Travel Food Services Limited (TRAVELFOOD) Q1 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to the Q1FY27 Earnings Conference Call of Travel Food Services Limited, hosted by ICICI Securities Limited. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference has been recorded. I now hand the conference over to Mr. Ashutosh Jyoti Aditya. Thank you and over to you, sir.

Thank you, Anushka. Hello and good afternoon, everyone. Present on the call, I, on behalf of ICSA Securities, welcome you on the Travel Food Services Limited Q1 FY27 earnings call. I would like to thank the management for giving this opportunity of hosting the call. From the management, we have with us Mr. Varun Kapoor, MD and CEO.

Thank you, Ashutosh, and good afternoon. Welcome, and thank you for joining us on the Travel Food Services Limited earnings conference call for the first quarter ended June 30, 2026. The management will discuss the operational and financial performance for the quarter and address the question and answer session. We will be referring to the earnings presentation, press release, and the financial results uploaded on the stock exchanges. Before we proceed, here is a disclaimer to the call. A few statements by the company's management in the call can be forward-looking in nature, and we request you to refer to the disclaimer in the earnings presentation for further details. Now, I would like to hand over the call to Mr. Varun Kapoor for opening remarks. Thank you.

And thank you for joining us for the earnings call of TFS for the first quarter of this financial year. I hope you have had the opportunity to review our Q1 FY27 results and the investor presentation released yesterday. Let me begin with an update on the operating environment, followed by the key highlights of our performance, after which our CFO, Vikas, will take you through the financials in greater detail. We have begun the new financial year on a strong note. Despite the disruptions arising from the ongoing conflict in the Middle East, we delivered double-digit growth in both sales and profitability, continued to expand our network, and further strengthened our position across key airport markets. Let me start with the operating environment. Passenger traffic remains the single most important external driver of our business, and during the quarter, it was impacted by the Middle East conflict, particularly on international routes. Domestic traffic registered modest growth, but a significant decline in international traffic resulted in overall passenger traffic being broadly flat year-on-year for the quarter. For some added color, the quarter began with a decline in overall traffic in April. May saw gradual stabilization in traffic trends as disruptions eased, with domestic traffic returning to growth, while international traffic continued to face headwinds despite improving conditions. In June, traffic softened again following renewed conflict-related disruptions. One of the greatest lessons of the past several years has been the resilience of travel demand. Time and again, we have seen passenger traffic and traveller spending rebound strongly once disruption is eased. Even during the current quarter, the temporary easing of geopolitical tensions in May led to a sharp rebound in travel activity, particularly in domestic travel, resulting in the highest ever single month of domestic air traffic in India. Particularly notable against a softer base in the same month last year, and underscoring the resilience and strong bounce-back capability of the Indian travel market. Softer traffic backdrop, where we also saw higher cost and inflation pressure, CFS delivered another quarter of strong performance. System-wide sales grew by 18% year-on-year to 8.4 billion rupees. White consolidated profit after tax increased by 35.6% year-on-year to 1.3 billion. Vikas will cover the financials in detail, so let me focus on what these numbers tell us about the business. We sustained strong momentum in new outlet openings, backed by recent contract wins and a robust pipeline, which translated into net contract gains of 15.9% year-on-year at a system-wide level. A few markets saw softer like-for-like performance during the quarter, notably Mumbai and Guwahati owing to traffic migration to new airport infrastructure, and southern southern India markets given their relatively higher exposure to Middle East traffic. As a result, system-wide LFL sales growth was 0.8% for the quarter. Importantly, excluding these specific markets, like-for-like sales grew around 7% year-on-year across our wider network. During the quarter, we commenced operations at Noida International Airport, taking up system-wide presence to 21 airports. Over the last 12 months, we have added 87 travel QSR outlets and two lounges across the network, with significant additions at Mumbai, Delhi, Hyderabad, Cochin, Navi, Mumbai, and Noida airports. Our system-wide footprint as of June stands at 580 travel QSR outlets and lounges, while our brand portfolio has expanded to 153 brands. We remain focused on creating a differentiated food and hospitality experience for travelers through a carefully curated portfolio of international brands, regional favorites, and our own in-house concepts. On the lounges side, we continue to see an encouraging response to our premium offerings and customer Experience initiatives. Increasingly, leveraging technology to deepen engagement with passengers and partners while creating additional avenues for monetization. Another important milestone during the quarter was the successful launch of our passenger services at Noida International Airport under our Elite Assist brand, including meet-and-greet and porter services. These offerings complement our existing lounge network and will integrate into our EATS. Technology platform, allowing passengers to use them alongside other experiences, further strengthening our ability to offer a comprehensive suite of airport hospitality and services, and to enhance the passenger experience to a single, connected ecosystem. As passenger traffic normalizes and builds, these units are positioned to contribute progressively and increasingly to our performance. The investment is already made, the capacity is in place and we are ready. When traffic returns, and history tells us it will, TFS is well positioned to benefit from the network and groundwork we have put in place over the past 12 months. Looking ahead, several important growth catalysts are set to come online. The opening of Bhogapuram Airport on 17 August marks another significant milestone where we will... ...operate multiple outlets under our JV, GHL. In parallel, we intend to progressively expand our passenger services platform to additional airports, building on the encouraging early response at NOIDA. We also have a strong pipeline of growth opportunities, with over 50 outlets currently under development across our network. As these locations open and then mature over the coming 12 to 18 months, to provide a meaningful uplift to both revenue and Penetration. I'll hand over to Vikas. We'll take you through our financial performance in greater detail.

