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Essar Ports (ESHPF, Buy)
Bear case: What can go wrong?
Lower refinery utilization of Essar Oil, lower steel plant utilization of Essar
Steel and a fall in third party cargo. We assume a 10% fall in the cargo
volume in the bear case.
Owing to competition, the average realization for the third party cargo
handled declines, say by 25%.
Delay in the commissioning of the iron ore terminal at Paradip by 6m and
interest rate rise by 50 bps.
Consequently, we estimate an earnings decline of 29% in FY13E to Rs1.5bn.
Base case: Well positioned to benefit from
strong growth via captive route
We estimate a 1.8x jump in the port capacity road asset portfolio by
1QFY15E from 88mtpa at present to 158 mtpa. Accordingly, the volume
growth is pegged at 28% over FY11-14E driven by higher capacity and jump
in capacity utilization from 55% in FY11 to 80% in FY14E.
About 94% of the cargo handled in FY13-14E is captive for Essar group
companies. EPL offers a good revenue visibility through long-term take-orpay
contracts with assured volume / realization with in-built escalation.
Earnings to grow 2,7x over FY12-14E; RoE expansion from 6% in FY12E to
9% in FY13E and later to 13% by FY14E.
Risk-reward: Favourable, key catalyst are
regulatory approvals for new capacities
In bear case, we expect stock to trade at Rs65/share (P/BV of 1.1x FY13E).
In base case, we expect stock to trade at Rs89/share (P/BV of 1.4xFY13E).
Overall, the risk-reward appears favourable on strong captive business, no
promoter hedging. Potential equity dilution risk remains as promoter intent to
bring its holding to 75% from 83.7% by FY13E (not assumed in base case).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Essar Ports (ESHPF, Buy)
Bear case: What can go wrong?
Lower refinery utilization of Essar Oil, lower steel plant utilization of Essar
Steel and a fall in third party cargo. We assume a 10% fall in the cargo
volume in the bear case.
Owing to competition, the average realization for the third party cargo
handled declines, say by 25%.
Delay in the commissioning of the iron ore terminal at Paradip by 6m and
interest rate rise by 50 bps.
Consequently, we estimate an earnings decline of 29% in FY13E to Rs1.5bn.
Base case: Well positioned to benefit from
strong growth via captive route
We estimate a 1.8x jump in the port capacity road asset portfolio by
1QFY15E from 88mtpa at present to 158 mtpa. Accordingly, the volume
growth is pegged at 28% over FY11-14E driven by higher capacity and jump
in capacity utilization from 55% in FY11 to 80% in FY14E.
About 94% of the cargo handled in FY13-14E is captive for Essar group
companies. EPL offers a good revenue visibility through long-term take-orpay
contracts with assured volume / realization with in-built escalation.
Earnings to grow 2,7x over FY12-14E; RoE expansion from 6% in FY12E to
9% in FY13E and later to 13% by FY14E.
Risk-reward: Favourable, key catalyst are
regulatory approvals for new capacities
In bear case, we expect stock to trade at Rs65/share (P/BV of 1.1x FY13E).
In base case, we expect stock to trade at Rs89/share (P/BV of 1.4xFY13E).
Overall, the risk-reward appears favourable on strong captive business, no
promoter hedging. Potential equity dilution risk remains as promoter intent to
bring its holding to 75% from 83.7% by FY13E (not assumed in base case).
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