The Largest IPO in India's Aviation Sector

June 2024 witnessed a remarkable turnaround for the Adani Group, led by the enigmatic Gautam Adani.

After a tumultuous period in early 2023 triggered by a scathing report from Hindenburg Research, the conglomerate staged a dramatic comeback.

In a mere 18 months, the Adani group not only recovered its US$ 100 billion (bn) lost market capitalisation but also emerged seemingly unscathed.

This resurgence wasn't merely a matter of financial recovery. The Adani group seized the momentum and unveiled ambitious plans that cemented their position as a major force in the Indian economy.

News outlets buzzed with headlines detailing a colossal Rs 1.3 trillion (tn) capital expenditure plan in FY25, a clear signal of the group's aggressive expansion strategy. Furthermore, their audacious US$ 3 bn push into the clean energy sector.

As the dust settled from this whirlwind of positive developments, the Adani Group is getting ready for the latest chapter in this story with a focus on the aviation sector.

The Adani group is setting the stage for a potential game-changer - the launch of an IPO for their airport business.

This move, if executed successfully, could be one of the biggest aviation IPOs in India's history.

Read on for more...

About Adani Airport Vertical

Adani Airport Holdings is a subsidiary of Adani Enterprises.

In its investor presentation for FY24, the Adani group shared that it has 3 diversified revenue streams - aero business driven by passengers; non-aero business driven by duty-free, food and beverages and other facilities within the airport; and city-side development business, which involves real estate development around airports.

Its airport business serves 200 million (m) consumers, including passengers and non-passengers.

Adani Group's airport business is currently working on real estate development at Mumbai, Ahmedabad, Jaipur, Lucknow, and Guwahati airports, while it is planning to undertake city-side development at its remaining airports as well.

Currently, 6 of its airports have an aero to non-aero revenue ratio of 75:25, while this is an even 50-50 split at the operational airport in Mumbai.

How Big is Adani Airport?

The Adani group operates a total of eight airports within its operational and developmental portfolio: Mangalore, Lucknow, Ahmedabad, Guwahati, Jaipur, Thiruvananthapuram, and two in Mumbai, including the new airport in Navi Mumbai.

In FY24, Adani Airport added 42 new routes and 20 new airlines, with passenger movement across its airports increasing by 19% to 886 m over the year.

Currently, Adani Airports handles 23% of passenger movements and 33% of air cargo traffic across India through its seven operational airports.

The group has concession agreements with the Airports Authority of India (AAI) for 50 years starting from their respective commercial operation dates for the operation, management, and development of six airports: Ahmedabad, Lucknow, Mangaluru, Jaipur, Guwahati, and Thiruvananthapuram.

Additionally, Adani Enterprises acquired Mumbai International Airport Limited along with the development rights for a greenfield airport at Navi Mumbai International Airport Limited (NMIAL) for 30 years, with an option to extend by another 30 years.

Additionally, the following image highlights the key achievements of Adani Airports in FY24.

Adani Airport IPO Timeline?

Adani Airport aims to launch its IPO by 2028, targeting 75% of total revenue from non-aero business without specifying a timeline for achieving this goal.

Currently, the ratio of aero to non-aero revenue stands at 75:25 across six airports, with Mumbai airport at 50:50.

The company plans to redefine India's airport infrastructure sector through gateway development, regional footprint expansion, consumer and non-passenger focus, and increased investment in digital technology, as outlined in Adani Enterprises' 2023-24 annual report.

This strategic shift in revenue streams aligns with the Indian government's promotion of public-private partnerships and the anticipated growth of India as the world's third-largest aviation market.

Adani Airport, holding a significant market share in passenger traffic, is actively developing the Navi Mumbai International Airport, slated for completion by late 2023 or early 2024.

Similar to GMR Aerocity in New Delhi, which integrates food outlets, retail stores, hotels, and premium offices near airport terminals in a smart city model, Adani Airport is fostering a comparable infrastructure setup.

As is customary for incubated businesses within Adani Enterprises, the airport's division is expected to be spun off and independently listed by 2028 once it reaches maturity.

Growth Strategy

Adani group's strategy for its airport business focuses on developing smaller cities into international passenger hubs. They foresee non-metro cities bypassing traditional hubs to offer direct global connectivity, improving domestic and international flight connections.

Currently, major metros in India serve as primary hubs for international flights, with tier-II cities connected via these hubs.

This strategy aligns with the Indian government's initiative to position Indian airports, supported by airlines like Air India and IndiGo, as transfer hubs for passengers flying between international destinations via Indian airports.

Additionally, the government is working on a hub policy, with Delhi airport slated to become India's first designated hub airport.

To meet rising demand, Adani plans to double its airport capacity by 2040. Presently handling 110 million passengers annually (MPA), the group aims to expand this capacity up to threefold.

Initiatives include developing new terminals at Lucknow, Navi Mumbai, Guwahati, Ahmedabad, and Jaipur airports, with a combined capacity target of approximately 300 MPA by 2040.

The expansion will be phased, starting with Lucknow Airport's new terminal, increasing from 8 m passengers annually to 13 m in the next phase and ultimately to 38 million annually by 2035.

Adani also emphasises developing the city-side infrastructure at airports to enhance ancillary revenues, earmarking land for aviation-related businesses such as hotels and office spaces across Mumbai, Lucknow, Navi Mumbai, Jaipur, and Thiruvananthapuram airports.

Conclusion

India currently ranks as the third-largest domestic aviation market globally, following the United States and China. The country anticipates overall air passenger traffic to grow by 8-11% in 2024-25, reaching between 407 m to 418 m passengers.

Factors contributing to this growth include improvements in both domestic and international passenger movements, increased tariffs at major airports, and a rise in non-aeronautical revenues for airport operators.

The recovery of Indian airport passenger traffic has been notably robust compared to other global counterparts, with India accounting for 4.2% of global passenger traffic in 2023. Forecasts predict a 10% rise in passenger traffic from the already high base of FY24.

This, coupled with tariff increases linked to capital expenditures and an uptick in non-aeronautical revenue per passenger, is expected to drive revenue growth for leading private airport operators.

These developments are poised to support Adani Airports in achieving its revenue targets, strengthening its position within the Indian market.

Nevertheless, it is always prudent to conduct thorough research before making any investment decisions. Ensure that the investment aligns with your financial objectives and matches your risk tolerance level.

For more information on IPOs, check out the list of upcoming IPOs.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...