Buy Essar Ports ; Target : RS 107 ::ICICI Securities (pdf link)

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S t a b l e   p e r f o r m a n c e  
Essar Ports (EPL) was demerged from Essar Shipping and Ports Ltd 
(ESPLL) in June 2011. The existing company operates only the port 
business. For Q3FY12, EPL reported a stable performance. Revenues 
were flattish on QoQ basis and declined by 1% to | 272 crore while net 
profit increased by 10% to | 45.0 crore. EBITDA declined by 5% to | 
214.4 crore due to a 344 bps decrease  in  EBITDA  margin  to  78.9%. 
Revenues and EBITDA have been subdued during Q3FY12 owing to shutdown by Essar Oil to expand its refinery to 18 million metric tonne per 
annum (MMTPA). 

During Q3FY12, volumes handled on a QoQ basis increased by only 2% 
to 9.94 million metric tonne (MMT). Average realisation increased to | 
237/tonne in FY12 from | 185/tonne in FY11. In Q3FY12, Vadinar handled 
6.95 MMT cargo as against 6.79 MMT in Q2FY12 whereas Hazira handled 
2.99 MMT of cargo in Q3FY12 against 2.94 MMT in Q2FY12. 

For 9MFY12, total volume of cargo handled stood at 30.87 MMT vs. 29.35 
MMT in 9MFY11 with Vadinar handling 22.15 MMT in 9MFY12 against 
22.71 MMT in 9MFY11 and the remaining volumes being contributed by 
Hazira port. EPL’s capacity expansion, which has been aligned to anchor 
customers  growth  plan,  is  slated  to  increase  from  88  MMT  at  present  to 
158 MMT by Q4FY14 (earlier planned completion date was Q4FY13). 
Paradip CQ3 berth with capacity of 16 MMT is expected to go on stream 
by Q1FY13 (earlier planned completion date was Q4FY12), which would 
boost cargo volumes, going ahead. 
V a l u a t i o n  
The company enjoys significant revenue visibility on account of long-term 
take or pay agreements with its anchor clients. Most of the projects are 
progressing well and completion of Paradip CQ3 berth would generate 
higher volumes and catalyse growth in revenue and profitability. We 
expect significant value creation as new capacities get commissioned and 
cargo traffic gains traction over the next couple of years. We have valued 
the company on DCF basis with a target price of | 107. 

Essar Ports (ESHPF, Buy) BofA Merrill Lynch,

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Essar Ports (ESHPF, Buy)
Bear case: What can go wrong?
􀂄 Lower refinery utilization of Essar Oil, lower steel plant utilization of Essar
Steel and a fall in third party cargo. We assume a 10% fall in the cargo
volume in the bear case.
􀂄 Owing to competition, the average realization for the third party cargo
handled declines, say by 25%.
􀂄 Delay in the commissioning of the iron ore terminal at Paradip by 6m and
interest rate rise by 50 bps.
􀂄 Consequently, we estimate an earnings decline of 29% in FY13E to Rs1.5bn.
Base case: Well positioned to benefit from
strong growth via captive route
􀂄 We estimate a 1.8x jump in the port capacity road asset portfolio by
1QFY15E from 88mtpa at present to 158 mtpa. Accordingly, the volume
growth is pegged at 28% over FY11-14E driven by higher capacity and jump
in capacity utilization from 55% in FY11 to 80% in FY14E.
􀂄 About 94% of the cargo handled in FY13-14E is captive for Essar group
companies. EPL offers a good revenue visibility through long-term take-orpay
contracts with assured volume / realization with in-built escalation.
􀂄
􀂄 Earnings to grow 2,7x over FY12-14E; RoE expansion from 6% in FY12E to
9% in FY13E and later to 13% by FY14E.
Risk-reward: Favourable, key catalyst are
regulatory approvals for new capacities
􀂄 In bear case, we expect stock to trade at Rs65/share (P/BV of 1.1x FY13E).
􀂄 In base case, we expect stock to trade at Rs89/share (P/BV of 1.4xFY13E).
􀂄 Overall, the risk-reward appears favourable on strong captive business, no
promoter hedging. Potential equity dilution risk remains as promoter intent to
bring its holding to 75% from 83.7% by FY13E (not assumed in base case).

Essar Ports (Rs 61) - Buy :: Business Line

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We recommend a buy in the stock of Essar Ports from a short-term perspective. It is evident from the charts of the stock that after encountering significant long-term resistance in the band between Rs 120 and Rs 125 in early June, the stock started to decline. It was on a medium-term downtrend until it found support in early October at around Rs 51, which is a key long-term support.

However, the stock subsequently changed its direction triggered by positive divergence in daily moving average convergence divergence indicator. On October 24, the stock surged four per cent breaching its 21-day moving average conclusively. We observe that there is an increase in volumes over the past four trading sessions.

The daily relative strength index is inching higher in the neutral region towards the bullish zone and weekly RSI is recovering from the oversold territory. Daily MACD has signalled a buy and is trending higher in line with the stock's price. Daily price rate of change indicator is featuring in the positive area implying buying interest.

