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C.J. Punnathara

Kochi , April 10

HAVING turned around and posted profit and dividend within five years, the Cochin International Airport Ltd has been a success story among the infrastructure providing companies in India.

The first airport in the country to have been constructed with private equity is on the threshold of major challenges and opportunities. In a free wheeling interview, Mr V.J. Kurian, Managing Director, who initiated the project and who has come back to the helm of the company explains to Business Line of the direction and opportunities that lie ahead.

Excerpts:

There have been talks of a rights issue, which is to be followed by an IPO by the company. Can you explain the financial strengths and weaknesses of CIAL?

All the financial indicators of the company have been quite good. We should be one of the very few infrastructure companies in India to declare profit and dividend in the first five years of operation.

In fact, as far as profitability ratio is concerned, CIAL has been ranked second next only to the Auckland airport, according to a study conducted by a reputed international financial consultant. Major airports such as Hannan, Dubai, Copenhagen, Zurich, Singapore all trail CIAL as far as ratio between operational expenditure as a proportion of operational revenue is concerned.

How is the capital base of the company?

On an authorised capital base of Rs 200 crore, we have a subscribed and paid capital of Rs 148 crore. The State Government has subscribed to around 32 per cent, NRIs and other promoters another 32 per cent, State Bank of Travanocre, BPCL and Air India each have around five per cent each. Right now the thinking is that we should reward these long-term stakeholders through a rights issue.

With almost three quarters of your authorised capital having been subscribed to, do you have sufficient space to manoeuvre? Would you have to expand you authorised capital?

As of now we do not have any plans to increase our authorised capital. The rights issue is going to be small. Even as far as the public issue is concerned, infrastructure companies need to issue only 10 per cent of their capital to the public. Most of the merchant bankers have been telling us that we can command a good premium in the market. It is not a question of the size of the issue, rather the interest and the volumes that the public issue is expected to generate.

Where do you plan to deploy the resources thus mobilised?

That is the problem. We are now a cash rich company and it is not mandatory for us to mobilise additional funds to pursue any of the projects that we have in mind. This is the primary reason why we are not thinking of increasing our authorised capital, or go in for a large rights or public issue. Moves to increase the capital base would further tilt the debt equity ratio further in favour of equity. The effective debt is today Rs 19 crore as against an equity base of Rs 148 crore. This has given us enormous flexibility to borrow to fund future projects.

There is an outstanding Rs 55 crore due to HUDCO, which we have tried to repay, but they have returned the cheque asking for equity in the company instead.

The disproportionate debt equity structure seems to be against the norm of the infrastructure sector. How have you managed to run such a tight ship?

The answer lies in prudent financial management. The average of interest rate for the Rs 19 crore borrowing works out 4.17 per cent. Part of this, Rs 8 crore to be exact comes as a FCNR loan that commands an interest rate of 3.56 per cent that we repay in foreign exchange, against the securitised earnings from our duty free shops. The other Rs 11-crore debt we have been able to negotiate at 5.67 per cent. That is the outstanding debt component of the company.

I was told that your duty free shops have proved to be a major money-spinner?

Quite true. The turnover from our duty free shops should be going up from $2.31 million to $3.37 million during the current year. The target for next year is $4.3 million. However, the most attractive feature of the operation is that it yields almost 30 to 35 per cent as net profit after having deducted all the costs.

Aren't you planning to dovetail the duty free expansion into you overall expansion programme?

Within a matter of five years, we have already seen that the available resources are getting congested. Thankfully, we had the foresight to plan big and we have substantial amount of land for our expansion plans.

The first phase of the Rs 80 crore international terminal expansion programme should be completed by June 2005.

At the end of the programme we will be increasing the area of the international terminal from the current 1.5 lakh sq. feet to 4.5 lakh sq. feet. We are also building a parallel taxi track and three new aero-bridges.

The duty free shops in the newly built arrival and departure hall will have more area. These duty free shops, which are managed by us run on the principle - higher turnover, lower margin and higher profit. Items like liquor are sourced from Scotland, France etc, consolidated at London or Rotterdam and are brought here.

Where do you see the future of CIAL?

We are already a Rs 100-crore company and profit margins are very attractive. The company never had to look back in the last three years. Against a turnover of Rs 60.37 crore in 2002-03 we reported a loss of Rs 19.83 crore.

In 2003-04, we reported a profit before tax of Rs 36 crore on a turnover of Rs 85.26 crore. Last year was even better. We will be reporting a profit before tax of Rs 45 crore against a turnover of close to Rs 100 crore.

Projections are that next year we should be reporting a PBT of Rs 55 crore against a turnover of Rs 110 crore. It has been a remarkable and rapid turnaround for an infrastructure company.

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