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MUNDRA PORT AND SPECIAL ECONOMIC ZONE (MPSEZ)
PRICE: RS.153 RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.166 FY13E: P/E: 18.8
Mundra Port and Special Economic Zone ( MPSEZ) is the largest private port
( minor port) in the country providing port services for a diversified cargo
including bulk, liquid and container cargo. It also provide value added
service including container rail and storage service. Its superior
infrastructure and natural advantages have helped the company increase its
volume at a CAGR of 33 % over FY06 -FY11 to ~52 mn tonnes and we
estimate a CAGR of 29% over FY11-14E led by strong volumes growth in
bulk (40%), container (18%) and crude and Petroleum Oil and Lubricant
(POL) (~14 %). A significant portion of these volumes (~ 50% by FY13E)
would come from long term contracts. The company is also aggressively
expanding in other coastal parts of India and even abroad. We incorporate
robust growth in volumes in medium term for MPSEZ. However, due to the
recent run up in the price, we initiate coverage on the stock with an
ACCUMULATE rating and a price target of Rs 166.
Key investment argument
q Strong and quality infrastructure - attracts volumes. Mundra port is
strategically located on the west coast spread across 36,000 acres catering to an
industrious Gujarat with proximity to industrialized NCR. The fourth generation
port has superior infrastructure and support services to meet ~150mtpa traffic
presently and would ramp it up to 225 mtpa in near term (FY15E). The port has
one of the deepest drafts (max 32 meters) capable of accommodating even ultra
large vessels. As a result, it is able to attract huge volumes and benefits from
economies of scale and higher operational efficiency. It also offers integrated
logistics (effective connectivity via rail & road) to meet customer requirement.
q Volumes to cross 100 million tonnes port by FY14E - Volumes at Mundra
to grow at a healthy 29% CAGR over FY10 to FY14E. Overall port traffic in
India has grown at 11% over the past five years, with non major ports witnessing
13% growth; we estimate 11% overall growth in port volumes during FY11-14E
(Crisil estimate 10% CAGR over FY11-14E). MPSEZ has seen 33% traffic growth
over FY06 - FY11 and we estimate a CAGR of 29% over FY11-14E led by strong
volumes growth in bulk (40%), container (18%) and crude and POL (~14 %).
We believe Mundra on the west coast is well poised to capture higher traffic
share due to its natural advantage, superior infrastructure and tie ups with oil
and power majors.
q Assured contracts/revenues to form ~50% of the business by FY13E.
Mundra has signed long term contracts with IOC and HPCL for handling crude
and petroleum products, with Adani power ( 4600 mw) and Tata power ( UMPP
of 4000 mw) for handling thermal coal and with Maruti for exporting cars from
Mundra. Of the 93 million tonne that we expect Mundra to handle by FY13E, 45
million tonnes (~50%) are assured from the aforesaid contracts. This would
provide Mundra with assured revenues of ~Rs 16 bn and PAT of ~Rs 7bn per
annum by FY13E.
q MPSEZ enjoys natural advantage. MPSEZ has two strong natural advantages;
1) Deep draft of up to 32 mts which can easily accommodate the next
generation vessels like ULCC/ Chinamax, leading to economies of scale for the
customer and 2. Good proximity to highly-industrialized and landlocked northern/
north western states of Delhi, Punjab, Haryana, Rajasthan and West UP which
reduces the road and rail distance to NCR by 218 km vis-à-vis Mumbai (JNPT).