We are bullish on the stock from a short-term perspective. We expect the stock to move higher and reach our price target of Rs 63 or Rs 65 in the ensuing trading sessions. Traders with short-term perspective can buy the stock with stop-loss at Rs 59.

Essar Ports Management Meeting: Expansion delayed, but operations on track:: Takeaways from J.P. Morgan India Emerging Opportunities Access Days

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We hosted senior management of Essar Ports at the J.P. Morgan India SMID
Corporate Access Day. Besides discussion on a broadly positive consensus view on
long term growth in the India Port sector, investor questions were focused on the two
operating assets- Hazira multipurpose cargo terminal and Vadinar Oil terminal. The
take or pay agreements with Essar Group companies, comparison of realizations and
competitiveness across ports, time-line on clearances for expansion plans, capex, cost
of funding and potential for 3rd part cargo featured in most discussions.
Key takeaways
 Expansion projects delayed but management confident about new timelines.
Hazira Phase-II (20MMT) is awaiting environmental clearances; revised CoD
timeline is Mar-14 vs. Dec-12 at the beginning of the year. Similarly the 14MTPA
coal terminal at Paradip is grappling with delayed forest approval. According to
management dated land records of Paradip still list the major port land parcels at
Paradip as forest areas though there are none on the site. In Salaya, the timeline for
CoD is still Mar-2014 as earlier forest clearances are awaited.
 Take-or-pay contracts: Management affirmed that the take-or-pay contracts
signed with Essar Steel and Essar Oil were long term (15 years and renewable on
mutual consent) and build in nominal escalation (~3%). These would not be
modified for existing facilities and expansion plans covered in the contracts.
 Bid for Nargol Port in South Gujarat: Besides Essar Port, Sterlite-Vedanta,
Gammon India and a consortium of Israeli port companies, Cargo Motors remains
in the race. The initial estimate investment in the port as per Economic Times is
Rs7.5B. According to management, Nargol Port is highly scalable (up to
100MTPA) and the development could take capex up to US$1.5B.
 Valuations, price target and key risks: We remain OW with Mar-12 SOP based
PT of Rs135. We value individual ports using DCF over the concession period
with WACC ranging from 11.5%-13.00%. Key risks include dilution of T/P terms,
slow scale up of Essar traffic, delay of under construction projects.

Buy Essar Ports ; Target :Rs 107 ::ICICI Securities,

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C a p a c i t y   e n h a n c e m e n t   t o  d r i v e   f u  t u  r e   g r o w  t h …
Essar Ports (EPL) was demerged from Essar Shipping and Ports Ltd
(ESPLL) in June 2011. The existing company operates only the port
business. For Q2FY12, EPL reported an impressive performance.
Revenues increased by 53% YoY to | 274 crore while net profit jumped
from | 5.3 crore to | 40.8 crore. EBITDA increased 69% on the back of
760 bps increase in EBITDA margin to 82.3%. Revenues and EBITDA have
seen a significant increase on account of increase in average realisation.

During Q2FY12, volumes handled on a YoY basis increased by only 1% to
9.73 million metric tonne (MMT). Average realisation increased to |
233/tonne from | 174/tonne in FY11. Volumes were subdued during the
quarter due to synchronised shutdown of the Vadinar Oil Terminal and
Essar oil refinery for 13 days during the quarter. In Q2FY12, Vadinar
handled 6.79 MMT cargo as against 7.49 MMT in Q2FY11 whereas Hazira
handled 2.94 MMT of cargo in Q2FY12 against 2.14 MMT in Q2FY11.

For H1FY12, total volume of cargo handled stood at 20.93 MMT vs. 19.46
MMT in H1FY11 with Vadinar handling 15.2 MMT in H1FY12 against 15.26
MMT in H1FY11 and the remaining volumes being contributed by Hazira
port. EPL’s capacity expansion,  which has been aligned to anchor
customers  growth  plan,  is  slated  to  increase  from  88  MMT  at  present  to
158 MMT by Q4FY14 (earlier planned completion date was Q4FY13).
Paradip CQ3 berth with capacity of 16 MMT is expected to go on stream
by Q4FY12, which would boost cargo volumes, going ahead.
V a l u a t i o n
The company enjoys significant revenue visibility on account of long-term
take or pay agreements with its anchor clients. The recent upward
revision of handling charges structure and higher capacity utilisation
levels provide comfort about future growth in revenue and profitability.
We expect significant value creation as new capacities get commissioned
and cargo traffic gains traction over the next couple of years. We have
revised our DCF assumptions to factor in higher risk free return and
market risk and have reduced the target price from | 139 to | 107.

Essar Ports: HOLD ::Business Line,

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Investors with a two- to three-year perspective can continue to hold shares of Essar Ports. As the second largest private port operator in the country next to Mundra Port and SEZ, this newly listed entity with a 83.7 per cent promoter holding derives high revenue visibility from the take-or-pay contracts with group companies. Ongoing expansion of ports also provides scope for improving third-party revenue streams.

