GVK Power: Raising stake in Bial is a well-timed move

The intent behind GVK Power and Infrastructure Ltd’s (GVKPIL) plan to buy out Larsen and Toubro Ltd’s (L&T) 17% stake in the Bengaluru International Airport Ltd (Bial) is to gain a controlling stake in the airport management.
GVKPIL is just completing the formalities on the 12% stake in Bial that it recently bought from Zurich Airport at Rs485 crore. For this, it paid a premium of Rs95 per share. This is not without reason. Bial holds great potential for future growth, given that it already handles more cargo and passengers than its southern counterpart in Hyderabad. According to Isaac George, chief financial officer, GVKPIL, “the quality of passengers is good, with a high average spend per passenger, due to the IT/BPO (information technology/ business process outsourcing) crowd.” This would only improve as the economic recovery gains momentum.
Also, stakeholders in Bial have a revenue sharing agreement of only 4% with the government (Airports Authority of India), unlike Mumbai where it is around 39%. The buzz in industry circles is that GVKPIL is also interested in increasing its stake from the present 37% in Mumbai International Airport Ltd, or Mial. South African company Bidvest Group Ltd holds 27% of Mial.
GVKPIL’s intent to increase stakes in both Mumbai and Bangalore is well timed as air traffic in the second quarter of fiscal 2010 rose 3% over the year-ago period, with passenger traffic rising by 10%. In fact, this was after a contraction during the last four quarters.
Another positive in the airport business is the monetization of real estate in the airport entity.
Even before this monetization, fiscal 2010 will see stronger revenue growth and profit before tax as airports ride the economic recovery and benefit from higher tourist traffic.
22/11/09 Manas Chakravarty, Mobis Philipose, Ravi Ananthanarayanan and Vatsala Kamat/Live Mint

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Categories: Airports Nov 2009, New Nov 2009