Mundra Port And Special Economic Zone : Takeaways from Conference:: Citi

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Mundra Port And Special Economic Zone
(MPSE.BO)
Alert: Takeaways from India Infrastructure Conference, 10-11 Jan
 Takeaways from Mumbai — MPSEZ presented at our India Infrastructure Mini
Conference 2011 in Mumbai. Below are the key takeaways from management:
 Strong volume growth ahead — MPSEZ expects FY11 throughput to be
~50mtpa, up ~30% yoy. Volume growth in FY12 would be driven by increased
throughput of coal for Adani Power's Mundra project and Tata Power's Mundra
UMPP.

 Capacity enhancement on schedule — Rail link capacity between Mundra and
Adipur is being doubled, and the remaining broad gauge conversion work on the
rail link to Delhi and Bhatinda has been completed. The Mundra-Bhatinda crude
pipeline capacity has been completed. Work on the coal jetty is near completion
and coal throughput for the Mundra UMPP project is expected to start in 1Q FY12.

 Domestic expansion at different locations on track — The Dahej port started
operations in Sep 2010 with capacity of 20mtpa. Dahej port traffic throughput is
likely to be ~2mntpa in FY11 and ~6mntpa in FY12. The company has refinanced
debt at a lower cost. The Mormugao coal jetty is expected to be commissioned by
FY13. MPSEZ will spend Rs4bn for eventual capacity of 6-7mntpa.
 International expansion in initial stages — MPSEZ will spend ~US$1-1.5bn on
a 60mntpa port in Australia. Total capex, including a 360-400km rail link, will be
~US$2.5bn.
Mundra Port And Special Economic Zone (MPSE.BO; Rs141.05; 3L)


Mundra Port And Special Economic Zone
Valuation
Our target price for MPSEZ is Rs164. Mundra Port is valued at Rs124/share on a
discounted cash flow to equity basis, using a cost of equity of 12%. The SEZ is
valued at Rs19/share, using a cost of equity of 13% and then assigning a 20%
discount to the calculated NAV (consistent with how we value the smaller Indian
real estate companies). We value Dahej Port at Rs8/share - on a discounted cash
flow to equity basis, using a cost of equity of 12%. We value Hazira Port at
Rs10/share - on a discounted cash flow to equity basis, using a cost of equity of
14% and Mormugao port at Rs1/share on a discounted cash flow to equity basis,
using a cost of equity of 14%. We value stakes in Adani Logistics (Rs2/share) and
Kutch railways at book value.

Risks
We rate the stock Low Risk, in line with our quantitative risk-rating system, which
tracks 260-day historical share price volatility. Key upside risks to our Sell
recommendation and target price include: 1) better-than-expected traffic growth; 2)
better-than-expected demand for the land at the SEZ; 3) higher-than-expected
lease income for the SEZ; and 4) extension of the concession period. The key
downside risk to our estimates and target price include lower than expected sale of
land at SEZ and slower growth in traffic volumes