GMR Airports Q2 FY26: Robust Revenue Growth Masks Persistent Profitability Challenges

The stock has responded positively to the broader growth trajectory, trading at ₹95.65 as of November 14, 2025, delivering a robust 24.64% return over the past year and outperforming the Sensex by 15.64 percentage points. However, with a negative book value of ₹2.82 per share and mounting debt obligations, investors face a critical question: does the operational momentum justify the valuation risk, or is this a value trap masquerading as a growth story?

The September 2025 quarter marks a significant inflection point in GMR Airports' operational journey. Revenue acceleration has been nothing short of spectacular, with quarterly sales reaching an all-time high of ₹3,669.99 crores, up 14.50% sequentially from ₹3,205.23 crores in Q1 FY26. This growth trajectory reflects the robust recovery in India's aviation sector, with passenger traffic volumes across GMR's airport network—including Delhi and Hyderabad—witnessing sustained momentum post-pandemic normalization.

Financial Performance: Strong Top-Line Momentum, Bottom-Line Volatility Persists

GMR Airports' Q2 FY26 financial performance presents a tale of two narratives. On the revenue front, the company demonstrated exceptional growth, with net sales of ₹3,669.99 crores marking a 14.50% sequential improvement and a stellar 47.07% year-on-year expansion. This acceleration is driven by increasing aeronautical revenues (passenger traffic-linked charges) and non-aeronautical revenues (retail, hospitality, and cargo services) across its airport portfolio.

Operating profit before depreciation, interest, and tax (excluding other income) reached a quarterly high of ₹1,447.03 crores, with operating margins expanding to 39.43%—a 305 basis points improvement from the previous quarter's 36.34%. This margin expansion reflects improving operational leverage as fixed costs are spread across higher revenue volumes, alongside better cost management initiatives.

However, the profitability picture remains deeply challenged. The consolidated net loss for Q2 FY26 stood at ₹37.09 crores, whilst showing sequential improvement from Q1 FY26's loss of ₹211.59 crores, represents an 86.77% deterioration compared to the year-ago quarter's loss of ₹280.40 crores. The standalone entity reported a marginal profit of ₹24.42 crores, but this was offset by losses at subsidiary and associate levels in the consolidated accounts.

The primary culprit behind the persistent losses is the company's substantial debt burden. Interest costs for Q2 FY26 surged to ₹1,042.58 crores, up 9.85% sequentially from ₹949.10 crores in Q1 FY26. This interest burden consumed 68.07% of the operating profit (excluding other income), leaving minimal headroom for profitability after accounting for depreciation of ₹431.34 crores. The operating profit to interest coverage ratio, whilst improving to 1.39 times in Q2 FY26, remains uncomfortably thin for a capital-intensive infrastructure business.

On a half-yearly basis for H1 FY26, GMR Airports reported net sales of ₹6,875.22 crores, up 40.16% year-on-year from ₹4,897.66 crores in H1 FY25. However, the consolidated net loss for the half-year stood at ₹248.68 crores, highlighting the structural profitability challenges that persist despite robust revenue growth.

Operational Challenges: Debt Servicing Erodes Operating Gains

Whilst GMR Airports has demonstrated commendable operational efficiency—evidenced by the 39.43% operating margin in Q2 FY26—the company's capital structure remains its Achilles' heel. As of March 31, 2025, the company carried long-term debt of ₹33,724.01 crores against shareholder funds of negative ₹2,503.42 crores, resulting in a debt-to-equity ratio that is deeply negative at -15.17 times for H1 FY26.

The company's average return on capital employed (ROCE) stands at a meagre 4.48%, well below the cost of capital, indicating value destruction at the fundamental level. The latest ROCE for H1 FY26 improved to 8.48%, the highest in recent periods, suggesting some operational progress. However, with return on equity at 0.0% (given the negative book value), the company is effectively operating on borrowed capital without generating adequate returns for equity holders.

Employee costs have risen to ₹431.99 crores in Q2 FY26, up 5.81% sequentially, reflecting the labour-intensive nature of airport operations and potential wage inflation pressures. Total expenditure management remains a key focus area, with the company needing to balance operational quality with cost efficiency to improve profitability metrics.

