Mundra Port,Sell: TP Up to Rs164 to Reflect Full Value :: Citi,

Visit http://indiaer.blogspot.com/ for complete details �� ��


Mundra Port And Special Economic Zone
(MPSE.BO)
Sell: TP Up to Rs164 to Reflect Full Value, but Downgrade to 3L
 Downgrade to Sell/Low Risk, TP of Rs164 reflects full value – We increase our TP
to reflect roll–forward of DCF and the fact we now value Dahej port on a DCF-basis
vs on BV earlier, and we now value Hazira and Mormugao ports. It is too early to
value its other domestic /international expansion plans, in our view. However, our
rerating to Sell is prompted by SEZ volumes being lower than expected – we cut
FY11-13E volumes sharply by 60-70%, and port volumes may also fall short of our
previous expectations – we cut volumes by 7-8%. We have cut earnings by 18%-
29% over FY11E-13E on the back of these reduced volume assumptions, which
leaves the current stock price looking fully valued to us.
 Q2FY11E – 8% ahead of CIRA est – While revs were in line, margins were lower
than expected due to higher opex. Interest exp was lower than expected – Rs92m
vs CIRA est. of Rs247m, which boosted profits. Cargo volumes were up 24% YoY.
 Slower-than-expected off-take in SEZ land sales – Mundra port has not sold any
SEZ land so far in FY11E. It has booked contractual income of Rs85m in Q1FY11
and Rs50m in Q2FY11E. As per our discussions with mgmt, MPSEZ has entered in
to agreements for ~18 acres of land with realization of Rs9.5-10m/acre in
Q3FY11. Clients include a hotel and an educational institution among others.
 Increasing presence in India and abroad – MPSEZ is looking to expand container
handling capacities (3m TEUs) and build a LNG terminal (5-10mt) at Mundra
Port. Dahej port (15-20mtpa) has started operations and Hazira Port (25-30mtpa
in Phase I) and Mormugao Port (7mt-10mt) will start ops. in FY13/14. MPSEZ is
also exploring developing Kalinga port (100mtpa). MPSEZ is looking to develop
Dudgeon point and is looking to acquire Port of Brisbane in Australia. Plans also
include building a coal handling terminal in Indonesia. While we value Dahej,
H azira and Mormugao, we believe it’s too early to value its other expansion plans.






Potential expansion of container handling capacities at
Mundra Port
The port is seeing good volumes at Container terminal 2 is doing well as 1)
major port capacities are full; 2) JNPT has not invested in increasing capacity;
3) Many liners have included Mundra Port as a port of call; and 4) Bhildi-Luni
gauge extension has happened 2-3 months back. It has given a good push to
Mundra port volumes.
Outlook: Mundra Port is looking to expand the container terminal. It is
contemplating adding ~1800mtrs of container berths with a total handling
capacity of 3m TEUs. The capex for this is likely to be in the range of Rs15-
16bn and will happen over 2-3 years. The dredging has been undertaken for
these berths. MPSEZ is still in the process of finalizing the details - high
likelihood of it being finalized this year.
Update on the Coal Terminal
Peak coal volumes for both power plants (Tata and Adani ) would be 31m
tons/pa. The current handling capacity is 3 berths adding to 50mt. The total
potential in the basin is of 21 berths (all of which will not be used for coal).
Outlook: Adani power is planning to set up ~3300MW at the Bhadreshwar near
the port, which will lead to additional coal import volumes at the terminal.
Update on the LNG terminal
Mundra port plans to build a dedicated LNG terminal. The capacity would be
5m initially, and eventually 10mn tonnes. Adani power is also contemplating
setting up an LNG-based power plant with a capacity of 2000MW in the area.