At the current market price of Rs 54, the stock trades at 19 times its expected per share earnings for FY-12. The valuation is at a steep discount to Mundra Port & SEZ (25 times expected FY-12 earnings) and may remain so until revenues from higher capacities kick-in.

Investors can view the stock as a high-risk high-return bet, given that the port is in a growth phase. High level of debt as a result of capital expenditure incurred for projects currently under execution and dependence on group companies for revenue, make it a riskier bet compared with Mundra. Diversification of the revenue stream and completion of the current expansion phase would be the triggers to watch before investors take fresh exposures in the stock.

BACKGROUND

Essar Ports came in to existence following the demerger of Essar Shipping Ports & Logistics in to listed entities Essar Ports and Essar Shipping. The port division's high growth trajectory appears to have prompted the group to house the business in a separate entity. This would not only help the group focus better on the lucrative business but also leverage on its own balance sheet.

For every three shares held in the erstwhile listed entity, investors would have received two shares of Essar Ports and one share of Essar Shipping.

Essar Ports has a gross cargo handling capacity of 88 million tonnes per annum (MTPA) as against Mundra's 115 MTPA. The company has two operating ports on the west coast, with its group companies, Essar Steel, Essar Power and Essar Oil being the anchor clients. Crude, liquid products and intermediates accounted for 75 per cent of the total volume for the June 2011 quarter. Its expansion plans would take the capacity to 158 MTPA in phases, over the next couple of years, adding one more port on the west coast and two bulk terminals on the east coast.

The company derives almost all of its revenue from its group companies. This makes the port a captive play currently. While Mundra Port too, derives substantial revenue from its anchor client and group company Adani Enterprises, it has key third-party clients such as IOC or Maruti Suzuki India besides stakes in an Australian port.

This concentrated and inter-group revenue stream thus makes Essar Ports a relatively riskier play. However, it needs to be mentioned that the company is attempting to make up for the above risk by seeking higher returns from these revenue streams.

For one, it has tied-up a significant portion of its capacities, both under operation and under construction through long-term take-or-pay agreements with the other Essar companies. This would entail clients paying up for an assured capacity level or actual capacity utilised, whichever is higher. Such a deal can significantly mitigate risks arising out of volatility in port traffic. After recent capacity additions in Vadinar, revenues from the minimum guaranteed take-or-pay income accounted for 80 per cent of revenue in the latest ended June quarter, as against 60 per cent a year ago thus providing assurance of a regular income stream.

Two, the company has also hiked tariffs levied on group companies, thus boosting profitability. Average realisation for a tonne improved from Rs 173 in FY-11 to Rs 220 in the June quarter of current fiscal.

The company has built-in escalation clauses in its agreements to ensure that rates are periodically revised. These measures, to some extent, relieve concerns about related-party transactions and ability to maintain arm's length dealings.

Three, the off take agreements have not made the company complacent about traffic volumes which expanded at a healthy 14 per cent in the quarter ending June 2011 over a year ago. The 70 MTPA capacity additions expected over the next two years would boost volumes; given that it is directly linked to the group companies' ongoing respective capacity additions. Efforts to ramp up revenue from non-group traffic volume, which is negligible at present, may also yield results, given the strategic location of the ports and the burdened capacities of all major ports in the region. Larsen & Toubro, Torrent Power and Bhatia International are some of the non-group clients at present.

While the above combination of a steady revenue stream and improved volumes from third parties support prospects, Essar Ports faces the risk of delay in completion of its expansion programme. Its Salaya Coal terminal for instance is delayed by 12 months while the Paradip Coal terminal has overrun its schedule by six months.

The huge debt sunk in to these projects have kept the debt equity levels at an elevated 2 times. Revenue flow would be crucial to service the debt.

FINANCIALS

For FY-11, the ports division of the erstwhile company clocked revenue of Rs 706 crore while segment operating profits was Rs 368 crore. The latest ended June quarter saw revenue growth of 61 per cent to Rs 278 crore over a year ago, while net profits jumped 11 fold to Rs 39.5 crore.

EBITDA margin rose to 79 per cent (versus 73 per cent a year ago) and is comparable with Mundra Port. Return on equity, though is likely to just touch the two-digit mark in FY-12, far lower than Mundra's 20-25 per cent returns. This can improve only on higher capacity coming on stream.

Essar Ports (Buy, PT Rs 135, 88% upside) UBS: India Mid-Caps TOP PICKS - September 2011

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• EPL is India’s second-largest private port operator and the largest
captive port operator in terms of volume.
• We believe EPL is well-positioned to benefit from its planned
capacity expansion, which is also in line with the expansion plans of
its anchor customers (Essar Group companies). It has long-term
take-or-pay contracts with anchor customers, which provide
stability and visibility to its earnings.
• EPL is also looking to increase its higher margin third-party revenue
(the co. aims to increase the proportion of third-party sales to 25%
in the next three years; its current proportion is negligible).
• We forecast EPL’s volume to grow 37%/34% YoY in FY12/13 and
estimate YoY revenue growth of 63%/29% and earnings growth of
209%/109% in FY12/13.
• Shareholding: promoters – 84%
• Valuation: SOTP valuation (value each port separately using DCF).
Implied 1.7x FY13E P/BV and 10.7x FY13E EV/EBITDA. We do not
ascribe any value to the Hazira II, Paradip II and Salaya ports (as
regulatory clearance is pending). We think they could be worth
Rs41/share and offer potential upside to our valuation.



