Nil as at March 31, 2022 primarily due to transfer of investment property on account of composite scheme of arrangement
1.4 Other Intangible Assets
Other Intangible assets has decreased from 2,672.48 crore as at March 31, 2021 to 393.29 crore as at March 31, 2022 primarily due to transfer of other intangible assets of 2,270.57 crore on account of composite scheme of arrangement and amortization during the year.
1.5 Right of use asset
1.6 Investments accounted for using equity method
Investments accounted for using equity method has decreased from 6,400.33 crore as at March 31, 2021 to 1,773.91 crore as at March 31, 2022 primarily due to transfer of investments of 4,968.67 crore on account of composite scheme of arrangement and dividend form joint venture offset by share of profit in joint venture and associates during the year.
Loans and advances has increased from 1,095.00 crore as at March 31, 2021 to 1,263.35 crore as at March 31, 2022 mainly due to loan given to Group companies after setting off of 650.17 crore transferred on account of composite scheme of arrangement.
1.8 Other financial assets
Other financial assets have decreased from 3,502.58 Crore as at March 31, 2021 to 1,867.75 crore as at March 31, 2022 mainly due to transfer of other financial assets of 1,660.05 crore on account of composite scheme of arrangement.
1.9 Other non-current assets
Other non-current assets have increased from 3,452.05 crore as at March 31, 2021 to 3,727.33 crore as at March 31, 2022 primarily on account of increase in balances with Govt. authorities and lease equalisation reserve.
2. CURRENT ASSETS
Inventories has decreased from 174.56 crore as at March 31, 2021 to 92.39 crore as at March 31,2022 primarily on account of transfer of inventories of 81.01 crore on account of composite scheme of arrangement.
2.2 Financial assets - Investments
Investments have decreased from 2,863.40 crore as at March 31, 2021 to 1,686.70 crore as at March 31, 2022 primarily on account of utilisation of investments for project financing in GHIAL and DIAL.
2.3 Financial assets - Trade receivables
Trade receivables has decreased from 1,145.58 crore as at March 31, 2021 to 375.53 crore as at March 31, 2022 primarily on account of transfer of trade receivables of 817.31 crore on account of composite scheme of arrangement offset by increase in receivable in Airport sector.
2.4 Financial assets - Cash and cash equivalents
Cash and cash equivalents have decreased from 4,299.60 crore as at March 31, 2021 to 1,619.45 crore as at March 31, 2022 mainly due to payment of USD Bonds in DIAL and utilization for project expansion and project financing in DIAL and GHIAL.
2.5 Financial assets - Bank balances other than cash and cash equivalents
Bank balances other than cash and cash equivalents decreased from 2,113.67 crore as at March 31, 2021 to 1,496.38 crore as at March 31, 2022 primarily due to utilization for project expansion and project financing in DIAL and GHIAL.
2.6 Other financial assets
Other financial assets have decreased from 2,496.97 crore as at March 31, 2021 to 666.57 crore as at March 31, 2022. This is primarily due to transfer of assets of 1,248.39 crore on account of composite scheme of arrangement and also movement in Mark to Market (MTM) valuation of DIAL and decrease in unbilled revenue.
2.7 Other current assets
Other current assets have increased from 450.80 crore as at March 31, 2021 to 452.06 crore as at March 31, 2022 primarily due to transfer of assets of 132.57 crore on account of composite scheme of arrangement offset by increase in balances with Government Authorities and other receivables in the normal course of business.
2.8 Assets classified as held for sale
Assets classified as held for sale decreased from 314.35 crore as at March 31, 2021 to Nil as at March 31, 2022 mainly due to Kakinada SEZ Limited ("KSL") and Kakinada Gateway Port Limited ("KGPL") receivable classified as held for sale during FY 2020-21.
Equity share capital remains the same at 603.59 crore. Total equity has increased from 1,318.56 crore as at March 31, 2021 to 1,918.15 crore as at March 31,2022 primarily on account of transfer of net assets of (1,700.47 crore) on account of composite scheme of arrangement offset by loss during the year in Airport sector. Non-controlling interests have decreased from 3,036.69 crore as at March 31, 2021 to 2,735.97 crore as at March 31, 2022 mainly on account of share of minority interest loss on PAT and OCI.
