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Mundra Port and SEZ (MSEZ)
Infrastructure
MoEF raises issue of non-compliance with environmental legislation at Mundra.
A Ministry of Environment and Forest team visited Mundra port and has submitted a
show-cause notice to them. Key issues are damage to mangroves from reclamation and
obstruction of tidal water flow from dredging pipeline. Other issues seem to be lack of
specific Coastal Regulation Zone clearance for township and hospital development in
the vicinity of Mundra Port.
MoEF raises issues of non-compliance with environment protection legislation at Mundra port
The Ministry of Environment and Forest (MoEF) report dated Dec 15, 2010, published post site visit
of MoEF officials on Dec 6 and 7, 2010 raises issues of compliance with environment protection
legislation. MoEF has now issued a show-cause notice to MPSEZ to respond within 15 days. Site
visit was undertaken based on representation from Machimar Adhikar Sangharsh Sangathan
(MASS), Gujarat, indicating gross violation of the Coastal Regulation Zone area for establishing
various facilities at Mundra port. The MoEF team also seems to have visited 2X150 MW power
plant of OPG Energy.
Reclamation, dredging pipeline and CRZ clearance for township and hospital seem key issues
Based on the report we believe key issues seem to be affect on mangroves from (1) large-scale
reclamation using dredged material at West and North port at Mundra, and (2) dredging pipeline
obstructing tidal water flow. As per the report, Coastal Regulation Zone clearance for “Samudra
Township” and “Sterling Hospital” has not been obtained even though they fall in the coastal
regulation zone area.
MPSEZ has to show cause as to why (1) environmental clearance granted to West and North port,
the township project should not be cancelled, (2) dredging pipeline and certain land reclamations
should not be dismantled and removed, and (3) mangrove afforestation of additional 1,000
hectares should not be undertaken.
MoEF team observes construction activities at OPG Energy plant (Bhadreshwar) ahead of clearance
OPG Energy is planning a 2X150 MW plant at Bhadreshwar, Mundra district and the MoEF team
visited that site as well. The MoEF team report suggests that construction activities such as fencing,
clearance of vegetation, laying tar roads and setting up temporary labor camps have started even
though clearance may not have been obtained. Reservations have also been expressed on water
intake channel through biologically important tidal area and movement of trucks for ferrying coal
and fly ash through undeveloped village roads. OPG Energy belongs to Kanishk group with
interests in steel, power, logistics and food products. Adani Power is also planning a thermal
power plant at Bhadreshwar.
Key issues: Reclamation, dredging pipeline, CRZ clearance (township, hospital)
The Ministry of Environment and Forest has issued a show-cause notice to MPSEZ due to
several violations of the environmental protection legislation. Key issues of violation were (1)
large-scale reclamation carried out on mangrove area behind West and North port, (2)
dredging pipeline obstructing the tidal flow leading to damage and drying up of the
mangroves in several areas, (3) “Samudra Township” which falls within the Coastal
Regulation Zone (CRZ) has not obtained environmental clearance and (4) “Sterling Hospital”
has also been constructed in the CRZ but has not received prior clearance. Note that West
Port is the area of the upcoming dedicated coal cargo terminal.
The ministry has issued a show-cause notice to MPSEZ (to be responded to within 15 days)
covering as to why (1) environmental clearance granted to West and North port should not
be cancelled, (2) environmental clearance granted to the Township project should not be
cancelled, (3) dredging pipeline should not be dismantled and removed, (4) all reclamations
carried out in mangrove should not be dismantled and removed and (5) mangrove
afforestation of additional 1,000 hectares should not be undertaken.
MoEF raises issues of non-compliance with environment protection legislation at
Mundra port
The show-cause notice is based on a report (dated December 14, 2010) submitted by
Ministry of Environment and Forest officials who had visited Mundra port on December 6,
2010 and December 7, 2010. The site visit was undertaken based on representation from
Machimar Adhikar Sangharsh Sangathan (MASS), Gujarat, indicating gross violation of the
Coastal Regulation Zone area for establishing various facilities at Mundra port. The MoEF
team also seems to have visited 2X150 MW plant of OPG Energy.
Mundra is among the largest operation port of the country
Mundra port ranked at the 7th position amongst major ports of the country in terms of total
volumes handled at the port in 1HFY11. Also, Mundra port ranks third in terms of container
cargo handled in 1HFY11 amongst major ports. We note that the port has improved its
ranking since FY2010. Based on volumes handled in FY2010, Mundra port stood at position
8 amongst the major ports versus present rank of 7.
Mundra has handled total volumes of about 25 mn tons in 1HFY11 constituting 14.2 mn
tons of bulk cargo (excluding POL), 7.2 mn tons of container cargo and 3.8 mn tons of
crude cargo
Port has outperformed the sector in terms of volume growth
In 2QFY11, Mundra port recorded a total cargo growth of 25%. This is versus marginal
growth of just 0.7% for major ports in India. In the container segment, Mundra port
recorded growth of 38% versus a yoy growth of 5.8% in the average container volumes
handled at major ports. The port has also performed better (in terms of growth) versus its
nearest peer, Kandla port, which recorded a marginal decline (0.5%) in total cargo in
2QFY11 and flat yoy container cargo. We expect the port to handle volumes of about 51.7
MMT in FY2011E, recording a growth of about 28% yoy, implying 28-30% growth
requirement in 2HFY11E.
Retain earnings estimates; reiterate REDUCE with a target price of Rs150/share
We have retained our consolidated earnings estimates of Rs4.5 and Rs7.2 for FY2011E and
FY2012E, respectively. We have retained our SOTP-based target price of Rs150/share
comprised of (1) Rs118/share from the Mundra port business (Sept-11E-based DCF
valuation), (2) Rs23/share from the SEZ business (Sept-11E-based FCFE valuation), (3)
Rs4/share from Dahej port value, (4) Rs4/share from Mormugao and Hazira ports, and (5)
Rs2/share from book value of investments in Adani Logistics.
We retain our REDUCE rating on the company based on (1) relatively limited upside to our
target price, (2) relatively expensive valuations and (3) strong estimates in the near term as
well as long term leaves limited potential for upside. Key downside risks to our estimates are
(1) delays in progress of the power projects, which would lead to lower-than-expected coal
volumes, (2) slower-than-expected SEZ area absorption with competing SEZs vying for clients,
and (3) removal of SEZ-related tax benefits. Key upside risks to our estimates include (1)
stronger-than-expected performance of other upcoming port projects and (2) higher-than expected SEZ land sales.
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