CLICK HERE TO RETURN TO LIST OF UBS TOP PICK

Buy Essar Ports; Target : Rs 139 ::ICICI Securities

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S t r o n g   o p e r a t i on a l   p e r f o r m a n c e …
Essar Ports (EPL) was demerged from Essar Shipping and Ports Ltd
(ESPLL) in June 2011. The existing company operates only the port
business. For Q1FY12, EPL reported an impressive performance.
Revenues increased by 61% YoY to | 278.5 crore while net profit jumped
tenfold from | 3.5 crore to | 39.6 crore. EBITDA increased by 74% on the
back  of  a  630  bps  increase  in  EBITDA  margin  to  79.1%.  Revenues  and
EBITDA saw a significant increase on account of an increase in volumes
handled and average realisation. During Q1FY12, volumes handled on a
YoY basis increased by 14% to 11.2 million metric tonne (MMT). Average
realisation increased to | 220/tonne from | 173/tonne in FY11.
EPL has already commissioned 88 MT of port capacity (58 MT at Vadinar
and 30 MT at Hazira)  in  the  last  few years.  In  the next  two years,  the port
capacity would be further increased to 158 MT with the commissioning of
Hazira II, Salaya, Paradip CQ3 and coal berth.
Gaining scale
Essar Ports commissioned 12 MMTPA expansion at Vadinar in April 2011,
taking the overall capacity to 88 MMTPA. The company is expanding its
capacity by further 70 MMTPA over  the next two years, which would
catapult EPL to the position of second largest port operator in India after
Mundra Port.
V a l u a t i o n
We have valued each of the ports/terminals on a DCF basis to arrive at a
price target of | 139 for EPL. The  company enjoys significant revenue
visibility on account of long-term take or pay agreements with its anchor
clients. The recent upward revision of handling charges structure and
higher capacity utilisation levels provide comfort about future growth in
revenue and profitability. We expect significant value creation as new
capacities get commissioned and cargo traffic gains traction over the next
couple of years.

Essar Ports - Take or pay works; Jun-q margins surprise positively: Maintain OW:: JPMorgan

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 Promise of take or pay works. Essar Port’s reported revenue of Rs2.78bn
(up 61% YoY) was in-line with our est. (Rs2.72bn) calculated based on- (A)
T/P arrangement at Hazira (actual traffic of 2.8MMT was well below T/P
volume of 4.28MMT, and (B) assured storage revenue and variable liquid
cargo traffic based income at Vadinar. Jun-q results could mitigate investor
concerns on inter-group contracts as mentioned in our preview ahead of
results (see Analysis of Jun-q cargo volumes).
 Jun-q EBITDA margin of 79.1% (up 630bps) came ahead of our
expectation (76%). EBITDA margins at Vadinar port (~82.5%) and Hazira
(70.9%) were healthy and were driven by- (1) Higher realizations as per
take or pay rates applicable for FY12; (2) Higher volumes at Vadinar
(8.4MMT vs. 7.7MMT in Jun-q last year); and (3) Lower lighterage
expenses at Hazira. Improving utilization levels of ports will drive margin
improvement and RoE increase in coming quarters.
 Pipeline projects face risk of delays: Hazira expansion by 20MMT is
awaiting environmental clearance (expected over 6-9months as per
management), CoD may happen in Dec-12 (vs. Oct-12 expected earlier). As
per company presentation revised timeline for CoD of Salaya is 4QFY14
(vs. Mar-13 earlier) and Paradip-I in Mar-12 (vs. Oct-11) earlier. In an
extreme scenario where we attribute no value to these underconstruction
projects (Paradip-I is 59% complete and Salaya 36%) our
SOP of Rs135 will be lower by Rs54 (or Rs81, close to CMP of Rs79).
 Maintain OW and Mar-12 DCF PT of Rs135. We have made
housekeeping changes to estimates (FY12 est. down by ~1%). The stock
has been trading at very low volumes (Average 3mnoth daily turnover of
just US$0.24mn). Improvement in investor perception of inter-group
take or pay arrangements may drive upside. Delay of under construction
projects is a key downside risk.

