JPMorgan: Mundra Port and SEZ: reduce to Neutral

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Mundra Port and SEZ Ltd: Port of preference but growth priced in: reduce to Neutral


• Stock pricing in announced domestic growth opportunities: Our
estimates factor in execution of announced domestic port projects and their
expansion up to current targeted capacity. In Mundra Port, we model 29%
cargo growth CAGR over FY10-14. In FY31, the final year of concession,
we model ~380MTPA traffic and complete development of current SEZ
notified area. Our revised Sep-11 SOP PT of Rs162 (vs. Mar-11 PT of
Rs147), implies fair value; we reduce MPSEZ to Neutral from OW.

• Overseas growth potential robust, but still nascent: Future growth plans
include ~80-90MTPA of coal export terminals at Dudgeon Point
(Queensland, Australia) and South Sumatra (Indonesia). The
commencement of construction is at least one year away, and significant
EPS contribution is 4-5 years distant. The feasibility study is underway at
Dudgeon Point and permits/clearances need to be secured in the Sumatra
project. We await concrete capex plans and progress on preconstruction
milestones to attribute value to overseas pipeline.
• Much ado on Adani group being prospective bidder for Brisbane Port:
Brisbane Port lease (around A$2B) is tantamount to a ‘vanilla landlord port’
deal. This does not fit in with MPSEZ’s business model, in our view.
• Key model revisions: We have reduced our FY11-12 estimates by 2.6-5%,
as we believe management is consciously moving slow on SEZ
development, evaluating synergy with Mundra Port. After a recent site visit
to Mundra Port & the SEZ, we emerge more positive on execution
capabilities and lower discounting rate for SEZ cash flows by 200bps to
12% (in line with other MPSEZ projects valued). We also factor in value
and estimate for Hazira Port (Rs6.6/share, ~3.7x project equity),
construction commenced in Jun-10.
• MPSEZ has outperformed Sensex by 32% YTD: Stock trading at ~20x
FY12E EV/EBITDA, a sharp ‘growth’ premium to Chinese ports (7.5-11x)
and positive FCF-led premium over Indian IPPs (9-12x). Key upside risk:
Significant improvement in visibility of overseas projects, license for
Greenfield port on east-coast. Key downside: slower-than-expected traffic
growth in ports.