Thank you, Varun, and good afternoon, everyone. I will now take you through the financial performance of the company for Q1 FY27. System-wide sales for the quarter reached 8.4 billion, representing a growth of 18% year-on-year. At a consolidated level, revenue from operations grew by 20.6% year-on-year to 4.5 billion. Consolidated like-for-like sales growth stood at 4.2% while net contract gains remain strong at 20.2%. Reflecting the contribution from recently commissioned units across Delhi, Cochin, Noida and other key locations. Also for like-for-like sales growth was driven by many innovations, promotional initiatives and calibrated pricing. On the margin front, reported gross profit stood at 3.9 billion with a gross profit margin of 85.7. As highlighted in our presentation, gross profit margin reflects the accounting treatment of the lounge aggregation business where revenues are recorded in the sales while the related service costs are classified under other expenses. Adjusting for this reclassification of 223 million of lounge aggregation cost from other expenses to cost of sales, the adjusted gross profit stands at 3.655 million, translating into an adjusted gross profit margin of around 81%, which remains well within our guided reach. Further, employee cost increased during the quarter primarily due to annual compensation revisions and the onboarding of additional manpower to support recently opened outlets at Noida and Cochin airports, both of which are currently in the ramp-up phase. The increase also reflects staffing for the newly launched passenger services business at Noida airport. Other expenses witnessed a similar trend driven by investments in these growth initiatives. EBITDA stood at 1.6 billion, up 11% by a Y, and EBITDA margin moderated to 35.8% for the quarter, reflecting the impact of higher employee costs and operating costs associated with recently commissioned airports and new business initiatives. These investments are strategic in nature. On the profitability front, our performance remains strong. Consolidated profit after tax increased by 35.6% year-on-year to Rs. 1.3 billion and part margin expanded to 28.5% compared with 25.3% in the corresponding quarter last year. The overall improvement in profitability was driven by continued sales growth despite flat passenger traffic along with higher other income which included a benefit of 131 million arising from ride back of a GST provision following a favorable rectification order received by the company. Our JV portfolio continues to ramp up and has also performed well across both domestic and international markets during the quarter and is expected to benefit further as operating conditions improve and new units mobilize. Our balance sheet remains a significant source of strength. As of June 30th, we maintain a debt-free balance sheet and a consolidated cash balance of approximately 9.7 billion. This provides substantial headroom to fund airport expansions, lounge and highway growth opportunities, passenger services, and other strategic initiatives. While near-term operating conditions continue to be influenced by external developments, we believe these factors are temporary in nature. The investments we have made across new airports, outlets, lounges, and passenger services are still in the early stages of ramp-up and provide a strong platform for future growth. Combined with a strong balance sheet, healthy cash position, disciplined approach to execution, and proven ability to navigate external headwinds, we believe TFS remains well positioned to continue delivering Sustainable growth and long-term value creation for all our stakeholders. With that, I would like to hand the call back to the operator and open the floor for questions.

Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We take the first question from the line of Akshay from ICICI Securities Limited. Please proceed.

Hi, Varun and Vikas. Kudos to the team. My first question is on the passenger traffic. So, we had a flat base on the passenger traffic while the LFL still grew 4.2%. I just wanted to understand how much of the LFL growth came from the higher spend per passenger versus other initiatives, and what is the sustainable trend or the sustainable level of the LFL growth if passenger traffic returns to normal growth?

Thank you.

But given the 4.2%, what will be the growth from the higher spend passengers

or the contribution? It is coming from initiatives we would do around premiumizing, initiatives we would do around, you know, being bundled together. Also, in some cases, in a few cases, brand edits for changes.

Got it, got it. My second is on the economics of scale. So over the next three to five years, what will improve the economics of TFS beyond the passenger traffic growth? So if you have to go on a picking order, will it be more on the premiumization or the higher spends per passenger or a better contract terms?

So I think the way our contracts work, and I think that's an important reference point to look at, is that when, you know, our model is, and when we invest up front, the nature of our contracts is that in the early days of any contract, the numbers... And to take some time to hit normalization. And that's because you can imagine, right, when you go into a new airport, you invest, it takes you that period, maybe 12 to 18 months for a running airport, maybe 24 months for a greenfield, because passenger traffic takes a bit of time. We also understand where gates are being used more, what type of brand works, some location and some challenges. So all of that plays out. Sometimes we even change the brand at some point in time if it was not fitting in. So all of that probably plays out over that 12 to 24 month horizon, depending on the nature of the terminal, right? A new terminal, like a Noida and Abimumbai, as you've seen in the press, would take some time for traffic to pick up and that to normalize, whereas running airports are a bit faster, right, where they're already there. So I think that combination is what we... Our numbers play out, so therefore, we're already always, as you saw, winning new contracts over the last year. It would be evident. We have quite a strong pipeline. Thank you. Thank you very much.