4. NON-CURRENT LIABILITIES
Non-current borrowings have decreased from 30,990.20 crore as at March 31, 2021 to 24,404.59 crore as at March 31, 2022, primarily due to transfer of borrowing of 7,996.65 crore on account of composite scheme of arrangement set off with increase in forex fluctuation in DIAL and GHIAL , increase in borrowings in GMR Airports Limited , GMR Goa International Airport Limited, GMR Airport Greece Single Member S.A. and GMR Infra Developers Limited partially offset due to repayment of USD Bonds in DIAL.
4.2 Lease Liabilities
Lease liabilities have decreased from 110.24 crore as at March 31, 2021 to 108.10 crore as at March 31, 2022 in the normal course of business.
4.3 Other Financial Liabilities
Other financial liabilities have increased from 1,279.00 crore as at March 31, 2021 to 1,632.07 crore as at March 31, 2022, mainly due to increase in security deposit and non-trade payable.
Provisions have decreased from 81.51 crore as at March 31, 2021 to 49.08 crore as at March 31, 2022 mainly due to transfer of provisions of 40.94 crore for operation and maintenance on account of composite scheme of arrangement.
4.5 Deferred tax liabilities (net)
Deferred tax liability is 22.88 crore as at March 31, 2022 ( 117.13 crore as at March 31, 2021) Decrease in deferred tax liabilities is primarily due to recognition of deferred tax assets on losses on Airport sector.
4.6 Other non-current Liabilities
Other non-current liabilities have increased from 1,937.62 crore as at March 31, 2021 to 2,544.78 crore as at March 31, 2022 primarily due to increase in CPD deposit in DIAL.
5. CURRENT LIABILITIES
5.1 Short term Borrowings
Borrowings have decreased from 5,751.98 crore as at March 31, 2021 to 2,111.17 Crore as at March 31, 2022 primarily due to transfer of short term borrowings of 2,808.04 crore on account of composite scheme of arrangement.
5.2 Trade Payables
Trade payables have decreased from 2,459.58 crore as at March 31, 2021 to 543.38 crore as at March 31, 2022 primarily due to transfer of Trade Payable of 1,824.20 crore on account of composite scheme of arrangement.
5.3 Other current financial liabilities
Other current financial liabilities have decreased from 3,783.06 crore as at March 31,2021 to 2,930.73 crore as at March 31, 2022. The decrease is mainly due to transfer of liabilities of 1,907.21 crore on account of composite scheme of arrangement offset by increase in capital creditors (included in non-trade payables) for capital work in process and accrued interest on borrowings.
Provisions have decreased from 904.14 crore as at March 31, 2021 to 236.29 crore as at March 31, 2022 mainly due to transfer of provision of 692.47 crore for operation and maintenance on account of composite scheme of arrangement.
5.5 Other current liabilities
Other current liabilities has decreased from 1,151.70 crore as at March 31, 2021 to 562.69 crore as at March 31, 2022 mainly due to transfer of liabilities of 689.05 crore on account of composite scheme of arrangement.
5.6 Liabilities directly associated with the assets classified as held for sale
Liabilities held for sale decreased from 22.31 crore as at March 31, 2021 to Nil as at March 31, 2022 mainly due to KSL and KGPL classified as held for sale entity during FY 2020-21.
