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India Equity Research Reports, IPO and Stock News
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We think Mundra Port will be in a sweet spot over the next 5 years with spare
capacity in high growth coal and container cargo segments. Actual 11th Plan
investments by overburdened major ports have slipped 75% vs. target and a
scalable non-major port alternative to Mundra on the west coast is still elusive.
The stock has underperformed the Sensex by ~20% over the last 6 months on
account of unfavorable newsflow and slippages in traffic (consensus
standalone EPS cuts of 13% thru 2HFY12) driven by delayed commissioning
of end-use customer projects and weak GDP growth. Growth drivers are
falling into place: we estimate a 35% consol EPS CAGR over FY12-17,
average 26-27% RoE and a FCF yield of at 7.7% in FY14. We think robust
fundamentals merit a valuation premium. Upgrade to OW with revised Mar-
13 PT of Rs160 implying 16.7x FY14 P/E and ~11x/ EV/EBITDA, a 19%
premium to global peers. Mundra Port+SEZ account for 85% of our PT.
Capex intensity at Mundra Port to ebb. After incurring another Rs18-
20bn development capex at Mundra over the next two years, port capacity
will rise to 240MMT, including 100MMT coal terminal and 50MMT
container handling capacity, adequate for the current decade. Overseas port
projects are still nascent with no committed capex so far.
Recent positives. Around end-March, ADSEZ finally managed to refinance
Abbot Point 1-yr US$2bn bridging loan (due in May-12), reducing exposure
to USD/AUD movement. Delayed end-use customer projects are on track
now: 9MMT HMEL Bathinda refinery and Tata Power’s 1st 800MW unit
were commissioned in Mar-12. Around end-Feb ADSEZ won a LoI from
nearby major port (Kandla) to set up a dry 20MMT dry bulk terminal. This
should assuage investor concerns as last year the company’s bids to set up
terminals at 3 locations were denied security clearance.
Key downside risks. Alleged involvement of parent ADE in Karnataka
iron-ore mining related irregularities and unsubstantiated media reports
(Bloomberg) on alleged violation of foreign exchange rules by ADSEZ
have weighed on stock performance. These have been publicly denied by
management. Medium-term GDP slowdown and delay in power reforms
could adversely impact container and coal traffic growth projections.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We think Mundra Port will be in a sweet spot over the next 5 years with spare
capacity in high growth coal and container cargo segments. Actual 11th Plan
investments by overburdened major ports have slipped 75% vs. target and a
scalable non-major port alternative to Mundra on the west coast is still elusive.
The stock has underperformed the Sensex by ~20% over the last 6 months on
account of unfavorable newsflow and slippages in traffic (consensus
standalone EPS cuts of 13% thru 2HFY12) driven by delayed commissioning
of end-use customer projects and weak GDP growth. Growth drivers are
falling into place: we estimate a 35% consol EPS CAGR over FY12-17,
average 26-27% RoE and a FCF yield of at 7.7% in FY14. We think robust
fundamentals merit a valuation premium. Upgrade to OW with revised Mar-
13 PT of Rs160 implying 16.7x FY14 P/E and ~11x/ EV/EBITDA, a 19%
premium to global peers. Mundra Port+SEZ account for 85% of our PT.
Capex intensity at Mundra Port to ebb. After incurring another Rs18-
20bn development capex at Mundra over the next two years, port capacity
will rise to 240MMT, including 100MMT coal terminal and 50MMT
container handling capacity, adequate for the current decade. Overseas port
projects are still nascent with no committed capex so far.
Recent positives. Around end-March, ADSEZ finally managed to refinance
Abbot Point 1-yr US$2bn bridging loan (due in May-12), reducing exposure
to USD/AUD movement. Delayed end-use customer projects are on track
now: 9MMT HMEL Bathinda refinery and Tata Power’s 1st 800MW unit
were commissioned in Mar-12. Around end-Feb ADSEZ won a LoI from
nearby major port (Kandla) to set up a dry 20MMT dry bulk terminal. This
should assuage investor concerns as last year the company’s bids to set up
terminals at 3 locations were denied security clearance.
Key downside risks. Alleged involvement of parent ADE in Karnataka
iron-ore mining related irregularities and unsubstantiated media reports
(Bloomberg) on alleged violation of foreign exchange rules by ADSEZ
have weighed on stock performance. These have been publicly denied by
management. Medium-term GDP slowdown and delay in power reforms
could adversely impact container and coal traffic growth projections.
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