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Mundra Port and SEZ Ltd
Neutral
MPSE.BO, MSEZ IN
Acquires US$2bn coal terminal in Australia
• MPSEZ has acquired the long term lease of 50MTPA capacity
Abbot Point Coal Terminal (ABCT), located in Queensland
(Australia) for a consideration of AUD1.85bn (~US$2bn). According to
management, ABCT has an asset base of ~US$1.6bn. It is an operating
port and handled ~17MMT of coal in FY10 (year-end June). The
capacity of the terminal has recently been enhanced from 21MMT to
50MMT. The deal is fully debt funded and is expected to be closed by
June-2011. The acquisition loan has been raised for a period of 2 years
at Libor+200bps, management expects to refinance this debt at project
level over the next few months.
• Acquisition appears expensive. According to management, ABCT has
already entered into take-or-pay agreements for the enhanced capacity of
50MMT. The coal terminal is expected to handle 20MMT of cargo in
FY11 (year-end June); volumes are expected to scale up rapidly to
~50MMT by FY16. As per company, EBITDA is expected to increase
from AUD59mn in FY11 to AUD213mn by FY16. These estimates also
factor in EBITDA margin improvement from ~54% in FY11 to ~70% by
FY16, as capacity utilization improves. The acquisition price is at 8.7x
target EBITDA in FY16, and estimated FY13 EV/EBITDA is ~15.5x.
The average valuation of ports globally is ~12x CY12 EV/EBITDA.
• The acquisition appears EPS dilutive at least over next 2 years.
Owing to high capital costs, we expect ABCT to generate a loss of
~AUD48mn in FY12 (year-end Jun) and ~AUD22mn in FY13. Primafacie
there appears to be a downside of ~12% to our FY12 consol EPS
estimate of MPSEZ and ~6% in FY13. See our recent report on MPSEZ
('All set for a strong FY12’) for views on existing business operations
(ex-ABCT). The acquisition adds risk to the MPSEZ balance sheet, post
deal we estimate net-D/E to increase to ~2.34x in FY12 (year-end
March).
• Synergy with ADE's coal tenement in Galilee still distant. Abbot
Point is more than 500km from Galilee and there is no existing rail line
yet. Capex on rail can be as high as US$3-4bn in our estimate and may
take at least over 3 years to construct. We would see any move to route
rail capex through Mundra Port as a negative.
• Bottomline- richly valued acquisition. Acquisition of an operating
asset has limited MPSEZ's execution risk in ABCT. However, the
company seems to have paid upfront for growth that would pan out
over next 3-4years if projections are met. We maintain our Neutral
view on the stock, but would avoid entering the stock in the near-term till
there is more clarity on the deal and take-or-pay arrangements.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Mundra Port and SEZ Ltd
Neutral
MPSE.BO, MSEZ IN
Acquires US$2bn coal terminal in Australia
• MPSEZ has acquired the long term lease of 50MTPA capacity
Abbot Point Coal Terminal (ABCT), located in Queensland
(Australia) for a consideration of AUD1.85bn (~US$2bn). According to
management, ABCT has an asset base of ~US$1.6bn. It is an operating
port and handled ~17MMT of coal in FY10 (year-end June). The
capacity of the terminal has recently been enhanced from 21MMT to
50MMT. The deal is fully debt funded and is expected to be closed by
June-2011. The acquisition loan has been raised for a period of 2 years
at Libor+200bps, management expects to refinance this debt at project
level over the next few months.
• Acquisition appears expensive. According to management, ABCT has
already entered into take-or-pay agreements for the enhanced capacity of
50MMT. The coal terminal is expected to handle 20MMT of cargo in
FY11 (year-end June); volumes are expected to scale up rapidly to
~50MMT by FY16. As per company, EBITDA is expected to increase
from AUD59mn in FY11 to AUD213mn by FY16. These estimates also
factor in EBITDA margin improvement from ~54% in FY11 to ~70% by
FY16, as capacity utilization improves. The acquisition price is at 8.7x
target EBITDA in FY16, and estimated FY13 EV/EBITDA is ~15.5x.
The average valuation of ports globally is ~12x CY12 EV/EBITDA.
• The acquisition appears EPS dilutive at least over next 2 years.
Owing to high capital costs, we expect ABCT to generate a loss of
~AUD48mn in FY12 (year-end Jun) and ~AUD22mn in FY13. Primafacie
there appears to be a downside of ~12% to our FY12 consol EPS
estimate of MPSEZ and ~6% in FY13. See our recent report on MPSEZ
('All set for a strong FY12’) for views on existing business operations
(ex-ABCT). The acquisition adds risk to the MPSEZ balance sheet, post
deal we estimate net-D/E to increase to ~2.34x in FY12 (year-end
March).
• Synergy with ADE's coal tenement in Galilee still distant. Abbot
Point is more than 500km from Galilee and there is no existing rail line
yet. Capex on rail can be as high as US$3-4bn in our estimate and may
take at least over 3 years to construct. We would see any move to route
rail capex through Mundra Port as a negative.
• Bottomline- richly valued acquisition. Acquisition of an operating
asset has limited MPSEZ's execution risk in ABCT. However, the
company seems to have paid upfront for growth that would pan out
over next 3-4years if projections are met. We maintain our Neutral
view on the stock, but would avoid entering the stock in the near-term till
there is more clarity on the deal and take-or-pay arrangements.
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