UBS:: Essar Ports- Strong Q1

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UBS Investment Research
Essar Ports
S trong Q1
􀂄 Event: Q1FY12 results beating consensus estimates
Essar Ports (EPL) reported strong Q1FY12 results, ahead of consensus: Revenue
came at Rs.2.75bn, up 61% yoy (UBS-e Rs.2.9bn, Cons. Rs.2.6bn). Avg.
realization increased 27% yoy to Rs.220/t due to increase in tariff rates. Revenue at
Vadinar and Hazira increased 49% and 106% resp. Volume at 11.2 mmt was up
14% yoy. Billed volume (based on take or pay contract) was higher at 12.7mmt.
􀂄 Impact: Substantial increase in margins
EBITDA margins in Q1FY12 increased to 79% from 73% in prior quarter due to
increase in volumes and realizations. Vadinar operations EBITDA margins
increased to 82.5% from 74% in prior quarter mainly due to increase in storage
revenue (attracts higher tariff rates). Margins at Hazira were at 71% up from 68%
in Q1FY11 due to increase in vols. and better tariffs.
􀂄 Action: Maintain our estimates, reiterate Buy
Post strong Q1, we maintain our current estimates and Buy rating. Mgmt. expects
margins to range in 75-79% going forward. We maintain our FY12 margin
estimate at 74% (72% in FY11). Mgmt. expects Paradip Iron ore port (included in
our valuation) to be operational by Q4FY12. Other projects are still awaiting
regulatory clearances.
􀂄 Valuation: Continue to trade at attractive multiples
We base our valuation on sum-of-the-parts methodology and value each port
separately using DCF. The stock is currently trading at attractive valuation of 1x
and 8.6x P/B and EV/EBITDA FY13E.


􀁑 Essar Ports
Essar Ports is the second-largest private port operator in India. It operates as a
captive port for the Essar Group companies; Essar Group owns 84% of Essar
Ports . Essar Ports has an operational capacity of 88mt as at the beginning of
FY12 at the Vadinar and Hazira ports. Vadinar (capacity: 58mt) handles crude
and petroleum bulk cargo for Essar Oil, while Hazira (30mt) handles iron ore
and coal for Essar Steel.
􀁑 Statement of Risk
We believe the key risks for Essar Ports include: a delay in getting regulatory
clearances for port expansion; dependency on a few large customers to generate
revenue; and a slower ramp up of the third party business.

Essar Ports - Analysis of Jun-q cargo volumes ::JPMorgan

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Essar Ports Overweight
ESRS.BO, ESRS IN
Analysis of Jun-q cargo volumes


Promise to ‘take or pay’ is all set to get tested in Jun-q post weak cargo
volumes at Hazira. We estimate 118% qoq PAT growth in 1Q following T/P
guidelines applicable for FY12. An in-line or superior set of results could
reduce investor concerns around inter-group contracts.
 Essar Oil throughput continues at high rate. Essar Oil (covered by
Pradeep Mirchandani) reported throughput of 3.62MMT in Jun-q, implying
a utilization of 135%. As per our O&G team, the refinery expansion to
18MTPA remains largely on track, with the company planning a 35 day
shutdown starting 18th Sep to integrate most new units. Start up activity of
the new units is expected to begin ~Dec-11. In light of this there appears to
be limited downside risk to our FY12 est. of 14.5MTPA each of crude and
product handling at Vadinar Port. The port accounts for 62% of FY12
consol EBITDA estimate. ~77% of Vadinar Port’s revenue is assured
through take-or-pay contracts for storage or crude/products.
 Weak volumes at Hazira, take-or-pay will be tested in Jun-q. Hazira
handled 2.8MMT of cargo in Jun-q, well below quarterly run-rate of
4.5MMT implied by T/P agreement with Essar Steel. We had anticipated
delays in ramp-up at Essar Steel and our full-year estimates assume T/P
volumes for revenue calculation.
 Revised T/P contracts to drive strong growth in Jun-q: Using actual
throughput for Vadinar Port and T/P guidelines we estimate Jun-q revenue
of Rs2.7bn, up 41% qoq. We expect EBITDA margins to improve to ~76%
(up ~320bps YoY) as lighterage expenses are no longer required at Hazira.
We est. Jun-q PATAMI of Rs297mn, implying a 118% growth qoq.
 Reiterate OW and Mar-12 PT of Rs135. Essar Ports is trading at 9x FY13
EV/EBITDA despite our estimate of 37% EBITDA CAGR over FY11-15.
The markets appear to be sharply discounting the company's ability to
execute under construction projects (~70MTPA capacity) and secure
pending environmental clearances. Any dilution of T/P contract terms is a
key downside risk and could raise investor concerns on inter-group
transactions and lead to a further stock derating.

Essar Ports :: Analysis of Jun-q cargo volumes ::JPMorgan

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Essar Ports
Overweight
ESRS.BO, ESRS IN
Analysis of Jun-q cargo volumes