Overview of our results of operations
The following table sets forth information with respect to our revenues, expenditure and profits (loss) on a consolidated basis (after giving effect of Composite Scheme of Arrangement in accordance with Appendix C of Ind AS 103):
(Rs. In Crore)
|Particulars||March 31,2022||March 31, 2021|
|Revenue from operations (including other operating revenue)||4,600.72||3,566.01|
|Revenue share paid / payable to concessionaire grantors||224.02||360.79|
|Operating and other administrative expenditure||2,274.13||2,417.32|
|Depreciation and amortization expenses||889.40||886.12|
|Loss before share of profit/ (loss) of associate and joint ventures, exceptional items and tax from continuing operations||(447.05)||(1,470.49)|
|Share of profit/ (loss) of investments accounted for using the equity method||70.70||(59.09)|
|Loss before exceptional items and tax from continuing operations||(376.35)||(1,529.58)|
|Loss before tax from continuing operations||(764.61)||(1,529.58)|
|Loss after tax from continuing operations||(i)||(752.31)||(1,243.26)|
|EBITDA from continuing operations (Revenue from operations - Revenue share - operating and other admin expenses)||2,102.57||787.90|
|Loss from discontinued operations before tax expenses||(318.33)||(2,160.62)|
|Loss after tax from discontinued operations||(ii)||(379.08)||(2,184.51)|
|Total loss after tax for the year||(A) (i+ii)||(1,131.39)||(3,427.77)|
|Other comprehensive income from continuing operations for the year, net of tax||(473.09)||205.64|
|Other comprehensive income from discontinued operations for the year, net of tax||17.00||(8.00)|
|Other comprehensive income for the year, net of tax||(B)||(456.09)||197.64|
|Total comprehensive income for the year, net of tax||(A+B)||(1,587.48)||(3,230.13)|
The segment wise break-up of the Sales/Operating Income are as follows:
|Particulars||March 31,2022||March 31, 2021|
|Amount (Rs. In Crore)||% of Revenue from operations||Amount (Rs. In Crore)||% of Revenue from operations|
|Revenue from Operations:|
|Other operating revenue||828.55||18.01%||903.85||25.35%|
|Construction revenue and sale of materials||148.07||3.22%||-||0.00%|
|Income from security and other services||118.50||2.58%||96.71||2.71%|
|Total Revenue from operations||4,600.72||100.00%||3,566.01||100.00%|
Operating revenue from aeronautical services
Income from aeronautical services principally consisting of landing and parking, passenger service fees and UDF
Operating income from aeronautical services increased by 53.28% from 663.77 crore in FY 2020-21 to 1,017.41 crore in FY 2021-22 mainly due to relaxation in Covid-19 pendamic norms.
Operating revenue from non-aeronautical services
Income from non-aeronautical services principally consisting of income from rentals, trade concessionaires, ground handling and cargo handling.
Operating revenue from non-aeronautical services increased by 30.84% from 1,901.68 crore in FY 2020-21 to 2,488.19 crore in FY 2021-22 mainly due to relaxation in Covid-19 pendamic norms.
Operating revenue from construction revenues and sale of materials
Revenue from construction revenues and sale of materials is derived from the execution of engineering, procurement and construction works in connection with projects under implementation.
During the FY 2021 -22, the construction revenues and sale of materials has contributed 125.77 crore to the operating revenue as against Nil in FY 2020-21.
Operating revenue from security and other services
During the FY 2021 -22, revenue from security and other services has contributed 118.50 crore to the operating revenue as against 96.71 crore in FY 2020-21.
Other operating revenue
Revenue from other operating revenue includes rentals received in connection with commercial development on land that is part of our airport projects, management services income and investment income.
Other operating revenue decreased by 8.33% from 903.85 crore in FY 2020-21 to 828.55 crore in FY 2021-22 mainly due to decrease in rentals received in connection with commercial development on land.
Revenue share paid/ payable to concessionaire grantors
The revenue share paid/payable to various concessionaires has decreased from 360.79 crore in FY 2020-21 to 224.02 crore in FY 2021-22 primarily on revision in the CPD contracts.
Operating and other administrative expenditure
Cost of material consumed
There is no significant changes in cost of material consumed. Purchase of traded goods
Increase in purchase of traded goods in the FY 2021-22 is primarily due to increase in sale of duty free goods and other materials.
Employee benefits expenses
The increase in employee benefit costs in FY 2021-22 is mainly due to annual increment to employees.
Other expenses include utilities, operating manpower outsourcing and maintenance expenses, insurance, airport operator charges, Rent, repairs and maintenance, legal and professional fees, provision for advances, Fair value of investments, Charities and donations and other miscellaneous expenses.
There is decrease in other expenses in FY 2021-22 mainly due to decrease in foreign exchange fluctuation, airport operator charges and provision of advances to AAI.
