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Gujarat Pipavav -Operating inflection point
Profitability to turn around on improving container realisation
A key beneficiary of under-capacity at JNPT, Mumbai
Checks with shipping lines suggest good outlook for Pipavav
Initiate at BUY with TP of INR73, based on a two-stage DCF model
Profitability set to turn around
Gujarat Pipavav Port (GPPL) is the developer and operator of India’s first
private-sector port and has multi-cargo operations at Pipavav, Gujarat. The bulk
of GPPL’s revenue and profit is driven by the container business (58% of revenue
and 65% of profit in FY12E), which is beginning to see good volume traction
post the global slowdown. We estimate overall capacity utilisation at Pipavav will
reach about 70% beginning FY12, supported by container volumes of around
30% from the parentco, AP Moller Maersk Group (APMM; 6815817ZA NA, Not
rated). We believe FY11 will be the first year of profitability for GPPL,
driven by improving container volumes and realisations and lower interest
costs, as INR3b of debt has been repaid through the IPO proceeds.
Key beneficiary of under-capacity at JNPT
GPPL has the closest proximity to India’s largest container port
(Jawaharlal Nehru Port Trust (JNPT) in Mumbai), good infrastructure,
and rail and road connectivity to the northern hinterland. JNPT continues
to suffer from under-investment and is running at close to 105% capacity
utilisation, leading to higher costs for shipping lines. Container traffic
growth in India remains strong and is expected to register 11.2% growth
in the next five years, according to CRISIL. We project GPPL’s container
business will clock 12% growth over FY11-15, resulting in 19% EBITDA
CAGR over the same period. Our estimates do not factor in potential
capacity expansion in the container (from 1.2m TEUs to 3.6m TEUs) and
bulk businesses (from 5m tonnes to 15m tonnes).
Checks with shipping lines suggest a good outlook
GPPL has strong parentage in the container business through APMM
and currently generates about 50% of its total container volume from
APM Terminal, with potential to increase further. Our channel checks with
key shipping lines suggest that Pipavav’s location, cost competitiveness
and infrastructure facilities for container berths are better than those at
Mundra, thus making Pipavav a more favourable container port.
Initiate at BUY with TP of INR73.00
We initiate coverage on GPPL with a BUY rating and target price of
INR73.00, based on a two-stage DCF model (nominal growth rate of 5%
and WACC of 11%). Key risks to our rating and TP are regulatory
changes (tariffs getting regulated), delays in expansion plans, slowerthan-
anticipated per-tonne realisation and failure to get the requisite
clearances and approvals from the Ministry of Finance.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Gujarat Pipavav -Operating inflection point
Profitability to turn around on improving container realisation
A key beneficiary of under-capacity at JNPT, Mumbai
Checks with shipping lines suggest good outlook for Pipavav
Initiate at BUY with TP of INR73, based on a two-stage DCF model
Profitability set to turn around
Gujarat Pipavav Port (GPPL) is the developer and operator of India’s first
private-sector port and has multi-cargo operations at Pipavav, Gujarat. The bulk
of GPPL’s revenue and profit is driven by the container business (58% of revenue
and 65% of profit in FY12E), which is beginning to see good volume traction
post the global slowdown. We estimate overall capacity utilisation at Pipavav will
reach about 70% beginning FY12, supported by container volumes of around
30% from the parentco, AP Moller Maersk Group (APMM; 6815817ZA NA, Not
rated). We believe FY11 will be the first year of profitability for GPPL,
driven by improving container volumes and realisations and lower interest
costs, as INR3b of debt has been repaid through the IPO proceeds.
Key beneficiary of under-capacity at JNPT
GPPL has the closest proximity to India’s largest container port
(Jawaharlal Nehru Port Trust (JNPT) in Mumbai), good infrastructure,
and rail and road connectivity to the northern hinterland. JNPT continues
to suffer from under-investment and is running at close to 105% capacity
utilisation, leading to higher costs for shipping lines. Container traffic
growth in India remains strong and is expected to register 11.2% growth
in the next five years, according to CRISIL. We project GPPL’s container
business will clock 12% growth over FY11-15, resulting in 19% EBITDA
CAGR over the same period. Our estimates do not factor in potential
capacity expansion in the container (from 1.2m TEUs to 3.6m TEUs) and
bulk businesses (from 5m tonnes to 15m tonnes).
Checks with shipping lines suggest a good outlook
GPPL has strong parentage in the container business through APMM
and currently generates about 50% of its total container volume from
APM Terminal, with potential to increase further. Our channel checks with
key shipping lines suggest that Pipavav’s location, cost competitiveness
and infrastructure facilities for container berths are better than those at
Mundra, thus making Pipavav a more favourable container port.
Initiate at BUY with TP of INR73.00
We initiate coverage on GPPL with a BUY rating and target price of
INR73.00, based on a two-stage DCF model (nominal growth rate of 5%
and WACC of 11%). Key risks to our rating and TP are regulatory
changes (tariffs getting regulated), delays in expansion plans, slowerthan-
anticipated per-tonne realisation and failure to get the requisite
clearances and approvals from the Ministry of Finance.
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