Perfect. Last question is, may I, on the capital allocation front and the balance sheet. So, we have a sizable good balance sheet and also given the current expansion opportunity. Now, how do you decide where to deploy capital? So, what I'm looking at is more importantly, what return threshold do you look for when bidding for a new airport or adding an outlet? And what is the competitive bidding putting pressure on these return expectations?

So, I will take that question. Vikas here. So, we are a cash generating company and a growing company at that. Like we have clarified in the past as well, that we are extremely prudent with our capital allocation strategy. It's more driven by the units that we are currently in the face of ramp-up. Over and above that, we constantly explore new opportunities that open up in airports which are on our target. In terms of that, the entire approach that we take is that we should be getting returns which, at a maturity level, mimic our rest of the portfolio from that perspective. And that's wherein our focus is there. We won't be chasing growth unnecessarily unless and until it gives sustainable long-term profit for all our stakeholders.

But I just wanted to understand the economics on bidding and also the opening of the new outlet. So what will be the maturity period and also the operating delivery that you'll be getting from here?

In a sense, what happens is you start hitting normalized profit levels. 12 to 18 months to get, because those are running, you understand it, your teams get used to it. In this sector in terms of market leadership, I think the brands, we bring the understanding of the sector, the larger investments on back-end areas. We do enjoy, you know, I think significant strength. Building these contracts, winning these contracts, running these contracts, which is where I think, and that's why you kind of see the performance. Thank you.

Thank you and good luck all the days.

Thank you. We take the next question from the line of Aachal Kumar from HSBC. Please proceed.

Yeah, hi. Thanks for taking my question. My first question is on your guidance. As you mentioned that 50 outlets under development and you're expecting meaningful uplift to the earnings. So is that, I mean, that's on what time horizon you're talking about? Are you talking about Q2? Are you talking about a full year? So can you please do a bit of color? And then when you say 50 outlets, is that total QSRs or are you adding some business launches also?

Hi, Achal. Thanks for your question. So, Varun here. So, two parts to that. One, to just give a bit of color around it. So, I think from an earnings potential point of view going forward, there are two aspects that play out. One, we have existing units that we built, say, over the last 12 months, you know, which is roughly about 90 units we've already mobilized and activated. Those, you know, some of them which are in the early part of the year are hitting the little, you know, coming to normalization and maturity levels. A large part of those happened, you know, in the last two quarters, and those outlets will hit normalization over the next, say, 12 months approximately. So that benefit, yes, will play out over the next 12 months, and we see kind of a double impact of that, you know, with traffic coming back as well, which has, you know, been a hallmark, I think, of the Indian aviation industry has been growing strongly. So I think that's the expectation in the second half of the year. In terms of the 50 units you're referring to, those are more outlets actually constructing as we speak. So those are not even online. Those would come online, say, in this. Fiscal year, a large part of those is the plan that they will open up. Some are being constructed, some are about to start construction. So in a sense, that's the pipeline that we already have signed up. And once those mobilize, again, it will follow the same sort of scenario of 12 to 18 months for the ones that are in existing terminals. And a little bit longer for the greenfield ones that are in new airports, like Noida, for example, we have a set of outfits coming up there. Now in Mumbai as well. So those take a little bit more time to normalize with traffic coming in slowly in those airports.

So this 50 outlets which you're talking about, it's mainly on existing airports, right? So I said, so all these 50 units that you're talking about, which are under development, all these are on the existing airports, and can you give a bit of color, and which airports are you talking about? Is it like Noida or Namibai, or is it like on the existing airports also?

These 50 would be in airports we've already announced, which awareness would be there. These are build-outs which may have been one on contracts, three, six. Outlets are happening in Nabi Mumbai, we've activated some already, as well as some outlets are happening in Bhogapuram. So it's a blend of multiple airport outlets that are there, which are already secured by us, and we're basically in the process of mobilizing those outlets.

Okay, perfect. Second question is about the near term. So basically, the second quarter, I can see that the traffic is already down, like domestic traffic is down 6%. International traffic is down about 4%. While in the Q1, of course, the traffic was flat, but your major growth came from the new contracts. How do you see the second quarter? And we are standing in the middle of August, so you must have got a very clear picture. So any color on the second quarter, please?

