Private airport operators are expected to spend around Rs 42,000 crore on capacity expansion over the five years through fiscal 2026 as they are confident of air traffic growth in the long term, Crisil Ratings said on Tuesday.
The amount will be more than double the capital expenditure (capex) they incurred in the previous five financial years, it said.
According to Crisil, the confidence on capex stems from the strong long-term fundamentals and regulated tariff structure, which allows pass through of capex costs and thereby keeping the risks low.
Prior to the pandemic hitting the country in early 2020, private airports were bursting at their seams, operating at over 115 per cent of their design capacity. It was around 175 million passengers on a design capacity of about 150 million passengers, as per the ratings agency.
The high operating rate was due to strong annual growth of over 8 per cent in air traffic between fiscals 2016 and 2020, Crisil said, adding the operating rates took a massive hit in fiscal 2021 as the pandemic and the subsequent economic slowdown led to traffic nose-diving by around 65 per cent.
Though the current fiscal also started with a more virulent second COVID wave, prospects of economic recovery look brighter with the infection rate easing, vaccinations gathering pace, and the government continuing its thrust on infrastructure development, it said.
In its note, the rating agency also said that economic growth outlook remains strong and GDP is expected to grow at around 7.4 per cent CAGR over the next four years -- fiscal 2022 to fiscal 2025 -- in real terms.
"Economic growth will boost air traffic volumes given the impact on increase in per capita consumption and shift in preference towards an efficient mode of commute.
"Given that air traffic in India tends to grow faster than the GDP growth and the government's push to connect lower tier cities with metros under its regional connectivity scheme, we expect a robust 8.5 per cent annual air traffic growth at Indian airports till fiscal 2026 (compared to fiscal 2020 levels)," Ankit Hakhu, Director at Crisil Ratings, said.
This would mean an additional around 190 million passengers will fly pan India by fiscal 2026 over the pre-pandemic base of fiscal 2020 of 340 million passengers, taking the overall traffic to around 530 million passengers by fiscal 2026, as per the note.
Out of the total, 70 per cent or around 375 million passengers are expected to be handled by private airports in fiscal 2026, up from around 50 per cent in fiscal 2020.
This expected demand growth is driving private airport operators to enhance the design capacity to 340 million passengers per annum from the pre-pandemic level of around 150 million, Crisil said. Despite this significant capacity expansion, strong increase in demand could keep utilisation rates of these airports around 100 per cent by fiscal 2026.
"While the high utilisation rate justifies the large capex, credit profiles of these airports will also be supported by their regulatory business model.
"Tariffs for these airports are based on a fixed regulated return (weighted average of around 16 per cent on the equity investment and the market cost of debt) on capex in the next five years, which provides certainty regarding cash-flow return on the capex," Varun Marwaha, Associate Director at Crisil Ratings, said.
Stating that airports also earn from non-aero activities, Crisil said that by fiscal 2024, increase in passenger traffic and economic revival should help this revenue stream rebound by 50 per cent (in absolute terms over fiscal 2020) and contribute over 40 per cent to the overall revenue of private airports.
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