There is increase in finance cost in FY 2021-22 due to additional borrowing taken in few subsidiaries.
Share of profit/ (loss) of investments accounted for using the equity method
There is increase in share of profit from investment in joint venture/ associate mainly due to disruption cause by Covid-19 pendemic in previous year.
In FY 2021-22, exceptional item of 388.26 crore comprise of the impairment in investment in joint venture and reversal of lease receivables.
Tax expense mainly comprises of current tax and deferred tax. There is decrease in tax credit in FY 2021 -22 compared to FY 2020-21 mainly due to deferred tax expense recognised during the year.
Significant changes in key financial ratios, along with detailed explanations
Key Financial ratios on standalone basis including significant changes (more than 25%) are shown in note no. 42 of standalone financial statements.
Corporate Social Responsibility
GMR Varalakshmi Foundation (GMRVF) is the corporate social responsibility arm of the GMR Group. The Group has been undertaking CSR activities on a significant scale since 1991. GMRVF supports the companies under the Group in implementing their CSR mandates. GMRVFs purpose is to work in the fields of Education, Health and Empowerment such that its activities directly benefit mainly the communities in the immediate neighborhood of the Groups projects. Currently, GMRVF is working with selected communities in about 20 locations in India. The locations are spread across different states namely Andhra Pradesh, Delhi, Gujarat, Himachal Pradesh, Karnataka, Goa, Punjab, Telangana, Uttar Pradesh, and Uttarakhand. The detailed information on CSR activities of the Group is provided in Business Responsibility Report forming part of the Annual Report.
Recognitions for GMRVF in the year FY 2021-22 are as below.
• GMRVF has won the prestigious CSR Award from Indo-French Chamber of Commerce and Industry (IFCCI) in the category of Livelihoods.
• GMRVF was honoured with Mahatma Award for Social Good and Impact 2021 for its contribution to Sustainable Development Goal of Decent Work and Economic Growth.
Apart from implementing the regular programs in the areas of Education, Health and Livelihoods, GMRVF has implemented several Covid relief activities during the second wave of Covid including the below:
• Supported about 5000 Covid patients and their attendees with cooked food and dry ration.
• Vaccination was provided to over 1000 community members and facilitated vaccination for over 10,000 people at government facilities
• Supported over 10 old age and orphan homes with required dry ration and other safety material in different locations
• Covid prevention kits and safety material etc. were provided to about 10000 people and various sanitization activities were taken up at different locations.
Risk Concerns and Threats
Identification, assessment, profiling, treatment and monitoring the risks
In the past year, the Company has strengthened its risk management framework to address unprecedented and emerging risks from large- scale uncertainties like the COVID-19 pandemic and their impact on economy, society and industry, particularly on the aviation industry.
To meet the new challenges, we have extended the Enterprise Risk Management (ERM) function across all airport businesses, which carry out ERM process involving risk identification, its assessment and profiling, its treatment, monitoring and review actions. The Company prioritizes and manages the risks identified through its Risk Registers.
The Companys Risk Management process is being expanded to add responsibilities towards ESG (Environment, Social and Governance) aspects of our business. The Risk Management Committee of GIL has also been overseeing and reviewing the frameworks and risks from both ERM and ESG perspectives. The Company has also constituted the ESG Committee for exclusively focussing on the ESG related aspects and way forward.
Linkages: Strong linkage with Corporate Strategy and Risk Management functions has been designed to help the Company focus on key strategic risks. Detailed risk analysis is carried out during the formulation of the Companys Strategic Plan and Annual Operating Plan. List of top risks are reviewed as part of the Strategic Planning exercise. ERM team also shares the results of its exercise with the MAG to enable it to draw plans for risk-based audit.
Business Resilience: For organization to quickly adapt to disruptions while maintaining continuous business operations and safeguarding people, assets and overall brand equity, we have put in place, detailed Business Continuity Plans (BCP) and Disaster Recovery Plans (DRP) for key assets. These plans identify potential vulnerabilities and put in place appropriate processes and risk treatment plans to respond and minimize impact of disruptive events.
Reporting: The Leadership of all businesses regularly review their risk assessment and mitigation procedures and present to their respective Boards/ Committees. Further, a consolidated perspective is presented to the Risk Management Committee of the Board.