So, the second quarter, in a sense, well, you know, I try to give it limited to passenger traffic information that's visible in public now. So, I think in terms of what you're seeing out, and you would have seen a similar commentary across, I think it's a very, currently, till about August, it's a similar trend to Q1. Traffic is around at similar levels is what we are seeing playing out. And I think the rationale would be that, so, international traffic, again, is where a bit of the delta sits. Again, that's the thing. But I think you may have got visibility because I think the airlines have all come out and mentioned pretty clearly. So if you saw, I think it was the month of May, towards the end of May, many of, I mean, our two of the largest airlines here suspended a lot of international routes. A few happened earlier, and then as well, there were quite a few international routes, especially long haul, right, logically, with a few prices where they were being suspended. I think they've already come out and called that you start seeing from September into October, restoration of many of those long-haul international routes. And that's automatically where we expect to see that flow through. So the expectation is H2 of this year should be a good bounce back on passenger traffic. And I think that's also been a call out by many independent research that's been calling out what they expect passenger traffic this year in India to be.

Right, fair enough. And then finally, I also want to understand about your plan on the international side. I think previously you mentioned that you're looking for the growth in the international market. Any thought on that, please?

No, yes, not completely. I can talk about that. So, as you know, we've had success in Malaysia, which we expanded post-COVID. Hong Kong as well, we went in. We won a second lounge in Hong Kong. We're present there in January. We entered that business as well. Those are performing well, maturing, again, like I said, ramp up stage. Right now, I think Asia is a bit more of the focus until things in the Middle East normalize. We set up joint ventures. We had set up in Dubai earlier to focus at the Middle East. We had set up, no, it's joint venture, sorry, an entity in Dubai to focus at the region. We set up another entity recently in Indonesia. To look at opportunities there, because you need those local entities to be able to bid for opportunities in the markets. We are quite focused on that. We do see opportunity clearly coming up to bid for, pitch for in those markets, and we will be quite focused to take part in those opportunities. And, you know, that's the plan, at least for the year as well.

Okay, fair enough. So, sir, last question on the...

Sorry to interrupt, Mr. Archul. I would request you to join back the queue as there are several participants waiting for their turn. Thank you. We take the next question from the line of Purva from 361 Capital. Please proceed.

Hi, thanks for the opportunity. So, my question was on the growth of Associate and GV business, it was relatively measured compared to your control growth. But if I see Adani, S&D, and lounge revenue, it has grown by 55% Ryan-wide. GHL, JMR reported, in the presentation reported by JHSL, it's around 22% Ryan-wide growth. So what's the reason for our 15% growth in this associate and daily business?

So, uh... Purva, hi, this is Vikas here. In the case of the JV business, which is there, there are other players as well as in some of the markets where our JVs operate, and some of the units have to move to us or the JV structure over a scheduled period of time, which we have clarified in the past, as those contracts go over. From that perspective, there would be definitely a mismatch between the growth trajectory of our JV models compared to the overall growth that could be experienced at some of our airport operator partners, number one. The second important fact is that a lot of the airports on the western side, which had Middle East as a strong market, have been impacted in terms of the passenger traffic as well as the overall sales cost. So, that forms a bulk of our JV portfolio from that perspective. So, that is where you see the gap in terms of our system-wide revenues versus the overall revenues.

And secondly, are there any new upcoming airports which we are planning to bid for? And the recent Bangalore contracts which we won, how many outlets are we looking at there?

Hi, Varun here. So, one, to answer your question, so first part I did talk about a bit earlier about the international piece, so I won't touch on that again, because there we are looking at expansion, especially in the Asia opportunities. But in India, looking particularly in airports, so Bangalore T1, we do see opportunity, yes, we did win one outlet, which is a very prominent outlet. For those of you flying through T1, you normally see a KFC. It's one of the busiest outlets there. So we won. We're doing a KFC in that airport. That's what we had called out. That was the first outlet part of Bangor and T1 is going through a massive upgradeation plan. The airport is really creating something spectacular. So we do see a lot of opportunities coming up there, which we will bid for over the next 12 months. Those will come up in phases. That's our expectation. Tier 2, a lot of airports are there as well. You know, part of that also, there's a few other... Yeah, yeah, Ports coming up, for example, being next two years, I think Puna is coming up. We're seeing that particularly with the wayside amenities planned that the government announced in the expressway rollout. We see that also as a medium-term to long-term plan.

Got it. That's it from my side. Thank you.

Thank you.

Thank you. Let me take the next question from the line of Archel Pals from Monarch Network. Please proceed.

Yeah, hi. Thank you for the opportunity. My first question is on what is the sustainable LFL and net contract gain we are targeting to grow IOI?

