Mundra Port & SEZ -Harbouring good times:: Macquarie Research

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Mundra Port & SEZ
Harbouring good times
Event
 Mundra Port & Special Economic Zone (MSEZ) is the largest non-major
port in India and the only notified port-based SEZ, with plans to develop
around 40,000 acres of land. Established in 1998 in Kutch District, Gujarat, it
is backed by the Adani Group, which has a presence in trading, mining, real
estate, shipping and power.

Impact
 Mundra Port is set to expand its capacity from around 50m tons in FY10 to
more than 100m tons over the next four years. The company is building new
coal, container and crude terminals at the Mundra Port, which has long-term
contracts in place from various power generation, car manufacturing and oil &
gas players.
 MSEZ scores over other ports on west coast. Mundra port is set to
capitalize on cargo traffic flows on the back of increasing congestion at major
ports and its natural advantages over other competing ports. MSEZ port has a
deep water draft ranging between approximately 15 and 32 metres, which is
one of the deepest drafts on the Indian west coast. The port is well connected
to its primary hinterland by road and rail. The company also has the rights to
the Mundra–Adipur corridor to develop additional infrastructure.
 Long-term contracts to drive growth: There are two large power plants
based on imported coal with a capacity of around 7.5GW being built next to
the port over the next two to three years. This is likely to add close to 25–
27MT of coal cargo to Mundra port. Moreover, Mundra also has a long-term
contract with the Bhatinda refinery coming up in North India, which would
have crude imports of around 9MT.
 New initiatives should contribute to cargo traffic after 4–5 years:
Recently, the Adani group announced its intent to set up ports in Australia and
Indonesia in conjunction with the group’s strategy to acquire coal assets.
These ports can add 100–160m tons in annual volumes to MSEZ. However,
these ports would be operational only in the next five years or so. It is still
early days to comment on the potential profitability of these ventures. We
think MSEZ is well placed to finance this opportunity, with an estimated
US$1bn of FCF over the next five years.
Action and recommendation
 Harbouring good times, strong earnings growth from tied-up contracts:
MSEZ is poised for an earnings CAGR of 30% over FY11–14E given strong
capacity expansion and tied-up coal contracts from Adani Power and Tata
Power’s upcoming plants at Mundra. Any clarity on progress on the planned
ports in Australia and Indonesia could be a key trigger for the stock, in our
view.


Mundra Port & SEZ Aide Memoire
1. What is the update on your announced foray into Australia and Indonesia? What will be the funding requirement for the
same? How do you intend to fund it?
2. Details on 3 new contracts won to build 3 terminals in Goa and Gujarat? What is the strategy behind trying to become a pan-
India port company? Funding involved and sources of funding?
3. Update on the coal and liquid cargo terminal being built at Mundra Port? What is the status of the Adani and Tata power
plants coming up? What is the likely coal traffic generated from these power plants?
4. Outlook on its SEZ (special economic zone) business? Has increased activity on the industrial segment led to higher queries
on the land side? What will be the impact of the new DTC on the business outlook of SEZ?