The depreciation charge of ₹431.34 crores in Q2 FY26, though lower than Q1 FY26's ₹488.65 crores, represents a significant non-cash expense that reflects the heavy capital investments required in airport infrastructure. Over the full year FY25, depreciation stood at ₹1,910 crores, highlighting the substantial asset base that requires ongoing capital expenditure for maintenance and upgrades.

Industry Context: Aviation Sector Recovery Tailwinds

GMR Airports operates in India's rapidly expanding aviation infrastructure sector, which has witnessed robust growth post-pandemic. The company's flagship assets—Indira Gandhi International Airport in Delhi and Rajiv Gandhi International Airport in Hyderabad—are among India's busiest airports, benefiting from the country's demographic dividend and rising middle-class air travel demand.

The transport infrastructure sector in India is experiencing a structural upturn, driven by government initiatives such as the UDAN (Ude Desh ka Aam Naagrik) scheme aimed at regional connectivity, and the privatisation of additional airports under the National Monetisation Pipeline. GMR's established presence and operational expertise position it favourably to capitalise on these trends, though the capital-intensive nature of the business demands careful financial management.

However, the sector faces headwinds from volatile fuel prices, regulatory uncertainties around tariff approvals, and intense competition from other airport operators. The company's ability to secure favourable tariff revisions from the Airports Economic Regulatory Authority (AERA) will be crucial in improving profitability metrics going forward.

Peer Comparison: Valuation Disconnect and Operational Gaps

Within the transport infrastructure peer group, GMR Airports presents a stark contrast in financial metrics. Whilst the company's revenue growth trajectory is impressive, its profitability and return metrics lag significantly behind peers such as Adani Ports and JSW Infrastructure.

GMR Airports' ROE of 0.0% (due to negative book value) compares unfavourably with peers averaging 15-16% returns on equity. The company's inability to generate positive returns on equity capital, despite being the second-largest by market capitalisation in its peer group at ₹1,02,454 crores, underscores fundamental profitability challenges that extend beyond cyclical factors.

The negative price-to-book value of -40.34x is a red flag, indicating the market is pricing the stock at a substantial premium to a negative book value—a valuation anomaly that reflects investor expectations of future turnaround rather than current fundamental strength. Peers with positive book values trade at P/BV multiples ranging from 3.52x to 6.82x, highlighting the valuation disconnect.

GMR Airports' debt-to-equity ratio of -13.83x (average) is not directly comparable to peers due to the negative equity base, but the underlying message is clear: the company operates with significantly higher financial leverage than industry standards. Adani Ports, for instance, maintains a more manageable debt-to-equity ratio of 0.68x whilst delivering superior profitability metrics.

Valuation Analysis: Premium Pricing for a Loss-Making Entity

GMR Airports trades at a market capitalisation of ₹1,02,454 crores with a current price of ₹95.65 as of November 14, 2025. The stock's valuation metrics present a paradox: the company is loss-making (hence P/E ratio is not applicable), carries a negative book value (P/BV of -40.34x), yet commands a mid-cap valuation and has delivered 24.64% returns over the past year.

The enterprise value to EBITDA multiple of 29.40x appears elevated, particularly when compared to the transport infrastructure industry average. The EV/Sales ratio of 10.94x suggests the market is pricing in significant future growth and margin expansion expectations. However, these expectations must be tempered against the reality of persistent losses and weak return metrics.

The proprietary Mojo Score of 46 out of 100 places GMR Airports in the "SELL" category, reflecting concerns about valuation risk relative to fundamental quality. The valuation grade is classified as "RISKY," which has been the case since November 12, 2020, indicating sustained concerns about the disconnect between market pricing and underlying fundamentals.

From a technical perspective, the stock is in a "BULLISH" trend as of November 10, 2025, trading above all key moving averages (5-day, 20-day, 50-day, 100-day, and 200-day). The 52-week range of ₹67.75 to ₹99.06 shows the stock is currently near the upper end, just 3.44% below its 52-week high, suggesting limited near-term upside unless operational performance improves materially.

Shareholding Pattern: Promoter Stake Dilution, Rising Institutional Interest

The shareholding pattern of GMR Airports reveals significant structural changes over recent quarters, with notable promoter stake dilution and increasing institutional participation. As of September 2025, promoter holding stands at 16.61%, unchanged from June 2025 but significantly lower than the 29.46% held in December 2024—a reduction of 12.85 percentage points over three quarters.