I think in terms of net contract gains, first of all, you know, I wouldn't call out a number because I think that depends year on year, right, what we win. It's a bit, while generally it's been, you know, we've seen quite good success as you would have seen our results, which we've always been calling out. Plus, you know, Parva, when we went for an IPO, we put those numbers out. So you see that being consistent, I mean, there year on year, but it's something which is a bit lumpy, right? Sometimes you win 30 outlets, sometimes another 50 outlets, 20 outlets. So it's not exactly more of a straight line, so it tends to be a bit lumpy, but we've been quite successful over the last few years in terms of our net contract gains, and currently we did about 16% system-wide. I think historically we've all kind of been in that ballpark with our numbers. In terms of LFL, so what we've seen, I think I mentioned one of the earlier questions. The LFL tends to be largely impacted by passenger traffic as the single biggest external factor. I think we've been quite consistent in terms of how we've been able to initiatives around price, around driving, you know, brand changes to all push LFL. So, you know, in that range of at least being 5% to 7% above passenger traffic, that's been the strength of our model. You know, it's normally the high street is a bit of a challenge. We've traditionally been where, I mean, we're used to passenger traffic somewhere around 8% to 9% in normal years. And you drive maybe 5% to 7% more of LFL. Growth over that to kind of reach an LFL percentage, maybe around 14%, 15%. Thank you. That's been more of a normalized year. Obviously, in a year like this, where passenger traffic is being flat, the idea is LFLs would be about in that similar range as what we would normally see. Challenge being that some of the particular airports where the international traffic was strong this year, like I mentioned, the southern India markets, plus some of the terminal transfers this year, this quarter was a bit of an anomaly. But that's how normally we look at LFL, which tends to be more passenger traffic.

Okay, got it. So, sir, this quarter, we have seen an increase in other expense by 548 bets. So, what leads to increase this and how much we are targeting going forward?

Hi, this is Vikas here. So the reason for higher other expenses in the quarter is, like I clarified even in my speeches, there was roughly around 223 million of lounge aggregation cost, which has been classified in other expenses. As the business becomes meaningful, most likely we will show it as cost of sales separately, but excluding that also, the other expenses, while they have increased by 22% year on year, Which is in line with the business growth. This is currently, as you are aware, that we are in the ramp-up stage of opening or mobilizing units in airports like Cochin, Delhi, as well as Noida. And as part of that, there are higher pre-operating costs, which increases during this period, but it tends to normalize between the 12 to 18 months time frame. From that perspective, we believe that we should be coming back to our original numbers, what we have been traditionally showing, within another 12 months or so, from that perspective.

Okay, okay. So, one more. Just a clarification that I need. So, Delhi T3, we have just for first half, and in the second half, it is moving to JV, right?

So, At this moment, the Delhi T3, which is a material subsidiary, the contract is till 30th September, 2026. The JVGHL has bid for the contract, but the results are not out at this moment. So, I can't comment on H2 as of now.

Okay. And so, which are the other airports which are coming for the renewal?

So, like we had clarified in earlier calls as well, there would be Chennai and Calcutta airports, which would be coming at the end of March 27 and early quarter one of 27-28 for renewal purposes.

Okay, okay. Okay, thank you. That's it from my side. Thank you.

We take the next question from the line of Naveel from iThought PMS. Please proceed.

Good morning, Tim. Congratulations, and thank you for taking my question. So, you know, moving forward, my understanding is that the JV business will predominantly come from, like, you know, the airports that are managed by our JV partners, India, Ghani, you know, and other operators, but I'm more concerned about the non-JV business, right, on the console level. So, could you just maybe comment on the contract gains and the quality of contract gains in these ad ports and your general expectations of how that market will evolve? Like, will we see a discrepancy between our JV entities and the console business? One of my main concerns is to do with the profit share, right? So, the JV profit share is significantly lesser than the console business. We just want to qualitatively understand the difference between these two Yeah, hi Raveen.

Thanks for the wishes. So, in terms of one thing just to clarify, our JVs are not only the ones you mentioned here in India, but also we have a significant portion of JVs. Our Malaysia business, international business is also the JVs. So, it's a broader set of joint venture business that you see in our numbers. But in terms of how the JV business and the business on, say, the non-JV that we have here, so to give a perspective, like this here, which we had one earlier during the year announced at different times, so Cochin, for example, was the one we picked up. Another one which we mobilized currently in this month, a part of our earnings presentation was Noida Airport as well, that we are mobilized a few units still to mobilize a set of units. So there has been quite a bit of openings there as well. And Bangalore, we spoke about there as well. We picked up a unit in T1 and we see quite a bit of opportunity coming there as well. So I think the way we look at it is there are two clear drivers of the business, even in the Indian market, aside from even the international opportunity. Where we have kind of these two opportunities of growing both through joint ventures with partners we work closely with. And at the same time, we have a large part of the airports, you know, where we work with, which could be a combination of private owned, which could be a combination of run by AI, which also is a large opportunity. And in terms of growth, very similar drivers for both, you know, we're operating these businesses and very similar drivers because in terms of passenger traffic, it tends to be obviously you have. New answers like how would happen this quarter with, you know, southern markets logically being more affected for international traffic to the Middle East. But largely, you know, the growth has been quite democratic across India in air traffic. So you've seen strong growth across whether JV, non-JV, large, small airports. They've been quite robust and balanced growth across all. So therefore, we see these two avenues actually growing hand in hand during normalized periods.

Just a small follow-up before I move to my last-hand question. So, my understanding about the industry as a whole globally and in India is that the standard operating model whenever there's like a private player involved is through a JD, right? So, just want your thoughts on whether we see the console business shrinking and the JD taking up, you know, a bigger chunk of the business or not is what I'm trying to get some clarity on.

