Gujarat Pipavav Port- Firing on all cylinders:: Macquarie Research,

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Gujarat Pipavav Port
Firing on all cylinders
Event
 GPPV reported 2QCY11 results which were significantly ahead of our and
street estimates. Revenues at Rs1bn increased 62% YoY, and PAT at
Rs109mn increased 82% QoQ. We remain extremely positive on the growth
outlook of GPPV and reiterate our Outperform rating with a Rs81 target price.
Impact
 Strong cargo volume growth, bulk cargo growth driven by coal imports:
Container volumes at 0.136mn TEUs were up 53% YoY. Bulk cargo at
1.36mn grew 51% YoY and was largely driven by coal, which more than
compensated for weak fertiliser imports (the Government of India is deferring
its overseas purchases due to high dollar costs).
 Upside may exist to our bulk cargo volume assumptions – we have built
in 3.4mn tonnes for CY11 (3.4mn tonnes in CY10, 2mn tonnes in
1HCY11) as the coal import outlook remains strong and fertiliser imports
are likely to pick up in 2HCY11
 Container volume growth is on track to reach 30-35%, to 0.6-0.63mn
tonnes, in CY11 (0.27mn tonnes in 1HCY11)
 Recurring EBITDA margin steady at 46% QoQ: GPPV had Rs55mn of onetime
costs for road repair, bonuses to employees and legal fees. Adjusting for
these, margins were steady at 46%. Margins are likely to improve further in
2HCY11 as container volumes pick up and operating leverage kicks in.
 Tariff hike removes discount to Mundra port: GPPV took an average 5%
tariff hike in June 2011 and its average realisation is now Rs3,800/TEU for
container cargo and Rs330/tonne for bulk cargo. The tariff hike removes the
discount to Mundra port.
 Seaside capacity to match quay-side container capacity by end-CY12:
GPPV has increased its land-side container capacity to 0.72mn TEUs, which
is likely to increase to 0.85-0.9mn TEUs by end-CY11, and 1.1-1.2mn TEUs
by end-CY12.
 Conference call takeaways: 1) Average borrowing cost has increased by
100bps and, hence, GPPV repaid a Rs900mn loan in mid-July to keep its
annual interest cost at Rs800mn; 2) Liquid cargo volume would be 1.5-1.8mn
tonnes p.a. when all three companies operate at full capacity; and 3) Capex
for the next 12 months would be Rs1bn.
Earnings and target price revision
 No change.
Price catalyst
 12-month price target: Rs81.00 based on a DCF methodology.
 Catalyst: pick-up in bulk and container cargo
Action and recommendation
 Strong volume growth to persist, retain Outperform: GPPV is poised to
witness strong container volume growth over the next 3–4 years due to
scarcity of container capacity on the west coast of India. Retain Outperform
with a price target of Rs81.