Gujarat Pipavav Port -Mini Mundra in the making? Macquarie Research,

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Gujarat Pipavav Port
Mini Mundra in the making?
Company background
 India’s first private sector port with strong parentage in APM Terminals:
GPPV, incorporated in 1992, is the exclusive developer and operator of APM
Terminals Pipavav port. The company entered into a concession agreement
with GMB in September 1998 to develop, construct, operate and maintain the
port along with the foreshore land and waterfront for 30 years. It is promoted
by APM Terminals (holds 43%), one of the largest container terminal
operators in the world with a global network of 50 terminals in 34 countries.
The port is primarily engaged in multi-cargo and multi-user operations for
container, bulk and LPG cargo. Moreover, it undertakes CFS operations,
infrastructure and land related activities in the vicinity of the port. Currently,
the container and bulk cargo handling capacity at the port stands at 1.2mn
TEU and 5mn tonnes pa, respectively.

Overview
 Profitability could improve significantly with repayment of debt: GPPV
had a significant interest cost owing to high leverage until mid CY10. Post the
recent IPO, the net debt of the company has dropped by Rs3bn to Rs8bn
(implying net debt: equity of 1:1).
 Strong volume growth could drive earnings: YTD CY10 container volume
growth is 53% and bulk volume growth is 9%. Container volumes, which are
more cyclical in nature, are likely to grow further as economic revival
continues. Similarly, contracts for handling imported coal for power plants
(2,000MW) coming up in the vicinity of Pipavav could drive earnings growth.
 Margins could improve with increase in utilisation rates: Operating
margins for the company have improved significantly over the last 3 years as
volume growth has picked up. Margins increased from 8% to 20% in CY09
and are expected by the company to increase further in CY10. Margins could
improve further once operating leverage kicks in with a pickup in volumes.
 No regulatory hurdles to set tariffs: GPPL is not a major port and hence is
not under the purview of the Tariff Authority for Major Ports (TAMP). Thus,
GPPL is free to set its own tariffs, allowing it to be nimble to respond to
changes in market dynamics. In order to attract volumes and combat global
recession, GPPL reduced its tariffs in CY09. However, management container
tariff have increased in CY10 following the economic revival.
Outlook
 Mini Mundra in making? Volume growth could drive earnings: GPPV is
located on the strategic coastline of Gujarat, which serves the North Indian
markets that account for 65-70% of the total container volume in India. Strong
upside to cargo volumes on the back of economic revival and tie-ups for coal
contracts with power plants being built in the vicinity of the port could
contribute to earnings growth over the next 3-4 years.


Gujarat Pipavav Port Aide Memoire
1. What are your competitive advantages, if any, compared to the Mumbai and Mundra ports?
2. What is your outlook on cargo growth, both on the container and bulk side?
3. What is your current utilisation level? How do you see it improving?
4. There could be a delay in the commissioning of the power projects near Pipavav. Are you planning to tie up your bulk dry
capacity with other players?
5. What is your capex plan?