Yeah, so actually that, just to correct that information would be incorrect, where you would have got it from, because the majority of airports work directly where JVs are, probably what you were referring to, is when multi-airport operators. So, a JV generally works where someone is running multiple airports, you know, it makes sense for them to have a partner across this multiple because, you know, the effort of putting a JV in, running it, the cost of that of a separate individual vehicle with a set, makes sense when you're running multiple airports. You know, when you have a single airport, those efficiencies don't play out in the same manner. So globally, more often than not, by a wide margin, they are direct concessions is the norm. JVs tend to be in these type of examples where you have, say, an operator maybe running five, six, seven airports. And that's what we've seen globally as well. More often than not, there may be one or two exceptions, but largely, that's how the model, what we've seen in our experience.

Got it. So my next question is just like on a bookkeeping level only. It's a small question. So between the gross level and the operating level, there's like around 45 to 50% of sales is cost, right? So just want to understand how much of this is fixed and how much of this is variable because I feel like both the other expenses and the employee line item have both variable and fixed components, right? We just want to understand what percent of cost will be fixed, basically trying to understand how operating rates might play out in this business.

So, by default, roughly around 8 to 10% of our cost tends to be fixed because in terms of occupancy cost, you have these camp charges and other charges which are levied by airport operators, which are fixed in nature, which we have complete visibility how they grow or ramp up over the course of the contract. Further to that, there are only limited amount of fixed costs per se. Labour is semi-variable in the sense because India as a market is a fixed wage market from that perspective. But where the economies of scale for a player like us step in is... Our size and scale at existing airports wherein we are able to bring in efficiencies in back of the house, be it stores, be it in terms of procurement strategies, be it in terms of that if suddenly international traffic is impacted, we can move our staff or manpower from international to the domestic side of the terminal. Those are the leverages that we tend to enjoy in terms of bringing the required economies of scale.

So, very clear qualitatively. So, this is not followed quantitatively. So, out of this fixed, I mean, this 50% cost base, how much will grow, like, you know, detached from the growth of the business and how much is tied to the growth of the business?

That is actually quite variable depending on year-on-year, to be fair, because what happens is in some years wherein you have a ramp-up in the cost, your variable cost would go up because you would have higher pre-operating cost expense base which would come in. And like I said, the limited fixed amount would be more in terms of your occupancy and a certain amount of manpower that you require to ensure that operations are running in the way that is expected.

Thanks a lot for the clarification.

Thank you. We take the next question from the line of Sumanth Kumar from Murtilal Oswal. Please proceed.

Yeah, my question is a couple of airports going to expire and considering the cost is going to increase, how are we going to retain the margin of that airport?

That increase, which you mentioned, I think proved. We've had a lot of new build. It would be less about, so when we start these new units, you have this cost increase because, and especially in a greenfield probably plays out more because in a greenfield airport, passenger traffic takes a bit of time to come. So like prime example being Noida Airport started. We have teams there providing the services. You have pre-operating costs because those teams need to come in advance before sales are even there, right? They have to go for training. For many of the brands, even two, three months of training in advance, you know, leadership teams going in, travel, various pre-operating. Pre-operating expenses. So those tend to be quite larger. And yes, we've been through in a positive sense a strong new net gain, new opening cycle. So that has played out in the cost, which will be basically earnings potential for the period ahead. It unlocks that. At the same time, your question that when things go for expiry and they get renewed. Yes, there will logically be some cost escalation again at that point in time because there would be new brands we changed. Now, yes, in renewals, the changes you do may be more limited than a brand, I mean, a fresh construction. But yes, you still have some brand changes, what's relevant. There's some attitude refresh. So there would be some level of reset and some level of cost hitting in. But that again would normalize probably on the lower end of the 12-month scenario is the way we see it playing out.

When we talk about this time, we have a top-line growth of 20% plus and EBITDA growth of 11%. So, our more than 9% margin has gone because of higher employee costs and other expenses because of opening of the new commissioning of new sites. So, is that big impact because of Noida or any other places?

So, we had mobilization in Noida. We had mobilization in Cochin as well. So, we had two airports that came in place at once in India, plus we had a lot of new units coming in line in Delhi as well, and new terminals that were there. So, for example, we had presence already in Delhi airport. But with a set of new outlets, so it's a combination of when a green field happens, it is much larger because you need a full set of teams. But even in the existing term, when you have a large set of outlets coming in, the teams for those outlets, for example, you need to recruit in advance and train for those outlets. Now, if it's one, two outlets here, there, it gets subsumed in numbers. But when you have a large opening cycle that plays out, that tends to be quite, how do you say, that tends to bunch up and get a number like, you'd say, an impact. On the EBITDA as we have. So, that obviously has played out in our numbers as well.

Any inflation impact because of changing labor cost or labor code and also other expenses increase? Any other bifurcation? Can you do that? Can you tell us what are the other factors apart from that, the other expense increase significantly?

