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Mundra Port and SEZ - Strong growth trajectory
FY12 and FY13 port traffic guidance well above our estimates
Good visibility as growth driven by contracted volumes
Vizag investment appears more strategic than profit-driven
Maintain BUY and TP of INR171, based on a 2-stage DCF model
Company optimistic for FY12-13
Mundra Port and Special Economic Zone
(MPSEZ) achieved its FY11 traffic
guidance of 50mmt, which was in line with
our expectation. The company has
indicated that Mundra port traffic is likely
to grow to about 80mmt in FY12 and to
over 100mmt in FY13. The targeted traffic
growth is well ahead of our estimates (we
assume 67mmt in FY12 and 86.5mmt in
FY13). Our sensitivity analysis suggests
that a 10% increase in volume would
provide 3% upside to our fair value.
Contracted volumes a key driver
We believe the variance between our
expectation and the company’s estimate is mainly related to traffic growth
assumptions for the contracted volumes (Adani Power, Tata Power,
refineries). We factor in 23mmt of coal offtake and 15.6mmt of crude
offtake in FY12, versus MPSEZ’s expectation of 29mmt and 20.3mmt
respectively. Based on guidance, our FY12 revenue and EPS estimates
could potentially increase 22% and 25% respectively.
Vizag investment appears more of a strategic move
MPSEZ has received the letter of award (LOA) to develop and operate a
coal terminal of 6.5mmt capacity at the Vizag port. The terminal is due to
be operational by 2013 and will involve a total capex of about INR3b. As
Vizag is a major port, tariffs are regulated by the Tariff Authority for Major
Ports (TAMP) and the proposed tariff ceiling is about INR190 per tonne
for coal handling. We believe that profitability levels at Vizag will be low
(compared to those for greenfield ports like Mundra) post the revenue
share with the government and that establishing presence on the east
coast of India is the key reason for the Vizag entry. Traffic visibility is
good since the group companies handle more than 20mmt of coal on the
east coast (including the nearby Gangavaram port).
Maintain BUY and TP of INR171
We maintain our BUY rating and target price of INR171, based on a twostage
DCF model (growth rate of 3% and WACC of 11%). MPSEZ enjoys
a strong balance sheet with low gearing of 0.6x, which provides sufficient
headroom to pursue capacity expansion. Key risks to our rating and TP
are regulatory changes (tariffs getting regulated), delays in expansion
plans, and failure to receive the required clearances and approvals from
the Ministry of Environment for its operations.
The Risk Experts
• Our starting point for this page is a recognition of the
macro factors that can have a significant impact on stockprice
performance, sometimes independently of bottom-up
factors.
• With our Risk Expert page, we identify the key macro risks
that can impact stock performance.
• This analysis enhances the fundamental work laid out in
the rest of this report, giving investors yet another resource
to use in their decision-making process.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Mundra Port and SEZ - Strong growth trajectory
FY12 and FY13 port traffic guidance well above our estimates
Good visibility as growth driven by contracted volumes
Vizag investment appears more strategic than profit-driven
Maintain BUY and TP of INR171, based on a 2-stage DCF model
Company optimistic for FY12-13
Mundra Port and Special Economic Zone
(MPSEZ) achieved its FY11 traffic
guidance of 50mmt, which was in line with
our expectation. The company has
indicated that Mundra port traffic is likely
to grow to about 80mmt in FY12 and to
over 100mmt in FY13. The targeted traffic
growth is well ahead of our estimates (we
assume 67mmt in FY12 and 86.5mmt in
FY13). Our sensitivity analysis suggests
that a 10% increase in volume would
provide 3% upside to our fair value.
Contracted volumes a key driver
We believe the variance between our
expectation and the company’s estimate is mainly related to traffic growth
assumptions for the contracted volumes (Adani Power, Tata Power,
refineries). We factor in 23mmt of coal offtake and 15.6mmt of crude
offtake in FY12, versus MPSEZ’s expectation of 29mmt and 20.3mmt
respectively. Based on guidance, our FY12 revenue and EPS estimates
could potentially increase 22% and 25% respectively.
Vizag investment appears more of a strategic move
MPSEZ has received the letter of award (LOA) to develop and operate a
coal terminal of 6.5mmt capacity at the Vizag port. The terminal is due to
be operational by 2013 and will involve a total capex of about INR3b. As
Vizag is a major port, tariffs are regulated by the Tariff Authority for Major
Ports (TAMP) and the proposed tariff ceiling is about INR190 per tonne
for coal handling. We believe that profitability levels at Vizag will be low
(compared to those for greenfield ports like Mundra) post the revenue
share with the government and that establishing presence on the east
coast of India is the key reason for the Vizag entry. Traffic visibility is
good since the group companies handle more than 20mmt of coal on the
east coast (including the nearby Gangavaram port).
Maintain BUY and TP of INR171
We maintain our BUY rating and target price of INR171, based on a twostage
DCF model (growth rate of 3% and WACC of 11%). MPSEZ enjoys
a strong balance sheet with low gearing of 0.6x, which provides sufficient
headroom to pursue capacity expansion. Key risks to our rating and TP
are regulatory changes (tariffs getting regulated), delays in expansion
plans, and failure to receive the required clearances and approvals from
the Ministry of Environment for its operations.
The Risk Experts
• Our starting point for this page is a recognition of the
macro factors that can have a significant impact on stockprice
performance, sometimes independently of bottom-up
factors.
• With our Risk Expert page, we identify the key macro risks
that can impact stock performance.
• This analysis enhances the fundamental work laid out in
the rest of this report, giving investors yet another resource
to use in their decision-making process.
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