04 February 2015

Strong volumes, rich valuations Gujarat Pipavav Port ::HDFC Sec, report

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Strong volumes, rich valuations Gujarat Pipavav Port’s (GPPV) 3QFY15 APAT of Rs 893mn was in line with our est. of Rs 900m. Container volumes remained strong at 0.2mn TEUs (flat YoY and QoQ) with bulk volumes rising 21% QoQ to 1.21MT owing to higher fertiliser volumes. However, EBITDA margins of 54.5% were lower by 188bps QoQ owing to higher bulk volumes that carry lower margins. Although imports remained strong led by higher reefer volumes, weak cotton exports impacted container volumes. We revise our FY16E SOTP value for GPPV to Rs 139/sh (Rs 122/sh earlier) factoring in improved bulk volumes over FY15-17E. However, we retain our SELL rating on the stock and believe that with RoEs expected to peak at 22.8% from FY17E onwards, current valuations at 3.6x FY17E P/B and 15.5x FY17E EV/EBITDA are unjustifiable. Our TP of Rs 139/sh assumes concession period till CY28 and GPPV receiving residual value based on net block at the end of the concession. However, key risk to our call remains extension of the concession period for a further 20 years with minimal royalty payments.  Volumes remain strong : GPPV reported 3QFY15 revenues of Rs 1.85bn, 27% higher YoY driven by 125% YoY bulk volume growth to 1.21MMT while container volumes of 0.2mn TEUs were flattish on YoY and QoQ basis. Rail volumes continued to remain strong at 73% of container volumes (143,000 TEUs) on account of double stacking of trains. Liquid volumes of 80,000 MT for the quarter were on account of contribution from two operators that commenced operations in 2HCY14 with the third operator expected to commence operations in 4QFY15.  Delayed capacity expansion to weigh on volumes: GPPV has lowered capex requirement by a scale down of container capacity to 1.35mn TEUs. Although this will lead to better operating efficiencies in the nearterm, with competitors adding significant container capacity over the next 4-5 years (JNPT set to double existing capacity), GPPV may lose incremental market share on the West Coast in the long term.

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http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3011148

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