So, on the other expenses, the labor code, we roughly have around 5000 plus employees, and majority are on company role. The impact of the new labor code is very minimal for us, which we had clarified earlier, and it was below like 8 to 10 CR kind of a number from that perspective. Other than that, there isn't any other jump-up in the cost except annual increments and the higher pre-operating cost for the ramp-up of units that happened for coaching, NOIDA, as well as Delhi units, which we are in the process of commissioning or ramping up as we go along. So it will equate or be in line over a period of time as those units start performing.

Thank you so much.

Thank you. We take the next question from the line of Sanjay Ladha from Bastion Research. Please proceed.

Hi, sir. Thank you for the opportunity and congratulations on a great set of numbers. Sir, I just wanted to know, we see a small moderation in our contract renewal rate. It used to be approximately 94% and now it stands around 92%. So is this just an adjustment made for Valley Terminal 3 or you know has any of the concession expired which we did not review?

In terms of that number, if I recollect, just for a good while, you know, probably there was nothing material in there, but if I remember, I put some highway outlets. Part of our strategy, which was something we entered earlier, which we didn't see an intention to renew. So they were not, because our strategy is now to go with the WSA, larger investments. We had done a few pilots in the highway, a bit of smaller size. So those outlets we didn't look at renewing. So I think that's why we've seen that marginal moving in that number. That's been, I think, 94 to 92, if that's the right number. But it has been probably because of the mathematics around those highway sites.

Okay. Sir, my another question would be, since, you know, you already alluded to that, you know, couple of manpower and operating costs has been done for the last, you know, we have gone for full airports and all of them and the barangaparta is also coming up, as you mentioned in the 17th August. So, the cost has been escalated, but you know, the margin has been coming forward in the couple of quarters, right? So, maybe H2 onwards, the margin will start kicking from there. Is the understanding correct?

So, if I can, if I can get, if I understood your question right, just let me get if I got it, but what, so generally our margin on most fronts, I think we've been around the ranges we've set. There may be some level in terms of the, you know, especially things around the employee piece, which logically are the ones you need to get in advance, you know, in terms of you have your team members, they train. So there have obviously been one-time impacts currently. You know, even, say, in the backdrop of a, you know, challenging operating environment because of the Middle East, we still, I think, kept quite a bit of discipline around costs. And you can see that across coming in various other cost lines as well and the ultimate delivery in the numbers. But yes, compared to what we normally have seen, we've seen that little bit of extra cost coming through in the few lines, like you said, that impacts our EBITDA margin. Largely, I think it was labor, which was the one that gets affected because of the pre-op and the advanced cost that you need to take when you're opening new units.

Sir, my last question would be regarding, you know, you are now alluded to the opportunity which is, you know, highways and all that. So, you know, for the last few quarters, you only said that it's a long term play. But now, when I see you have started alluding that you are looking forward to this opportunity, quite robust. So, is there government policies that have been changing? Are we changing some sort of strategically? So what is the strategy you are looking forward in that space? Can you, you know, get louder on that side and explain more into that? Because until now, it was just an opportunity we were figuring out and we are saying that it's a three to five year down time frame. But currently what I, you know, able to understand is we are aggressively looking into that highway space more. So if you can explain me more into that.

Sure, I can talk a bit about that, but just as a bit of a context, so I think as a general business, I think, yes, we look at opportunities. At the same time, you know, cash generation, And, you know, that's been something, I think, the USP of the TFS business over the last decade and a half. And that's been the way we've run the business. And that's where we achieve, you know, the financial results plus, you know, the cash balance, no debt there as well on our balance sheet. So that's the approach. And coming to highways particularly, you know, our plan is obviously from a company point of view, I do talk about future opportunities as well. And I think, rightly, I've always stressed that highways are probably what airports were when we entered in 2008, 2009. And then, you know, there's a journey. Obviously, we're talking about a time almost 18, 17, 18 years later today where we sit. So I think highways are at the point where now government investment is coming. Expressways are being built. These, you know, wide, multi-lane expressways, access-controlled, limited developments for retail F&B through these wayside amenities, WSAs. And there's about a thousand... We said a Menti plan already announced by the government. But that is to come. So what I've been announcing is that we will be targeting those as those come online. And that's basically a future opportunity. So while I do talk and give a sense of the opportunity, obviously there's a lot of work going on. This is not something that we say we need to do immediately. We are looking at this in the medium-long term with a very clear condition that financial return are benchmarks. In a calibrated. We want to jump into one.

Thank you, sir. All the best. Thank you.

Thank you. We take the next question from the line of Vansh Gupta from Prescient Capital. Please proceed.

Hi, sir. Thank you for the opportunity. Can I hear you?

Yeah, Vansh. Hi. I can hear you.

Thank you, sir. So, just a couple of questions for mine. Given that... Some of our airports, like the Delhi T3 airport, they might be moving towards the JV, and given that Delhi and Mumbai airports are perhaps the two biggest airports in the country, then they should be contributing to a large part of their revenue and margins. I wanted to understand, is the EBITDA margin profile similar for our other airports, which is beyond Mumbai, Delhi and Bangalore? So, essentially, will our EBITDA margin profile be the same if... Our Delhi airport were to move towards Mujibir for the other airports.