Both these natural advantages are critical for the customer to reduce logistics
cost and it has helped MPSEZ to attract volumes at the port
q Port business beyond Mundra. MPSEZ is also looking for port business beyond
Mundra. MPSEZ currently holds 74% stake in Adani Petronet Port Pvt (APPL) at
Dahej, a JV company with Petronet LNG (PLL) for a solid cargo port terminal at
Dahej with a capacity of 15 mtpa. It has also won a BOT for a 10 mtpa coal
terminal at Mormugoa for a period of 30 years. Plus it has been awarded the LOI
for construction and operation of 13 berths (bulk, break bulk, liquid cargo, and
containers) at the Hazira Port (a 74:26 JV between Shell Gas and Total Gaz of
France). This put together would give Mundra additional volume of more than 9
mtpa (except Hazira) by FY13E.
q Vast SEZ - complements the port business. Mundra has so far obtained
26,000 acres of land of which 16,000 acres has been notified as SEZ by the
government. The port and the SEZ complement each other in business. The
huge SEZ provides captive cargo to the port and the port provides smooth
transport of goods produced in SEZ. Though so far Mundra has just leased out a
meager ~1800 acres of land, the complementary nature of business provides for
significant pickup in land volumes at the SEZ which would benefit MPSEZ.
q Value accretive International Acquisition - Abbot Point. Abbot point coal
terminal is located in Queensland, Australia, and has a current capacity of 50
mtpa which can be extended up to 80 mtpa by FY16E. The terminal has, take or
pay agreements with nine mining companies including Rio Tinto, Xstrata and
BHP. By FY16E, the management expects revenues to touch AUD 305mn and
EBITDA AUD 213mn. To date, the transaction has been fully funded with debt
(for three years) from Standard Chartered and State Bank of India, with no
equity investment from MPSEZ. We use FCFE model with a 14% cost of equity
and the conservative assumption that capacity stays constant at 50 mtpa (not
expanded to 80 mtpa), giving us a fair value of Rs 19.5 bn (or ~Rs 10 per share
for MPSEZ).
Valuation and Recommendation
We expect traffic at MPSEZ to see a strong CAGR of 29% over FY11-14E - dry bulk
(40% CAGR), container volumes (18% CAGR) and POL/Crude (18% CAGR), driven
by natural advantages, integrated logistics, colossal infrastructure, good hinterland
connectivity & strong execution. The company's ventures/JVs including multi-product
SEZ, new ports, logistics and ICDs will add value to the company. Currently valuations
currently are rich with the stock trading at 26 x P/E and 19 x EV/EBIDTA FY12E,
which is almost 25% premium to valuation of major global ports. But we believe
MPSEZ's superior growth (29% CAGR Vs. 10% for global companies), superior ROE
(+20% versus ~15% for global companies), assured contracts and scale of operations
deserves premium valuations. We factor in healthy volume growth at 29%
CAGR and margins at ~ 65% over FY11 - FY14E. Our estimate of the net present
value of equity cash flow of the existing businesses - sum-of-parts value comes at ~
Rs 156 per share. Abbot Point contributes ~ Rs 10 per share to the value of MPSEZ
valuing the company at Rs 166 per share. This leaves for some room for upside for
the stock from the current level of Rs 150. We initiate coverage on MPSEZ with an
ACCUMULATE rating and target price of Rs 166.
Risk and Concerns
q If minor ports are brought under the Tariff Authority for Major Ports (TAMP)
umbrella, as is being considered by the Government, TAMP's practice of linking
pricing to cost base (though with some incentives for efficiency) would
neutralize the significant return differential MPSEZ enjoys vs. its peers by being
one of the most efficient port.
q If trade are to slow, given the weak global economic climate, then the volume
CAGR could shrink in the near term, resulting in risk to earnings and valuations.
q Competition in the port sector could climb significantly, as major ports increase
capacities and as minor ports (especially in Gujarat and Andhra Pradesh) come
up, eroding MPSEZs strong growth projections. Mundra may have to compete
with new fourth generation ports like Krishnapatnam (Orissa), Dhamra (Orissa),
Gangavaram (AP), Dighi (Maharashtra) etc.
q Lifting of SEZ-related tax benefits as proposed by the Direct Tax Code (DTC)
after FY12E would hinder development of SEZ and also off take of units in SEZ.
q Delays in progress of the power projects which would lead to lower-thanexpected
coal volumes.
