Mundra Port and SEZ : one-off events in Sep-q -Operating performance impacted: JPMorgan

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Mundra Port and SEZ Ltd Neutral
MPSE.BO, MSEZ IN
Operating performance impacted negatively by one-off
events in Sep-q



• Reported operating performance below estimates. Mundra Port traffic
(12.6MMT) and net-sales were flat vs. Jun-q. Net-sales (Rs4.1B, +28%
YoY) and EBITDA (Rs2.74B, +16.7% YoY) were ~6% and 10% below our
estimates. PAT of Rs2.12B (up 21%) was in-line mainly on account of
lower finance cost (down 57% YoY) and lower taxes (but below street PAT
est. of Rs2.2B). Stock reacted negatively to weak operating performance
(down 3.7%).
• Weak IOC crude traffic depressed liquid cargo volumes in Sep-q
(3.4MMT, down 17% YoY). According to management, the refining
capacity of IOC Panipat was being ramped up from 12MMTPA to
15MMTPA during the quarter, which decreased crude off take. The crude
volume is expected to recover in Dec-q.
• Rs300MM one-off operating expense. According to management, the
company incurred Rs300MM in ramping up operations of the fertilizer
handling facility commissioned in Jun-q. Adjusting EBITDA for this nonrecurring
expenditure, the EBITDA of Rs3.03B was in-line.
• No new long term lease in Mundra SEZ in 1HFY11. We have factored in
400acres of SEZ transaction in FY11 estimates. Our expectation would be
met if land parcel is awarded for LNG Terminal (~450acre+) or for Adani’s
3.3GW Bhadreshwar project/ or partly if Bharat Forge expands capacity in
Mundra SEZ.
• In 2HFY11, implied PAT growth to reach FY11 est. is 35.8%, a pick-up
from 22.4% in 1H on account of higher traffic growth+ SEZ deals. The coal
terminal of 50MMT capacity is expected to be commissioned in Dec-q and
will contribute to traffic growth in Mar-q in our view.
• Maintain N and Sep-11 PT of Rs162. We think the stock is pricing in
announced domestic growth opportunities (see recent report- Port of
preference but growth priced in). 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.