Promise  to  ‘take  or  pay’  is  all  set  to  get  tested  in  Jun-q  post  weak  cargo
volumes at Hazira. We estimate 118% qoq PAT growth in 1Q following T/P
guidelines  applicable  for  FY12.  An  in-line  or  superior  set  of  results  could
reduce investor concerns around inter-group contracts.
 Essar  Oil  throughput  continues  at  high  rate. Essar  Oil  (covered  by
Pradeep Mirchandani) reported throughput of 3.62MMT in Jun-q, implying
a  utilization  of  135%.  As  per  our  O&G  team,  the  refinery  expansion  to
18MTPA  remains  largely  on  track,  with  the  company  planning  a  35  day
shutdown starting 18th Sep to integrate most new units. Start up activity of
the new units is expected to begin ~Dec-11. In light of this there appears to
be limited downside risk to our FY12 est. of 14.5MTPA each of crude and
product handling  at  Vadinar  Port. The  port accounts  for  62%  of  FY12
consol  EBITDA  estimate. ~77%  of  Vadinar  Port’s  revenue  is  assured
through take-or-pay contracts for storage or crude/products.
 Weak  volumes  at  Hazira,  take-or-pay  will  be  tested  in  Jun-q. Hazira
handled  2.8MMT  of  cargo  in  Jun-q,  well  below quarterly  run-rate  of
4.5MMT implied  by  T/P  agreement  with  Essar  Steel.  We  had  anticipated
delays  in  ramp-up  at  Essar  Steel  and  our  full-year estimates  assume  T/P
volumes for revenue calculation.
 Revised  T/P  contracts  to  drive  strong  growth  in  Jun-q:  Using  actual
throughput  for Vadinar Port and T/P guidelines we estimate Jun-q  revenue
of Rs2.7bn, up 41% qoq. We expect EBITDA margins to improve to ~76%
(up ~320bps YoY) as lighterage expenses are no longer required at Hazira.
We est. Jun-q PATAMI of Rs297mn, implying a 118% growth qoq.
 Reiterate OW and Mar-12 PT of Rs135. Essar Ports is trading at 9x FY13
EV/EBITDA  despite  our estimate  of 37% EBITDA CAGR over FY11-15.
The  markets  appear  to  be  sharply  discounting  the  company's  ability  to
execute  under  construction  projects  (~70MTPA  capacity)  and  secure
pending  environmental  clearances. Any  dilution  of  T/P  contract terms is  a
key  downside  risk  and  could  raise  investor  concerns  on  inter-group
transactions and lead to a further stock derating.

Essar Ports (ESRS.BO; Takeaways from Citi India Investor Conference – Day 1

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Essar Ports (ESRS.BO; Rs103.65; Analyzed Not Rated)
 Takeaways from Mumbai - Essar Ports presented at our India Investor
Conference in Mumbai. Below are key takeaways:
 Second-largest private port company - Essar Ports is India's second-largest
private port company with a capacity of 88mtpa. It has two operational ports at
Vadinar (58mtpa) and Hazira (30mtpa) in Gujarat, on the western coast of India.
The company is also adding 70mtpa capacity at Salaya, Paradip and Hazira by
FY14. A part of the $15bn Essar group, it primarily caters to the bulk cargo
requirements (coal, iron ore, POL) for the group's expansion plans.
 What's New - For FY12, the company envisages a capex of ~Rs21bn to take its
capacity addition plans forward. Management expects revenues of ~Rs12bn with
EBITDA margins of ~71-75% and PAT of Rs1.5-1.75bn in FY12. Once the ports

are commissioned, Essar Ports intends to get the debt refinanced at lower
interest costs. UCO Bank has refinanced the debt for the Hazira port with no
principal repayment for the first three years, helping Essar Ports reinvest the
cash flows towards equity for its proposed expansion. Essar Ports is also
increasing its economic interest in the Hazira and Paradip ports.
 Group expansion plans for captive cargo - Essar Ports has clear visibility of
revenues for its proposed expansion: (1) Essar Oil is increasing its capacity to
18mtpa by Oct'12 and to 20mtpa by mid-FY13 (2) Essar Power is setting up
~3100MW power plants in Salaya based on imported coal (3) Essar Steel has
increased its capacity at Hazira to 9.6mtpa. Of its proposed 158mtpa capacity,
Essar Ports has ~75mtpa cargo tied up with these companies under take-or-pay
agreements. The company has seen merchant rates trending up over the last
year and also plans to increase its third-party cargo to ~40% of its overall
volumes once the capacity expansion is completed.
 Way Forward - The company is setting up tankage facilities at Vadinar and is in
talks with traders for ramping up third-party cargo. Forest clearances are pending
at Salaya and Paradip, which are expected to be commissioned by March 2013.

Performance expected to pick up momentum… Essar Shipping :: ICICI Securities,

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Performance expected to pick up momentum…
Essar Shipping Ports and Logistics Ltd (Essar Shipping) reported mildly
disappointing results with a 3.8% QoQ drop in topline due to the subdued
performance of the ocean transport, oilfield services and port businesses.
During the quarter, the company added 12 MTPA of capacity at Vadinar
(wet cargo) whose capacity has now increased to 58 MTPA. Along with
Hazira (30 MTPA dry cargo), the combined port capacity has increased to
88 MTPA, which will be further ramped up to 158 MTPA over the next
two years. We also expect earnings from the oilfield services business to
improve as the company is likely to deploy its semi submersible rig at
charter rates in excess of $2,50,000 per day.

