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India Equity Research Reports, IPO and Stock News
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Growth conundrum
While port capacities are constrained in India, there have been delays in
awarding projects. This, coupled with Adani Group’s interests in coal mines
outside India, has driven MPSEZ to evaluate overseas growth opportunities.
However, returns are unlikely to be as attractive as the Mundra concession.
The relatively expensive Abbot Point agreement is a case in point. The stock
builds in US$1.4bn of value accretion from new investments, and is trading at
a significant premium to global peers as well as Indian infra stocks. U-PF
stays; tweak TP to Rs138/sh to include Abbot Point, higher cost of equity.
Few value accretive growth opportunities in India. Capacity utilisation across
major ports is high at ~90% (cf. 60-70% optimum level) and consequently efficiency
levels are low. However, procedural delays in awarding BOT concessions has meant
that only 43% of projects targeted for the XI plan have become operational in first four
years. Further, bidding has been aggressive. For instance, PSA-ABG Infra has emerged
as the highest bidder for JNPT’s IV container terminal, offering 51% revenue share to
the port trust (highest ever for container berth), even though tariffs are regulated.
MPSEZ looking abroad. Such procedural delays and high competitive intensity, along
with Adani Group’s coal mining interests, explain MPSEZ’s rising propensity to invest
abroad. It has recently signed a US$2bn Abbot Point lease in Australia, for example.
Moreover, Adani Group is evaluating building Dudgeon Port in Australia (30-60mtpa,
~US$2.5-3bn investment) and constructing rail link/port in Indonesia (~US$1.5bn).
Our management conversations indicate these assets could be housed in MPSEZ.
Returns not as attractive Mundra concession. We do not expect new opportunities
to be as remunerative as the Mundra concession, implying falling return ratios. For
instance, we expect Dahej, Hazira and Mormugao projects in India to generate 12-20%
equity IRRs, compared to ~35% for Mundra. Similarly, Abbot Point leaves little scope
of disappointment, acquired at a punchy 21x FY12 EV/Ebitda.
Increasing balance sheet risk. MPSEZ’s investments outside Mundra and more
importantly, outside India, will sharply rise over time. For instance, in comparison to
Mundra’s gross block of US$1.7bn, it has invested US$2bn for Abbot, entirely
mezzanine debt funded (with parent-level guarantee), which will need to be rolled over
the next 9-12 months. Moreover, while projects outside Mundra more than double the
balance sheet, we expect them to add only ~40% to Ebitda and ~10% to PAT by FY15.
Stock builds in US$1.4bn of value accretion. While do not see any significant value
accretion from projects outside Mundra, the market appears to be pricing in US$1.4bn
of value accretion from new opportunities. Further, in our view, growth in Mundra Port’s
traffic and profits will moderate post FY13, as long term contracts with IOC, HPCL, Tata
Power and Adani Power plateau out. The stock trades at 24x FY12 PE, 0-80% premium
over global ports and ~50% to Indian infra stocks. Maintain U-PF; we tweak our TP to
Rs140/sh to include Abbot Point (+Rs11/sh), factor in higher cost of equity (-Rs6/sh).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Growth conundrum
While port capacities are constrained in India, there have been delays in
awarding projects. This, coupled with Adani Group’s interests in coal mines
outside India, has driven MPSEZ to evaluate overseas growth opportunities.
However, returns are unlikely to be as attractive as the Mundra concession.
The relatively expensive Abbot Point agreement is a case in point. The stock
builds in US$1.4bn of value accretion from new investments, and is trading at
a significant premium to global peers as well as Indian infra stocks. U-PF
stays; tweak TP to Rs138/sh to include Abbot Point, higher cost of equity.
Few value accretive growth opportunities in India. Capacity utilisation across
major ports is high at ~90% (cf. 60-70% optimum level) and consequently efficiency
levels are low. However, procedural delays in awarding BOT concessions has meant
that only 43% of projects targeted for the XI plan have become operational in first four
years. Further, bidding has been aggressive. For instance, PSA-ABG Infra has emerged
as the highest bidder for JNPT’s IV container terminal, offering 51% revenue share to
the port trust (highest ever for container berth), even though tariffs are regulated.
MPSEZ looking abroad. Such procedural delays and high competitive intensity, along
with Adani Group’s coal mining interests, explain MPSEZ’s rising propensity to invest
abroad. It has recently signed a US$2bn Abbot Point lease in Australia, for example.
Moreover, Adani Group is evaluating building Dudgeon Port in Australia (30-60mtpa,
~US$2.5-3bn investment) and constructing rail link/port in Indonesia (~US$1.5bn).
Our management conversations indicate these assets could be housed in MPSEZ.
Returns not as attractive Mundra concession. We do not expect new opportunities
to be as remunerative as the Mundra concession, implying falling return ratios. For
instance, we expect Dahej, Hazira and Mormugao projects in India to generate 12-20%
equity IRRs, compared to ~35% for Mundra. Similarly, Abbot Point leaves little scope
of disappointment, acquired at a punchy 21x FY12 EV/Ebitda.
Increasing balance sheet risk. MPSEZ’s investments outside Mundra and more
importantly, outside India, will sharply rise over time. For instance, in comparison to
Mundra’s gross block of US$1.7bn, it has invested US$2bn for Abbot, entirely
mezzanine debt funded (with parent-level guarantee), which will need to be rolled over
the next 9-12 months. Moreover, while projects outside Mundra more than double the
balance sheet, we expect them to add only ~40% to Ebitda and ~10% to PAT by FY15.
Stock builds in US$1.4bn of value accretion. While do not see any significant value
accretion from projects outside Mundra, the market appears to be pricing in US$1.4bn
of value accretion from new opportunities. Further, in our view, growth in Mundra Port’s
traffic and profits will moderate post FY13, as long term contracts with IOC, HPCL, Tata
Power and Adani Power plateau out. The stock trades at 24x FY12 PE, 0-80% premium
over global ports and ~50% to Indian infra stocks. Maintain U-PF; we tweak our TP to
Rs140/sh to include Abbot Point (+Rs11/sh), factor in higher cost of equity (-Rs6/sh).
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