Testing new shores for higher growth!!! • Gujarat Pipavav Port :: ICICI Securities, report

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Testing new shores for higher growth!!! • Gujarat Pipavav Port (GPPL) posted spirited revenue growth of nearly 27% YoY and 8.4% QoQ to | 184.5 crore against our estimate of ~| 181 crore • EBITDA for Q4CY14 grew strong with 20% growth YoY to | 100.5 crore whereas QoQ it remained steady with ~5% growth. On the EBITDA margin front, margins contracted ~301 bps YoY and ~188 bps QoQ to 54.5% on account of adverse commodity mix • PAT for the quarter grew~16% YoY and remained flattish QoQ to | 89.3 crore. Adjusting for dividend in the previous quarter (| 15.2 crore from PRCL), PAT posted growth of ~20% QoQ • Container volume for the quarter stood at 196,000 TEUs vis-à-vis 194000 TEUs in Q4CY13 and 194000 TEUs in Q3CY14. Bulk volume stood at 1208000 MT vs. 538000 MT in Q4CY13. Liquid cargo was at 80,000 MT against 96,695 MT in the previous quarter. The container volume remained subdued on account of poor cotton exports Containerisation, strategic location steer volume growth As 70% of GPPL’s cost is fixed, volume availability and growth are critical to its profitability. Owing to its strategic location on the Indian west cost and proximity to industry clusters in the region, volume growth is considerably healthy. Further, with robust growth in global container volume (8% CAGR in 2000-10) due to increased intra-Asia trade coupled with low level of container penetration in India (at 68% against global average of 80%) there is ample scope for growth of container segment. Container capacity addition remains muted in major ports Regulatory bottlenecks have led to negligible container capacity additions in major ports over the last decade leading to capacity constraints. Major ports face severe congestion resulting in a very high turnaround time (TAT). Slippage in capacity addition is as high as 70% in ports like JNPT that handles nearly 60% container cargo for India. In such a scenario, ports like GPPL stand to gain as cargo handling transits to minor ports due to high mechanisation at port along with good storage and evacuation facilities synergise port operations leading to lower TAT. Aligning capex with demand scenario; initiating new avenues GPPL’s present capacity stands at 850,000 TEUs and is operating at ~85% utilisation. Consequently, requisite capex is necessary to maintain healthy operating level (70%). Going ahead, the company plans to expand its capacity to 1.35 million TEUs by converting its multi purpose berth into a fully operational container handling berth. Further, GPPL has set up tank farms and facility to export automobiles with partners to improve its value proposition as well as to diversify its revenue stream. Diversification of revenue to augment volume maintains valuation As GPPL becomes debt-free, further funding for capex is expected through the ECB route, thereby keeping interest cost low. Also, GPPL’s higher revenue visibility due to stable clientele and better margin on account of fixed cost model reassure on earnings growth. Further, diversification of revenue and presence in high growth segments like tank farms and auto exports provide confidence on earnings growth of GPPL. Consequently, we have marginally revised our estimates and assign HOLD rating to the stock with a DCF based target price of | 221.

LINK
http://content.icicidirect.com/mailimages/IDirect_GujaratPipavav_Q4CY14.pdf