27th Sep, 2022

As the pandemic has ebbed, the total number of domestic flyers in a month crossed the run rate of 1 crore. Similarly, flyers have returned to international flights as well after the government opened its skies for other countries. 

One of the biggest beneficiaries of this reversal in trend has been those companies related to air travel. Airline stocks are on an upward trend again – at least stronger ones; a new airline was launched recently; an airport lounge services provider successfully completed its maiden public issue. Not surprisingly, many investors have made most of these phenomena already. 

However, the fact is most companies operating in the sector are not listed. Hence, most of such opportunities lie in the unlisted market rather than the listed market. One such opportunity is Cochin International Airport Ltd (CIAL). 

About the company

CIAL is the company that built and operates the Cochin International Airport. It is India's third busiest airport in handling international traffic. It's also the first airport in the world fully powered by solar energy.The airport handles an average of 106 planes every day, including both domestic and international flights. Since 2018, the airport has handled 1 crore passengers annually.  

Since beginning its operations in 1999, the airport now services direct flights to all countries in the Middle East. Besides, regular flights to Sri Lanka, Singapore, Thailand, and Malaysia are also available. The airport is owned by a public-private partnership in which Kerala Government owns 32 percent stake. The airport has inked a bilateral air-bubble agreement with 28 nations to fly international passengers to these destinations.  

What works for the airport is that it is situated in the most populated city of Kerala, readily provided with flyers. Moreover, Kochi is also the commercial capital of Kochi, providing the airport with affluent customers. A huge number of Keralites also live in gulf countries who also form a loyal customer base for the airport. 

Business model

Like any other airport operator, CIAL also earns its major chunk of income from landing fee, income from cargo operations, X-Ray screening charges, rent and services, and sale of duty free products.

Besides, CIAL also earns royalty charges from its subsidiaries. It has five subsidiary companies catering to different operations at the airport. Details follow: 

• Cochin International Aviation Services Limited (CIASL): It provides maintenance, repair and overhaul services to airlines that use Cochin International Airport. 
• Air Kerala International Services Limited (AKISL): It runs a low cost carrier. 
• CIAL Infrastructures Limited (CIL): operates and manages solar power used at airports. 
• CIAL Duty Free and Retail Services Limited (CDRSL): Manages duty free and retail business at the airport.
•  Kerala Waterways and Infrastructures Limited (KWIL): It is working on an inland waterway between Kovalam and Bekal.

Opportunity

Air travel is an untapped opportunity for India. The industry still caters to a miniscule population of India. However, as the per capita income of the country increases, air travel will also increase leaps and bounds. 

As per an estimate, Indian domestic aviation market size is expected to double by 2030. Moreover, the domestic air-freight market is expected to touch 11 lakh tonne from 8 lakh tonnes by 2025 at a CAGR of 7-9 percent per annum on the back of growing e-commerce and manufacturing sectors.All of these mean more revenue for airport operators like CIAL. And, in turn it also presents growth investment opportunities for investors. Another thing that works in favour of CIAL is that it is a regularly dividend paying company. 

Financials

In its latest earnings report for FY22, the company has posted much improved numbers given all restrictions have more or less been lifted. For the fiscal, the company made a turnover of Rs 418.69 crore and recorded an operating profit of Rs 217.34 crore. The profit before tax was Rs 37.68 and net profit Rs 26.13 crore.

It will not be wise to compare its numbers with previous couple of years given the disruption caused by the pandemic. However, the numbers for FY22 are still much lower compared to what the company reported in pre-covid years – around a revenue of Rs 800 crore and net profit of Rs 180 crore. 

Share price and valuations

Shares of the company trade in the range of Rs 170 to Rs 196. At this price it trades at a valuation of 28 to 30 times its pre-covid (FY20) earnings. We have taken FY20 numbers because Covid years are anomalies and in all probabilities, the airport is likely to return to its historical run rate of revenue and net profits from subsequent fiscals. Adani Enterprises, the only other profitable airport operator, trades at a PE of 465 times. However, Adani Enterprises houses several other businesses of Adani Group. (Click here to know the latest price of CIAL shares)

Given the growth outlook, inexpensive valuations, market positioning, and dividend payment record, it is an attractive investment. 

Tell us in the comments section below whether you would like to invest in Cochin International Airport Ltd unlisted shares.

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