Essar Shipping -OUTPERFORM; target price Rs108/share:: Credit Suisse

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Essar Shipping Ports and
Logistics Ltd (ESRS.BO / ESRS IN)
INITIATION
Merchant cargo addition to diversify earnings
■
Initiate with OUTPERFORM rating: ESRS is the second-largest private
port operator in India and is set to more than double its port capacity in the
next two years. In the shipping business, ESRS operates its own ships and
rigs. We initiate on ESRS at OUTPERFORM with a target price of Rs108.

Query Corner: United Spirits in medium-term slope- Business Line

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I have brought United Spirits at Rs 1,565. Should I hold or exit at current price?

H.P. Swamy

United Spirits (Rs 1,026.7): United Spirits was on a long-term uptrend from its January 2009 low of Rs 425 until it encountered resistance in the band between Rs 1,680 and Rs 1,700 in October 2010. However, the stock changed its trend and has been on a medium-term downtrend since. While trending down, it penetrated its significant long-term supports at Rs 1,400 and Rs 1,200 emphatically. Next long-term support is at Rs 900. Reversal from this support is possible in the medium-term. This can take the stock higher to Rs 1,200. Only a conclusive break through of this level will lift the stock higher to Rs 1,400 and then to Rs 1,500 in the long-term.

Long-term investors can hold the stock with stop loss at Rs 850. A strong tumble below Rs 850 can drag the stock down to Rs 700 and then to Rs 500 in the long-term. Inability to move beyond Rs 1,100 will pull the stock down to Rs 900 in the short-term.

Please provide long-term analysis on Bajaj Hindusthan purchased at Rs 240.

R.M. Kumarappan

Bajaj Hindusthan (Rs 72.2): After encountering resistance at its long-term resistance level of Rs 240 in January 2010, the stock price started to decline. And since then, Bajaj Hindusthan has been on a long-term downtrend, shaping lower peaks and lower troughs. Medium-term trend is also down for the stock from its November 2010 peak of Rs 144. This downtrend got accelerated and witnessed sharp declines after it breached its key support at Rs 98 in this January. The stock is currently testing its key long-term support at Rs 70.

Daily indicators are displaying positive divergence, suggesting that a trend reversal may be on the cards. A strong move above the immediate resistance at Rs 85 can take the stock higher to Rs 100, Rs 120 and then to its key long-term resistance level of Rs 150. The stock may find it difficult to surpass your purchase price of Rs 240.

We suggest you to switch from the stock. An emphatic close below Rs 66 is the indication of resumption of the downtrend and the stock can decline to Rs 50 and then to its March 2009 low of Rs 39 in due course.

I have bought shares of Essar Shipping at Rs 98. Can I hold the stock for six months?

Suresh Kumar Yadav

Essar Shipping Ports and Logistics (Rs 87.9): Essar Shipping has been trending higher since its March 2009 low of Rs 19.4. However, following a corrective decline from the resistance level of Rs 115, the stock found support at Rs 70 in late February 2011. Triggered by positive divergence, the stock resumed its uptrend and is currently testing resistance at Rs 90. Breakthrough of this level can take the stock higher to Rs 100, Rs 110 and then to Rs 120 in the medium-term. Investors with medium-term horizon can hold the stock with stop-loss at Rs 78. Subsequent, support for the stock is at Rs 70.

Long-term investors can hold the stock as long as it hovers above Rs 64. Decisive move beyond Rs 120 will lift the stock higher to Rs 140-Rs 150 range. However, slump below Rs 64 will drag the stock down to Rs 50, Rs 40.

I would like to purchase stocks of PVR. Please advise if the current price is a good price to buy for long-term investment? Also give target price for next 2-3 years.

Kumar T.K.

PVR (Rs 101): The stock has been on a long-term downtrend from its January 2008 peak of Rs 376 levels. After encountering resistance at Rs 193 in September 2010, the stock resumed its downtrend and has been on a medium-term decline since. However, the stock is now taking support above its long-term support band between Rs 85 and Rs 90. Reversal from this support band can lift the stock higher to Rs 115, Rs 132 and Rs 150 in the medium-term. Investors with a medium-term perspective can consider buying the stock with stop loss at Rs 85. Next resistance above Rs 150 is at Rs 200, and it is difficult to envisage a move beyond this level over the next two years. Long-term investors can hold the stock with stop loss at Rs 85 and exit it around the said resistance level.

On the other hand, inability to move higher from the support band will signal weakness and a strong close below Rs 85 can drag the stock to Rs 70 and then to its all-time low of Rs 57.5 in the medium-term.

Please let me know the medium- and long-term outlook for Moser Baer India and Lakshmi Vilas Bank.

Aboobacker

Moser Baer India (Rs 43.7): After peaking out around Rs 115 in June 2009, the stock started to decline and has been on an intermediate-term downtrend. Long- and medium-term trends are also down for the stock. On February 11, the stock recorded a multi-year low of Rs 37.3 and has been moving sideways forming a base in the range between Rs 37 and Rs 40. The stock's five per cent jump on Friday with extraordinary volume signals that the stock appears to have bottomed-out from a short-term perspective. It can rally to Rs 47 and then to Rs 52. Reversal from the second target will pull the stock down to its key support range mentioned above.