q Other risks include (a) Delays and/or cost escalation in planned capital
expenditure (b) unavailability of revenue break-up which impedes understanding
and (c) inability to sustain tariffs at current/projected levels.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
MUNDRA PORT AND SPECIAL ECONOMIC ZONE (MPSEZ)
PRICE: RS.153 RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.166 FY13E: P/E: 18.8
Mundra Port and Special Economic Zone ( MPSEZ) is the largest private port
( minor port) in the country providing port services for a diversified cargo
including bulk, liquid and container cargo. It also provide value added
service including container rail and storage service. Its superior
infrastructure and natural advantages have helped the company increase its
volume at a CAGR of 33 % over FY06 -FY11 to ~52 mn tonnes and we
estimate a CAGR of 29% over FY11-14E led by strong volumes growth in
bulk (40%), container (18%) and crude and Petroleum Oil and Lubricant
(POL) (~14 %). A significant portion of these volumes (~ 50% by FY13E)
would come from long term contracts. The company is also aggressively
expanding in other coastal parts of India and even abroad. We incorporate
robust growth in volumes in medium term for MPSEZ. However, due to the
recent run up in the price, we initiate coverage on the stock with an
ACCUMULATE rating and a price target of Rs 166.
Key investment argument
q Strong and quality infrastructure - attracts volumes. Mundra port is
strategically located on the west coast spread across 36,000 acres catering to an
industrious Gujarat with proximity to industrialized NCR. The fourth generation
port has superior infrastructure and support services to meet ~150mtpa traffic
presently and would ramp it up to 225 mtpa in near term (FY15E). The port has
one of the deepest drafts (max 32 meters) capable of accommodating even ultra
large vessels. As a result, it is able to attract huge volumes and benefits from
economies of scale and higher operational efficiency. It also offers integrated
logistics (effective connectivity via rail & road) to meet customer requirement.
q Volumes to cross 100 million tonnes port by FY14E - Volumes at Mundra
to grow at a healthy 29% CAGR over FY10 to FY14E. Overall port traffic in
India has grown at 11% over the past five years, with non major ports witnessing
13% growth; we estimate 11% overall growth in port volumes during FY11-14E
(Crisil estimate 10% CAGR over FY11-14E). MPSEZ has seen 33% traffic growth
over FY06 - FY11 and we estimate a CAGR of 29% over FY11-14E led by strong
volumes growth in bulk (40%), container (18%) and crude and POL (~14 %).
We believe Mundra on the west coast is well poised to capture higher traffic
share due to its natural advantage, superior infrastructure and tie ups with oil
and power majors.
q Assured contracts/revenues to form ~50% of the business by FY13E.
Mundra has signed long term contracts with IOC and HPCL for handling crude
and petroleum products, with Adani power ( 4600 mw) and Tata power ( UMPP
of 4000 mw) for handling thermal coal and with Maruti for exporting cars from
Mundra. Of the 93 million tonne that we expect Mundra to handle by FY13E, 45
million tonnes (~50%) are assured from the aforesaid contracts. This would
provide Mundra with assured revenues of ~Rs 16 bn and PAT of ~Rs 7bn per
annum by FY13E.
q MPSEZ enjoys natural advantage. MPSEZ has two strong natural advantages;
1) Deep draft of up to 32 mts which can easily accommodate the next
generation vessels like ULCC/ Chinamax, leading to economies of scale for the
customer and 2. Good proximity to highly-industrialized and landlocked northern/
north western states of Delhi, Punjab, Haryana, Rajasthan and West UP which
reduces the road and rail distance to NCR by 218 km vis-à-vis Mumbai (JNPT).