Based on the above process, the management has taken cognizance of risks in the recent times and for which appropriate plans and actions are being taken, as follows:
1. Resilience in business operations in post-pandemic phase
Our experience from the previous year of the pandemic and ramifications of the lockdown had provided us with valuable insights into business resilience that proved valuable during the second wave of pandemic in April 2021, which had caused widespread disruption. Our businesses were back on track soon after the wave showed signs of receding. The learnings from the first wave and mitigation measures taken in response to the second and third waves helped our business operations to spring back to normalcy in a short time.
Our Company continues to work with all stakeholders to strategize our response and plan our operations to reduce the impact of any future wave of the pandemic. Our Business Continuity Plans have proved to be effective in faster recovery from the impact of the pandemic.
The risk of subsequent waves and further virus mutations continue to be an area of concern. Governments continue to be cautious about opening borders as any subsequent wave may have impact on operating performance of businesses.
2. Macroeconomic Risk factors:
FY 2021-22 was a year of various ups and downs from the pandemic and geopolitical perspective. The second wave of pandemic hit the country when economy had started recovering with some optimism.
However, as the impact of second wave dissipated by July21, economic activities resumed the path to recovery, underscoring economys resilient nature. Most macro-economic indicators posted a V-shaped recovery crossing even post wave 1 levels. A third wave hit the country in Q4 FY22, but that was short-lived and had only a very limited impact on Indias economic recovery.
As the pandemic and its negative impact on global economy started receding, the world was confronted with yet another challenge - consequences of Russian military operations in neighbouring Ukraine in February 2022. The conflict between the two countries has since continued and unfortunately, there continues to be uncertainty and lack of clarity as to when and how this conflict can be brought to an end.
Due to the conflict and resulting sanctions, there have been supply chain disruptions across the world leading to high inflation in many countries and food crises in vulnerable countries. Central banks around the world, including those in Europe, UK and the US have responded with hiking interest rates to bring soaring inflation under check.
Rise in crude oil prices has also significantly impacted Indian economy. It has further led to various complications beside rising inflation - weakening INR, higher import bill and reducing forex reserves.
Impact on GILs Airport Businesses:
The global aviation sector that was among the worst affected from the pandemic during FY21, showed remarkable recovery during FY22. Even during recurring COVID waves, domestic traffic continued with impressive recovery. International traffic also recovered to nearly 60-65% levels by end of FY22.
During the year, to cope with frequent turbulence in passenger traffic numbers, our teams performed exceptionally not only in terms of operational flexibility, but also in terms of financial resilience. We took steps to efficiently manage terminal operations and mitigate impact on operating costs. We had proactively optimized terminal operations by curtailing terminal operations based on traffic needs. We had also rescheduled expansion/ construction works in order to conserve cash.
As a result of such efforts, on one hand, we have sustained operational aspects of airport business, maintaining efficient and safe operating conditions and on the other hand, ensured financial sustainability of our airports. Now, with traffic nearing pre-COVID levels, all our expansion and construction activities are in full swing.
3. Geopolitical risk:
During the year, significant geopolitical developments took place.
Russian military operations in neighbouring Ukraine in February 2022.
The military operations that were projected to be over swiftly have dragged on for months now. Western countries have collectively imposed crippling sanctions on Russian exports and businesses. These sanctions have led to rise in commodity prices, which were already at multi-year high. Russia-Ukraine conflict is a turning point in global economic cooperation. Both the conflict and Western countermeasure may have ramifications on macroeconomic environment and financial markets.
India-China border dispute. Although there has been some success in de-escalating the situation, diplomatic efforts for preventing any further tension are being given priority.
The Group relies on the governments proactive role in protecting the interests of Indian industries arising out of changing geopolitical landscape.
4. Political risks:
Given the nature of the concession business, change in governments may occasionally have consequences on concessions, typically at an early stage. Accordingly, local politics within the countries, including India, where we operate may affect our business.
To address these risks, Our Group implements its strategy of working closely with all relevant stakeholders to mitigate impact of the political risks.
