Mundra Port And Special Economic Zone: 2QFY12 Marginally Ahead Citi Research

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Mundra Port And Special Economic Zone
(MPSE.BO)
Alert: 2QFY12 Marginally Ahead
 Headline numbers marginally ahead – Mundra Port reported a PAT of Rs2.73bn, up
29% YoY and marginally ahead of CIRA (Rs2.68bn). Revenues were ~9% ahead of
CIRA expectations, and were up 44% YoY.
 EBITDA margin decline was compensated for by other operational income –
Although EBITDA margins of ~64.4% were weaker than expected (~67.6%), the impact
was offset by higher-than-expected other operational income of Rs320m (CIRA at
Rs140m). This comprised of (1) SEZ income of Rs65m pertaining to small incremental
plots of earlier customers and (2) construction income of Rs220m. Interest expenses
and depreciation were also higher than expected. Interest costs this quarter included
an MTM provisioning of Rs230m due to rupee depreciation, and were also impacted by
lower interest income due to lesser investible surplus.
 Coal drives cargo growth – Mundra Port registered a ~34% YoY cargo growth, largely
driven by strong growth in coal (~70% YoY) and liquid cargo (~33% YoY).Container
growth in 2QFY12 was 17% YoY.
 Maintain Buy – MPSEZ remains our preferred pick on a play of the India ports theme,
with its diversified cargo mix (bulk, container, liquid) and customer mix (captive,
merchant).
Mundra Port And Special Economic Zone
Valuation
Our Rs185 target price for MPSEZ is based on a Sum of the Parts (SOTP)
methodology. We value Mundra Port at Rs143/share on a discounted cash flow to
equity basis, using a cost of equity of 13%. The SEZ is valued at Rs13/share, using a
cost of equity of 14% and assigning a 30% discount to the calculated NAV (consistent
with how we value the smaller Indian real estate companies). We value Dahej Port at
Rs8/share on a discounted cash flow to equity basis, using a cost of equity of 13%. We
value Hazira Port at Rs10/share on a discounted cash flow to equity basis, using a cost
of equity of 14%, and Mormugao port at Rs1/share on a discounted cash flow to equity
basis, using a cost of equity of 14%. We value stakes in Adani Logistics (Rs2/share)
and Kutch railways at book value. We also value the Abbott Point port at Rs8/share on
a discounted cash flow to equity basis, using a cost of equity of 14%. We have
assumed a cash infusion of AU$363mn (~20% of AU$1.8bn) in FY14 from Mundra
Port, when the bridge loan for the Abbott Point acquisition comes up for refinancing.
Risks
The key downside risks to our target price include: 1) lower-than-expected traffic
growth; 2) lower-than-expected demand for the land in the SEZ; and 3) lower-thanexpected
lease income for the SEZ.