The dramatic promoter stake reduction from 29.46% to 17.75% between December 2024 and March 2025 (an 11.71 percentage point drop in a single quarter) suggests potential fund-raising activities, stake sales to strategic partners, or dilution through equity issuances. The promoter group, which includes Aeroports de Paris S.A. (29.86% of promoter holding), GMR Enterprises Private Limited (13.78%), and other GMR group entities, appears to be gradually reducing its direct stake in the airport business.

Conversely, foreign institutional investors (FIIs) have steadily increased their holdings from 14.81% in September 2024 to 17.08% in September 2025, with a notable 1.34 percentage point increase in Q2 FY26 alone. This rising FII interest, now totalling 595 foreign institutional investors, suggests growing international confidence in India's aviation infrastructure story, though it may also reflect portfolio rebalancing rather than fundamental conviction.

Mutual fund participation remains modest at 3.06% (31 mutual funds), up from 2.40% in March 2025, indicating lukewarm domestic institutional appetite. Insurance company holdings have declined marginally to 0.91% from 1.11% in the previous quarter. Total institutional holding stands at 21.89%, which is reasonably healthy but not exceptional for a mid-cap infrastructure stock.

Stock Performance: Outperformance Driven by Sector Momentum

GMR Airports has delivered impressive stock price returns across multiple timeframes, significantly outperforming both the Sensex and its transport infrastructure sector peers. Over the past year, the stock has generated a 24.64% return compared to the Sensex's 9.00%, resulting in a positive alpha of 15.64 percentage points. The sector itself has declined 1.17% over the same period, making GMR Airports' outperformance of 25.81 percentage points particularly noteworthy.

The longer-term performance is even more striking. Over three years, GMR Airports has delivered 147.80% returns with an alpha of 110.58 percentage points versus the Sensex. The five-year return of 293.62% (alpha of 199.84%) and ten-year return of 705.13% (alpha of 474.94%) demonstrate the stock's ability to generate substantial wealth for long-term investors, despite persistent fundamental challenges.

This performance paradox—strong stock returns despite weak fundamentals—can be attributed to several factors: the structural growth story of Indian aviation, expectations of future profitability as debt is paid down, potential asset monetisation opportunities, and the scarcity premium for pure-play airport infrastructure stocks in the public markets.

From a risk perspective, GMR Airports exhibits high volatility with an annual volatility of 25.71% compared to the Sensex's 12.26%. The stock's beta of 1.20 indicates it is 20% more volatile than the broader market, classifying it as a "High Beta Stock" suitable for risk-tolerant investors. The risk-adjusted return of 0.96 over the past year suggests reasonable compensation for the elevated risk, though the Sharpe ratio context indicates this is primarily driven by absolute returns rather than superior risk management.

Investment Thesis: Growth Story with Structural Profitability Concerns

The investment case for GMR Airports rests on three pillars: India's long-term aviation growth trajectory, the company's dominant position in key airport assets, and the potential for profitability inflection as operating leverage improves. The company operates in a sector with high barriers to entry, long-term concession agreements, and regulatory protection through tariff-setting mechanisms.

However, the investment thesis is severely undermined by persistent profitability challenges. The company has reported losses in six of the last seven quarters, with accumulated losses reflected in the negative book value of ₹2.82 per share. The debt burden of ₹33,724.01 crores requires annual interest payments exceeding ₹3,700 crores, consuming the majority of operating profits and leaving minimal room for equity value creation.

The quality assessment of "BELOW AVERAGE" reflects weak return metrics (ROCE of 4.48%, ROE of 0.0%), high leverage (debt-to-EBITDA of 15.65x), and modest institutional participation of 21.89%. Whilst the financial trend is classified as "POSITIVE" based on sequential improvements in Q2 FY26, this must be viewed in the context of continued losses and structural profitability challenges.

Key Strengths & Risk Factors

Outlook: What to Watch in Coming Quarters

The forward outlook for GMR Airports hinges on the company's ability to convert robust revenue growth into sustainable profitability. With operating margins at 39.43% and revenue momentum intact, the path to profitability exists—but only if interest costs can be managed through debt reduction or refinancing, and if operational efficiency continues to improve.

Investors should closely monitor quarterly progression towards net profitability, debt-reduction initiatives, and management commentary on tariff negotiations with AERA. The stock's technical strength and positive financial trend provide near-term support, but fundamental concerns about negative book value, weak returns, and high leverage create significant downside risk if operational momentum falters.