We partner with local players outside India to mitigate the same.
5. Technology Risk:
Technology Risks are impacting businesses on various fronts. There is tremendous pressure on aviation industry to reduce its carbon footprint, encouraging the industry to adapt to green fuels and invest in additional infrastructure required by adaptation. Green fuels like hydrogen fuel, SAF, etc may bring about changes in regulations affecting the business.
Use of digital technologies such as AI, Blockchain, etc. are allowing even traditional companies an opportunity to provide a new range of products and services. These technologies impact the competitive position of many players in airports sector
Technologies like VTOL (Vertical TakeOff and Landing) and alternate modes of transportation like Hyperloop may impact air traffic volumes in the long term
In this regard, the company is looking at technology disruptions as an area of opportunity and is exploring strategies to exploit the same. We are working with partners/ stakeholders on examining the feasibility of SAF (sustainable aviation fuel) and will track the developments on Hydrogen front.
We are also fostering a culture of innovation through our COE/ and incubation cells for various aviation related technologies/ applications and in meeting both regulatory requirements as well as operational efficiency, while enhancing value generation through higher revenues or lower costs.
The Group is also working with start-ups and partners through our Innovation Hub (GMR Innovex) for adopting and leveraging latest technologies with a view to enhance speed, agility and cost effectiveness of resources. This induction of technology is expected to be an ongoing process in the Group.
6. Competition risk:
The attractiveness of airports business is primarily driven by the volume of air traffic, retail business potential and ability to monetize real estate.
We face competition from other modes of transport like expressways, high-speed trains may have some impact on our business in the long run.
In the post-Covid scenario, our real estate offering may see competition from similar asset classes in the catchment area.
While retail potential looks promising at our airports, they may face challenges from competing retailers elsewhere. We are taking proactive steps to innovatively offer compelling value to our customers.
To address these areas of concern, we continue to focus on building competitive advantage in its core business areas to ensure that we are competitively well-positioned in our businesses. Our rich experience in the Airports sector and our strategic partnership with Groupe ADP has strengthened our overall competitive position in the sector, both in India and overseas. Our strategy for Aerocity is to enhance the infrastructure and services that give our Real Estate business unique advantage over the competition.
7. Regulatory Risk:
The Groups airports business remains exposed to regulatory changes that may impact tariffs. While AERAs tariff determinations are trued up over the tariff period and have less impact on the long term sustainability, they do have short term impact on profitability and liquidity. To address these issues, we continue to engage with relevant stakeholders across the board, and wherever required we escalate issues through the available mechanisms of TDSAT and Courts. We continue to track all developments in the regulatory environment and assess impact of possible outcomes.
We also participate in aviation industry associations and chambers of commerce to work for resolution of issues that may impact our businesses. Wherever necessary, the Group has engaged in arbitration and/or litigation as appropriate, in order to protect its interest in this regard.
8. Ability to finance projects at competitive rates.
Given the nature of the infrastructure sector, the industry players carry relatively higher debt levels. While the country has witnessed strong interest from Sovereign and International Pension Funds in financing high quality secondary assets, Infrastructure financing in India faces certain issues which are inhibiting the smooth financing of the sector. These include:
- Lack of options beyond Bank Financing to finance green field projects. In addition, Indian banks have struggled to offer long term debt financing solutions on account of an asset liability mismatch at their end. Further, with the large number of non performing infrastructure assets the Indian banking sector has faced over the past few years, many institutions and banks are hesitating to provide further project financing in this regard.
- Lack of a well-developed bond market in India, which can encourage greater availability of funding for the Infrastructure sector.
Nevertheless, we are continuously exploring innovative means to finance/refinance our projects including refinancing through bond issue, takeout finance, ECB loans (where we have a natural hedge to reduce the forex exposure) etc., wherever possible at competitive rates.
9. Interest Rate Risk:
Globally, to support economic growth during pandemic, most Central banks adopted the easy money policy and interest rates were kept at a very low level to induce spending. But inflation has been moving higher, fuelled especially by the Russia - Ukraine conflict. Thus to fight inflation, Central banks have changed stance to tighten liquidity. US Federal Reserve, BoE, Indias RBI etc. have started to hike interest rates to curb inflation.