Hi, Vaj. So why don't you just do things. So one, just a point of clarification. So Delhi E3 was already operating in a joint venture. It's currently that joint venture was in the form of an SPV, and that contract expires. The plan is we will be bidding through another joint venture with GMR that is a long-term joint venture, which is not in the form of an SPV. So that's been one which we've been calling out since a while. In terms of margin profile, I think irrespective if it's a joint venture or it's a direct concession, the nature of that is quite similar. I think that plays out. I think what's more relevant is if it's new build and starting to normalize takes a bit of time, irrespective if it's a JV or non-JV. So I think that's the more important criteria. And as contracts mature, profitability levels start kicking in more and more because you're running it well, you understand the market, you've built all the changes in, teams are also clued on, I think it's a human business selling. So, all that plays out. So, I think the timing is a more relevant point that plays out. Then, CDI. in the type of entity it offers.

Well, sir, I mean, just for clarity, so you're saying that the Delhi repo was already operating under the SPV. It was not a part of your consolidated revenue, as in the consolidated revenue of the company reports?

No, Delhi T3 was part of it. It was a JV. In the JV, historically, we had a majority share, so we used to consolidate it. In the new SPV, our shareholding with GMR is 30%. And therefore, it doesn't get consolidated to be close. So, it would still be a JV, but it would be part of our... Profit pick-up.

And so, it's not the case that we have like lower average selling prices across our airports other than Delhi and Mumbai, and so our margins would drop for other airports, right? Even if this were to move to a JB, wherein we have a lower share of the profits in the region.

Yes, the margin won't drop. You just have your share of the rep. Share of the number is what it is. But obviously, I think the tender, for example, is for the largest set of outlets than what we currently have in T3. So, you know, that's been a strategy we call that always plays out. When you operate directly or something, you have a limited set of outlets. The joint venture when these larger tenders come in, you know, it's...

Do our ASPs also remain broadly along the same level across all our airports, sir?

That's right.

On the second flight.

So, I'll just verify, so between... Thank you. The premium offer type of brand, the absorption ability.

Right, sir. Understood. That means fair. This is one more question from Mayim. So all of our concession agreements, are they like baked in step-ups to the minimum guaranteed rents that we pay to the landlords? Or is that like the rent, the percentage of revenue, both the fixed part as well as the variable part, that gets renewed only after the concession agreement expires?

Largely of the nature of a minimum guarantee and or a revenue share, which is higher. That's the majority of the call. And you're delivering a higher revenue, which is where a partner like us comes in. as a partner who gets the right brands, the right experience, and actually over delivers in terms of sales performance, and therefore the effort earns more from the incremental revenue share that we can drive.

Right, so my question was largely whether that minimum guarantee that we...

Thank you, Mr. Vaj.

I'm just a follow-up, just a follow-up, please. So, my question was largely whether the minimum guarantee that we give to all these reports, as well as the revenue share percentage that we give to these reports, are there like yearly step-ups to these percentage of revenue shares every year, or do these percentage shares, they get revised only upon contract renewals?

So the MGs, so there's normally the contracts, every airport would have a differing way. I would say there's one set manner. So MGs normally would have an escalation. Revenue shares potentially could be a scenario where you have a revenue share. In some contracts, maybe the same amount, some may have marginal escalation, but not really meaningful. Like you don't see any sort of a real jump up that comes in where there's a meaningful jump there. So, in terms of what plays out, more than that is probably the maturity of the contract more than covers that. You know, as the contract matures and you get a profitability. Even if there are certain contracts that may have revenue shares logically of, you know, small jump here or there, 0.1%, 0.2% or something of that nature, it doesn't really meaningfully influence the return benchmarks in the later years because the upside on maturity performance, you know, because of our ability to, you know, when you get longer term, the profitability as traffic picks in, the same assets are performing better, that aspect actually flows in much stronger.

And so, so hypothetically what, the landlords can revise the revenue share percentage every year with you?

No, that's actually, it's contractually built in. That's what I mentioned. So these are contracts.

The minimum guarantee? The minimum guarantee?

Everything is...

Okay, so... Okay, so they can't revise it every year, as long as the contract is valid, the revenue share percentage, as well as the minimum guarantee, they remain stagnant. Of course, the minimum guarantee has some step-ups every year, but the revenue share, that percentage, remains constant throughout the life of the contract.

That's right.

Understood. Right. That's all from Ryan. Thank you so much for all that clarity. We should listen.

Thank you. Thanks a lot.

Thank you. Ladies and gentlemen, we take that as the last question for the day and would now like to hand the conscience over to the management for their closing comments. Over to you, sir.

Thank you to the ICICI securities team for hosting us, and we appreciate all of you taking the time out today to join us for this earnings call, post our Q1 results. If you have any further queries, please feel free to reach out to our investor relations team. A happy independence date in advance to all my fellow Indians. Thanks a lot.

Thank you. On behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.