Both these natural advantages are critical for the customer to reduce logistics
cost and it has helped MPSEZ to attract volumes at the port
q Port business beyond Mundra. MPSEZ is also looking for port business beyond
Mundra. MPSEZ currently holds 74% stake in Adani Petronet Port Pvt (APPL) at
Dahej, a JV company with Petronet LNG (PLL) for a solid cargo port terminal at
Dahej with a capacity of 15 mtpa. It has also won a BOT for a 10 mtpa coal
terminal at Mormugoa for a period of 30 years. Plus it has been awarded the LOI
for construction and operation of 13 berths (bulk, break bulk, liquid cargo, and
containers) at the Hazira Port (a 74:26 JV between Shell Gas and Total Gaz of
France). This put together would give Mundra additional volume of more than 9
mtpa (except Hazira) by FY13E.
q Vast SEZ - complements the port business. Mundra has so far obtained
26,000 acres of land of which 16,000 acres has been notified as SEZ by the
government. The port and the SEZ complement each other in business. The
huge SEZ provides captive cargo to the port and the port provides smooth
transport of goods produced in SEZ. Though so far Mundra has just leased out a
meager ~1800 acres of land, the complementary nature of business provides for
significant pickup in land volumes at the SEZ which would benefit MPSEZ.
q Value accretive International Acquisition - Abbot Point. Abbot point coal
terminal is located in Queensland, Australia, and has a current capacity of 50
mtpa which can be extended up to 80 mtpa by FY16E. The terminal has, take or
pay agreements with nine mining companies including Rio Tinto, Xstrata and
BHP. By FY16E, the management expects revenues to touch AUD 305mn and
EBITDA AUD 213mn. To date, the transaction has been fully funded with debt
(for three years) from Standard Chartered and State Bank of India, with no
equity investment from MPSEZ. We use FCFE model with a 14% cost of equity
and the conservative assumption that capacity stays constant at 50 mtpa (not
expanded to 80 mtpa), giving us a fair value of Rs 19.5 bn (or ~Rs 10 per share
for MPSEZ).
Valuation and Recommendation
We expect traffic at MPSEZ to see a strong CAGR of 29% over FY11-14E - dry bulk
(40% CAGR), container volumes (18% CAGR) and POL/Crude (18% CAGR), driven
by natural advantages, integrated logistics, colossal infrastructure, good hinterland
connectivity & strong execution. The company's ventures/JVs including multi-product
SEZ, new ports, logistics and ICDs will add value to the company. Currently valuations
currently are rich with the stock trading at 26 x P/E and 19 x EV/EBIDTA FY12E,
which is almost 25% premium to valuation of major global ports. But we believe
MPSEZ's superior growth (29% CAGR Vs. 10% for global companies), superior ROE
(+20% versus ~15% for global companies), assured contracts and scale of operations
deserves premium valuations. We factor in healthy volume growth at 29%
CAGR and margins at ~ 65% over FY11 - FY14E. Our estimate of the net present
value of equity cash flow of the existing businesses - sum-of-parts value comes at ~
Rs 156 per share. Abbot Point contributes ~ Rs 10 per share to the value of MPSEZ
valuing the company at Rs 166 per share. This leaves for some room for upside for
the stock from the current level of Rs 150. We initiate coverage on MPSEZ with an
ACCUMULATE rating and target price of Rs 166.
Risk and Concerns
q If minor ports are brought under the Tariff Authority for Major Ports (TAMP)
umbrella, as is being considered by the Government, TAMP's practice of linking
pricing to cost base (though with some incentives for efficiency) would
neutralize the significant return differential MPSEZ enjoys vs. its peers by being
one of the most efficient port.
q If trade are to slow, given the weak global economic climate, then the volume
CAGR could shrink in the near term, resulting in risk to earnings and valuations.
q Competition in the port sector could climb significantly, as major ports increase
capacities and as minor ports (especially in Gujarat and Andhra Pradesh) come
up, eroding MPSEZs strong growth projections. Mundra may have to compete
with new fourth generation ports like Krishnapatnam (Orissa), Dhamra (Orissa),
Gangavaram (AP), Dighi (Maharashtra) etc.
q Lifting of SEZ-related tax benefits as proposed by the Direct Tax Code (DTC)
after FY12E would hinder development of SEZ and also off take of units in SEZ.
q Delays in progress of the power projects which would lead to lower-thanexpected
coal volumes.
q Other risks include (a) Delays and/or cost escalation in planned capital
expenditure (b) unavailability of revenue break-up which impedes understanding
and (c) inability to sustain tariffs at current/projected levels.
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