To mitigate these developments, we are continuously exploring and implementing innovative means of financing/refinancing our existing loan with the aim of reducing our interest costs. GAL and its subsidiaries have raised debt/ bond funding some of which may get impacted immediately or on refinancing. The bonds in DIAL and GHIAL have been hedged from forex perspective and have fixed debt service requirements. Our company has initiatives to increase operating cash flows and further reduce corporate debt at holding company to sustainable levels.
10. Credit Risk:
Our airport business continues to be exposed to credit risks of our airline customers and non-aero services customers. Collection of receivables from distressed airlines has continued to be a risk.
However, these exposures are relatively small compared to overall business and the Group has implemented the processes to mitigate the same like Bank Guarantees, cash & carry wherever necessary in Airports.
All receivables are being closely monitored and reviewed frequently by the top management.
11. Foreign Currency Exchange Rate Risk:
We have successfully raised foreign currency bonds for DIAL and GHIAL and while we have taken hedges to significant extent, in the event of high volatility we may be impacted.
Throughout the year, some of our businesses remained exposed to the vagaries of exchange rate risk, as we have some expenditure in foreign currencies for procurement of project equipment.
As mitigation, we have mechanism for regular review of our foreign exchange exposures including the sensitivity of our financials to exchange rate.
We hedge our exposures and keep rolling them as part of a foreign exchange risk management policy.
We have some natural hedge due to some of our earnings denominated in foreign currencies (duty free, MRO).
12. Cyber Security Risk.
Although GILs businesses have not been affected by cyberattacks yet, vulnerability to increasingly sophisticated hacking methods persists. Some recent reports on hacking highlights the vulnerability of businesses to attacks. Our airport operations may face this risk.
As mitigation, GIL is part of the group-wide centralized cyber security program in place covering people, process and technologies aspects of Cyber Protect, Detect, Respond & Recover capabilities. There is mechanism for 24 x 7 Next Generation Security Operations Centre monitoring all critical infrastructure for any suspicious activity.
Al-based End Point Detection is implemented across all computing devices. Periodic Vulnerability assessments and Penetration testing is conducted of the environment.
13. Manpower risk:
The Covid-19 related lockdown had adverse impact on manpower in construction industry. With increasing competition in airport sector, newer players have taken an aggressive approach to meet their critical manpower requirement by poaching on experienced personnel of the established companies in the airports sector. There may be a shortage in experienced/ skilled manpower for our new projects
Certain segments in industry are in high demand and are difficult to source (data scientists, etc).
For mitigating these risks, the company has been building bench strength and is further taking adequate measures to ensure that the impact of such aggressive manpower hiring approach is mitigated for our businesses. The company works on several strategies like outsourcing/ consulting for meeting critical resource requirements. We are creating talent pool through Aviation Academy, apart from taking initiatives like cross-team learnings.
14. Arbitration/ Litigation risk:
With the expansion of business, obstacles in the form of disputes are common. The company has ongoing disputes in its businesses, which primarily relate to the interpretation of issues relating to various concession documentation or laws by respective Authorities or Grantors. While the company attempts to address these disputes within the framework of the contracts for amicable resolution, at times it is forced to adopt alternate means of resolution, including arbitrations and litigations.
Our company has a robust in-house mechanism for dispute risk assessment, which provides the management with an early evaluation of the risks and costs associated with every potential arbitration / litigation, before the same is triggered.
The Group would typically work with a combination of strong in-house counsel - both corporate and sectoral and specialist external counsel as per the specific requirements.
Internal control systems and their adequacy
The Companys internal financial control framework has been established in accordance with the COSO framework to ensure adequacy of design and operating effectiveness of operational, financial and compliance controls. The effectiveness of the internal controls is regularly reviewed and monitored by the Management Assurance Group (MAG) during audits.
The Company has put adequate policies and procedures in place, which play a pivotal role in deployment and monitoring of the internal controls. These controls and processes have been embedded and integrated with SAP (or other ERP systems, as the case may be) and/ or other allied IT applications, which have been implemented across all the Group companies.