To mitigate the medium-term downtrend, the stock has to emphatically close above Rs 63. In that case, the stock can move higher to Rs 75. Significant long-term resistances are positioned at Rs 90 and Rs 115. Long-term outlook remains bearish for the stock as long as it trades below Rs 150.

Lakshmi Vilas Bank (Rs 96.7): The stock has been on a long-term uptrend from its all-time low of Rs 37 recorded in early 2009. In February 2011, the stock tested its significant long-term support level of Rs 90 and bounced up. As long as the stock trades above Rs 76, the long-term outlook remains positive and investors can stay invested while maintaining stop at this level. Immediate resistance for the stock is at Rs 105. Strong move above this level can take the stock higher to Rs 120 in the medium-term. In the long-term, the stock can rally to Rs 130 and then to its key long-term resistance level of Rs 140.

Failure to exceed above Rs 105 will pull the stock down and it can remain trading sideway between Rs 90 and Rs 105 before moving higher. A strong slump below Rs 90, however, will pull the stock down to Rs 84 and Rs 76 in the medium-term.

I bought Allied Digital Services at Rs 234 and Geodesic at Rs 119 respectively. Please let me know the long-term outlook for the stocks.

K. Parthasarathy

Allied Digital Services (Rs 90.9): Following a broad sideways consolidation in the range of Rs 200-Rs 270 from August 2009, the stock made a downward break through in November 2010. The stock's downtrend accelerated in February 2011 and retraced its entire up move formed in first half of 2009 before finding support at Rs 71. The stock has an important long-term support in the band between Rs 70 and Rs 80. It is currently trying to reverse from the support band.

The stock will face immediate resistance at Rs 100. A break through of this level will push the stock higher to Rs 120 and then to Rs 150, which is a key long-term resistance. We don't envisage a move beyond Rs 150 in the long-term. Investors can consider switching from the stock. Next key resistances are positioned at Rs 170 and Rs 190.

Geodesic (Rs 79.9): Geodesic has been broadly consolidating sideways in the range between Rs 70 and Rs 150 since early 2009. The stock can continue to move within the range in the long-term and investors can hold the stock with deeper stop at Rs 60, and exit there — the upper end of the sideways range. Medium-term trend is down for the stock from its 2010 peak of Rs 140. However, the stock found support around Rs 70 in early February and is attempting to move upwards. Medium-term investors can hold the stock with a stop at Rs 67. It can rally to Rs 90 and 100. Strong move above Rs 110 is required to mitigate the current downtrend

Add Essar Shipping- Encouraging performance…ICICI Securities

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Essar Shipping- Encouraging performance…
Essar Shipping Ports and Logistics Ltd (Essar Shipping) reported an
encouraging performance with a 26% QoQ rise in topline due to an
improved performance from the ocean transport business. The company
currently operates two ports at Vadinar (46 MTPA wet cargo) and
Hazira (30 MTPA dry cargo) with a combined operational capacity of 76
MTPA, which is expected to get ramped up to 158 MTPA over the next
two years with the establishment of three new ports/berths. However,
there has been a delay in the construction of two new jack up rigs,
which will lead to a delay in earnings from oilfield services business.

Buy Essar Shipping, Ports and Logistics: 2011 Mid-Cap pick: Antique

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Essar Shipping, Ports and Logistics Limited
Demerger to unlock value



Investment rationale
To demerge port business
The company has embarked on a demerger scheme which envisages the split
into two, i.e., a port and a shipping entity. As per the proposed demerger
scheme, investors will get two shares of Essar Port and one share of Essar
Shipping.

Essar Shipping Ports & Logistics Limited: HOLD:Antique

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Key highlights
􀂄 Consolidated revenue increased by 11.6% YoY (decline of 5.8% QoQ) to INR7.5bn in
2QFY11, 12.2% lower than our estimates. This was mainly on account of 23.6% QoQ
decline in shipping business to INR2.7bn on account of dry docking of three major
vessels during the quarter.
􀂄 Revenue in Oilfields segment declined by 52% YoY to INR697m on account of reduced
day rates for its semi-submersible drilling rig during the quarter. However, revenue from
Port and Terminal services grew by 54.3% YoY to INR1.7bn with commissioning of
30mtpa dry bulk port at Hazira in May 2010.
􀂄 EBIDTA declined marginally by 1.6% YoY from INR2.4bn in 2QFY10 to INR2.3bn in
2QFY11 on the back of 420bps margin decline to 31.1% mainly on account of 385%
YoY increase in dry dock to INR176m and 43.1% YoY increase in employee cost. EBIDTA
was lower by 22.1% than our estimates of INR3.0bn.
􀂄 The company reported loss of INR189.6m at EBIT level in 2QFY11 compared to profit
of INR90.1m in 2QFY10, significantly below our expectations of INR231.7m mainly
due to dry-docking of vessels.
􀂄 ESPL has reported profit on sale of ship at INR303.7m in 2QFY11 and currency gain of
INR129.6, adjusting for one-time items, the company has reported profits of INR110.1m.