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India Equity Research Reports, IPO and Stock News
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Limited growth avenues
The government targets to treble India’s port capacity, from 960mtpa to
3,100mtpa by FY20, through a combination of new berths at major ports and
greenfield developments at non-major ports. There have been significant delays in
major ports, though, while aggressive bidding for the ones tendered out could
erode returns. Greenfield non-major ports should offer stronger growth and better
returns, but take longer to fructify. Notwithstanding the limited organic growth
avenues near term, all three listed plays on the Indian ports sector (MPSEZ, GPPV,
Essar) are trading at a premium to global ports. Maintain U-PF on MPSEZ.
Sharp capacity expansion required in Indian port sector
The government has recently indicated its plans to treble India’s port capacity over the
next decade (to 3,100mtpa by FY20 cf. 960mtpa currently) to cater to the incremental
traffic and bring down utilisation rates (currently 85% cf. optimum levels of 65-75%).
At the 12 major ports administered by the Central government, it targets to increase
capacity by 2.4x by adding new berths and modernising the existing ones. At nonmajor
ports administered by respective state governments, it targets to raise capacity
by 4.8x with several of states planning to develop greenfield projects on a PPP basis.
Major port projects delayed, aggressive bidding eroding returns
In FY12, the government is targeting to award 15 major port projects, aggregating
196mtpa of capacity. While this is encouraging, we have seen numerous delays in
project awards in the past. For instance, the process of awarding the two most salient
projects (JNPT container terminal IV, Chennai mega container terminal) had been
pending for three years. Moreover, bidding aggression has increased recently; this can
erode profitability, especially as tariffs are still controlled and determined by TAMP.
Greenfield non-major ports attractive, MPSEZ in fray for Vizhinjam port
Returns and growth potential may be better for greenfield non-major ports; we
estimate a 34% equity IRR for the Mundra port, for example. MPSEZ itself is one
amongst the two bidders for Vizhinjam port (36mtpa capacity in a phased manner) in
Kerala. While a win would add to its portfolio, these opportunities take longer to
fructify with gestation periods of 3-10 years even after the concession agreements are
finalised. Awarding projects itself could be a long drawn process. For instance, MPSEZ
has been trying to finalise a port concession on the east coast for the last few years.
Limited growth avenues in India, rising risks on investments abroad
Notwithstanding the limited organic growth avenues near term, all three key listed
Indian ports stocks (MPSEZ, GPPV, Essar) are trading at a premium to global peers.
The slower pace of meaningful growth outside of Mundra and the Adani Group’s
interests in coal mines abroad has driven MPSEZ to evaluate overseas growth
opportunities more aggressively; it has already acquired Abbot for a punchy US$2bn
and is evaluating further multi-billion dollar opportunities in Australia (Dudgeon, Abbot
X4-7) and Indonesia. Returns are unlikely to be as attractive as the flagship Mundra
concession, though, even as balance sheet risks rise meaningfully. Maintain U-PF.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Limited growth avenues
The government targets to treble India’s port capacity, from 960mtpa to
3,100mtpa by FY20, through a combination of new berths at major ports and
greenfield developments at non-major ports. There have been significant delays in
major ports, though, while aggressive bidding for the ones tendered out could
erode returns. Greenfield non-major ports should offer stronger growth and better
returns, but take longer to fructify. Notwithstanding the limited organic growth
avenues near term, all three listed plays on the Indian ports sector (MPSEZ, GPPV,
Essar) are trading at a premium to global ports. Maintain U-PF on MPSEZ.
Sharp capacity expansion required in Indian port sector
The government has recently indicated its plans to treble India’s port capacity over the
next decade (to 3,100mtpa by FY20 cf. 960mtpa currently) to cater to the incremental
traffic and bring down utilisation rates (currently 85% cf. optimum levels of 65-75%).
At the 12 major ports administered by the Central government, it targets to increase
capacity by 2.4x by adding new berths and modernising the existing ones. At nonmajor
ports administered by respective state governments, it targets to raise capacity
by 4.8x with several of states planning to develop greenfield projects on a PPP basis.
Major port projects delayed, aggressive bidding eroding returns
In FY12, the government is targeting to award 15 major port projects, aggregating
196mtpa of capacity. While this is encouraging, we have seen numerous delays in
project awards in the past. For instance, the process of awarding the two most salient
projects (JNPT container terminal IV, Chennai mega container terminal) had been
pending for three years. Moreover, bidding aggression has increased recently; this can
erode profitability, especially as tariffs are still controlled and determined by TAMP.
Greenfield non-major ports attractive, MPSEZ in fray for Vizhinjam port
Returns and growth potential may be better for greenfield non-major ports; we
estimate a 34% equity IRR for the Mundra port, for example. MPSEZ itself is one
amongst the two bidders for Vizhinjam port (36mtpa capacity in a phased manner) in
Kerala. While a win would add to its portfolio, these opportunities take longer to
fructify with gestation periods of 3-10 years even after the concession agreements are
finalised. Awarding projects itself could be a long drawn process. For instance, MPSEZ
has been trying to finalise a port concession on the east coast for the last few years.
Limited growth avenues in India, rising risks on investments abroad
Notwithstanding the limited organic growth avenues near term, all three key listed
Indian ports stocks (MPSEZ, GPPV, Essar) are trading at a premium to global peers.
The slower pace of meaningful growth outside of Mundra and the Adani Group’s
interests in coal mines abroad has driven MPSEZ to evaluate overseas growth
opportunities more aggressively; it has already acquired Abbot for a punchy US$2bn
and is evaluating further multi-billion dollar opportunities in Australia (Dudgeon, Abbot
X4-7) and Indonesia. Returns are unlikely to be as attractive as the flagship Mundra
concession, though, even as balance sheet risks rise meaningfully. Maintain U-PF.
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