MAG continuously assesses opportunities for improvement in all business processes, policies, systems and controls, provides its recommendations, which add value, and strengthens organizations internal control environment.
Deviations, if any, are addressed through systemic implementation of corrective and preventive action as appropriate taken by the respective functions. Proactive action is initiated to ensure compliance with upcoming regulations through deployment of cross-functional teams. Emphasis is always placed on automation of controls within the process to minimize deviations and exceptions.
Respective Business/Company CEOs are responsible to ensure compliance with the policies and procedures laid down by the management. It helps the organization to accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes.
MAG is responsible for undertaking internal audits across the group and they are assisted by outsourced audit firms. The internal audit scope covers inter alia, all businesses and corporate functions, as per the annual audit plan reviewed and approved by the Audit Committee in the beginning of every financial year. In every quarterly Audit Committee Meeting, key audit issues along with action taken report on previous issues are being presented.
Group Head MAG provides an assurance to the Audit Committee confirming compliance to prescribed processes as enumerated in MAG Manual while carrying out audits, reporting audit observations, monitoring and implementation of the agreed upon action plan for closure.
Developments in Human Resources and Organization Development at GMR Group
HR being one of the key strategy partners, contributed comprehensively to the Organizational Development over the years. Following are some of the initiatives taken up by HR in the year gone- by:
• Reinstatement of Compensation Deferral (SVP): Due to headwinds faced by Covid-19, GMR like many other industry counterparts was forced to introduce Salary Deferral for its employees to maintain healthy cash flow and business continuity. The scheme was withdrawn in April 2021 and all the withheld money was paid back to employees as arrears by 31st March 2022.
• Frugality initiatives: in FY22 HR optimized about 43.66 Cr through various initiatives such as Organisation Design refresh, Hiring Freeze, in-house assessments (instead of engaging external consultants), etc. Several optimization initiatives are in the pipeline and HR stands firm to grab every opportunity of optimization.
• Fresh Talent & Succession Pipeline: While Succession Planning and Talent Management has always been the key focus of HR, we continuously keep on improving our talent pipeline in the group. With already available talent pipeline at the entry level and with a conservative view towards business environment, GMR in FY22 didnt visit B Schools to conduct campus recruitment drives. However, with our continuous focus on Airport construction and demand of Engineers in the market we inducted few fresh Graduate Engineer Trainees and GETs in FY 2022.
• Great resignation & Retention mechanisms: having a proactive approach, GMR started its retention measures much earlier than the industry counterparts. As soon as the great resignation wave started taking shape, we were able to implement several employee engagement & retention measures such as internal talent movement, non-compete, enhanced role based compensation & salary corrections for a selected few - critical employee groups. Except a few functions i.e. Finance & Accounts, entry level HR roles and IT we were able to close the year with < 15% attrition which was voluntary in nature. Industry average remained at 15% during the year.
• Digital Attendance Capturing: Mobile enabled Geo-Location tagging & Facial recognition-based attendance capturing system was integrated in MyGMR app in later half of FY22.
• Inculcating Value Culture: with a perpetual focus on its Values & Belief, GMR in FY22 conducted 11 V&B sessions covering 500+ employees. We in GMR also leverage the power of prayers - every Monday all senior leaders across the group are invited for a 15 minutes guided prayer cum motivational session (virtually). Apart from value based culture we focused on wellbeing of the employees by organizing 22 health & wellness sessions from Corporate along with various other initiatives driven by individual assets.
• Employee vaccination: GMR as an organization provided Covid vaccination to its employees and their family members. We have covered about 13,800 employees under 1st & 2nd dose of vaccination. Till 1st week of August 2022, 5520 GMRites were covered under booster doses.
• Learning & Development (including Spirituality): in FY22 Corporate HR alone (excluding individual programs from business units) conducted more than 410 training programs on unique themes having 43000+ man-hours of training. During the year we covered 2900+ unique participants in these sessions with a participation satisfaction score of 4.5 out of 5. To improve upon fundamental skills of our people GMR in FY22 engaged with 15 eminent institutions such as IIT-D, IIT-K, UCLA, NASSCOM, Korn Ferry, NPTEL, etc.