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Robust growth in container and bulk volumes to drive growth
Company Description
Gujarat Pipavav Port Limited (GPPL) is managed and operated by APM Terminals (43.01% stake),
the ports and terminals company of the maritime giant, the A.P. Moller-Maersk Group . GPPL is located
just 152 nautical miles from Nhava Sheva in Mumbai or 10 hours steaming time providing excellent
access to the main shipping lines as well as to the cargo belt in the northwestern region of India.
GPPL has an exclusive right to develop and operate the Pipavav Port until September 2028 under the
concession agreement with Gujarat Maritime Board (GMB) and Government of Gujarat (GoG).
Investment Rationale
Strong growth in coal and fertilizer volume to drive bulk cargo growth
GPPL has shown robust growth in its bulk volumes during the last three years on the back of strong
growth in coal and fertilizer traffic. Bulk volume has doubled over CY07-CY10 from 1.66 mtpa to 3.38
mtpa and going forward we expect bulk volume to achieve 16.5% CAGR over CY11E-CY15E as new
coal based power plants of ~3,200 MW are being set up in the port’s vicinity over the next 3-4 years.
Coal requirement for these power plants would be ~12 mtpa which will provide an impetus to GPPL’s
coal volumes. GPPL has held preliminary talks with these power plants for coal handling contracts
and fertilizer business is also expected to improve on the back of robust domestic demand driving
overall bulk cargo growth at the port.
Robust growth in container volumes
Container traffic is generally said to grow at 1.5 times the GDP growth rate and container traffic has
achieved ~14% CAGR at all Indian ports during the last 10 years. GPPL has achieved 34% CAGR in
its container volumes over CY07-CY10 and we believe strong GDP growth and faster growth in external
trade would drive growth in container volumes across the country. Since GPPL is located on the
western coast close to the key cargo rich markets of northwestern India, we believe the port would
achieve at least 17% CAGR in its container volumes over CY11E-CY15E.
Capacity constraints at Mumbai ports to benefit GPPL
Capacity utilization for Mormugao, Mumbai, Kandla and JNPT ports, all located on the western coast,
were 122%, 123%, 94% and 100% respectively during FY11 due to which we believe incremental
container traffic arising over the coming years would flock to non-major ports located on the western
coast such as Mundra and Pipavav port. Pipavav port can treble its container capacity to 3.6 mn TEUs
from the current 1.2 mn TEUs and it also has superior road and rail connectivity to cargo rich northwestern
markets which makes it a preferred port of call for container lines.
Benefits of strong promoters
GPPL is managed by A.P. Moller-Maersk (APMM) group, one of the largest container terminal operator
in the world due to which GPPL has benefits like access to modern technology, operational knowhow,
best industry practices, increased bargaining power and competitive rates for purchase of port
equipment. Maersk line and Safmarine Container Lines belonging to APMM group are amongst
GPPL’s largest clients. APMM group contributed 30% towards GPPL’s total revenues during CY10.
Valuation & Outlook
The company has repaid significant amount of its debt during the past 18 months which has reduced
its interest payment substantially and going forward on the back of capacity and margin expansion we
believe GPPL to post healthy revenue and profits. At CMP the stock is trading at 12.9x CY13E EV/
EBITDA and 20.5x CY13E P/E. We initiate coverage on GPPL with a BUY rating and have arrived at
target price of Rs 79 based on DCF valuation which implies 16.2% upside from the current levels.
