Mundra Port & SEZ To reap benefits of cargo shift --Espirito Santo,

Mundra Port & SEZ
To reap benefits of cargo shift
Adani Port & SEZ (ADSEZ) is our silver bullet idea in the infrastructure
space. Tariff reduction at the major ports and infrastructure
bottlenecks at JNPT are likely to aggravate congestion at JNPT,
driving additional volumes at Mundra Port. We expect ADSEZ’s
superior growth profile to continue (FY13 volume growth at 35% yoy),
based on capacity expansion by its assured customers and the benefit
of its own timely capacity expansion. We aren’t too concerned with
its leveraged acquisition of Abbot Point, as the port has take or pay
agreements for its entire capacity (in a phased manner) and scope for
margin improvement. We think the current price presents an entry
point with an attractive valuation. But despite being a rare defensive
growth stock in the Infrastructure space, the governance risk means
caveat emptor.

Mundra Port & SEZ (XMANF, Neutral) BofA Merrill Lynch,

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Mundra Port & SEZ (XMANF, Neutral)
Bear Case: What can go wrong
􀂄 In the bear case, we expect the delay in Adani Power and Tata Power
capacity addition on non-viable imported coal. This could lead to fall in coal
cargo volume. We cut volume by 7% in FY12E and 10% in FY13-14E.
Further, expect fall in port realization, hence, cut our FY13-14E realization by
5% vs base case.
􀂄 We expect slowdown in capex could delay monetization at SEZ and expect
22% lower SEZ revenue over FY13-14E vs base case.
􀂄 Consequently, we expect sales growth of 12%YoY in FY13E and 14% in
FY14E. We expect parent EPS CAGR of 28% over FY11-14E.
􀂄 In the bear case, we expect MSEZ to trade at Rs126/share translating into a
4x P/BV of FY13E.
Base Case:
􀂄 In the base case, we expect parent earnings to grow at 38% EPS CAGR
over FY11-14E led by strong port traffic growth esp. coal & containers.
􀂄 In the base case, we expect MSEZ to trade at Rs165 per share translating
into a 4.95x P/BV of FY13E.
Risk-Reward: Unfavorable but a defensive
􀂄 In the bear case, we expect MSEZ to trade at Rs126 per share translating
into a 4x P/BV of FY13E.
􀂄 In the base case, we expect MSEZ to trade at Rs165 per share translating
into a 4.95x P/BV of FY13E.
􀂄 Overall, the risk-reward appears unfavorable.

Mundra Port & SEZ Ltd. Rec PAT +36%YoY on MAT credit claim; 2Q cargo surprise �� �� BofA Merrill Lynch

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Mundra Port & SEZ Ltd.
Rec PAT +36%YoY on MAT
credit claim; 2Q cargo surprise
�� Rec PAT +36%YoY on cargo +34%YoY & MAT credit; Neutral
MSEZ 2Q Rec. PAT +36%YoY (+8% consensus) on MAT credit, port income
+45%YoY led by +8%YoY tariffs and +34%YoY volume. ASP rose on high margin
cargo growth – Coal +70%YoY. SEZ continue to disappoint at a meager 1% of sales.
We up our EPS by ~25% for FY12-14E to factor-in co’s policy of claiming MAT credit
in same year as payment, which has no cash impact. Maintain Neutral despite a
compelling asset on lower returns on Abbott Point terminal acquisition, leveraged
consol. balance sheet post acquisition (net D/E 2.2x) and lower stock upside v/s other
developers in coverage. Raise PO on roll-forward. We think that its EPS CAGR of
47% over FY11-13E is reflected in its premium valuation at 21x our FY12E EPS.
Coal & container drive cargo +34% + MAT Credit drive PAT
Mundra Port 2Q cargo of 16.8mmT led by coal +70%YoY (50% of incremental
cargo), crude +63%YoY (25% of increment cargo) while high ASP container cargo
grew at muted 16%YoY (14% of incremental cargo). SEZ revenue was minuscule
at Rs60mn. 2Q12 Rec PAT +36%YoY on 8%YoY growth in port tariffs @Rs346/tn
and +34%YoY cargo volume led port income +45%YoY. MSEZ provided for MAT
but claimed equal (Rs551mn) credit to off-set tax burden. Excluding MAT credit,
Rec. PAT growth would have been muted at 10%. Rep. PAT came-in at Rs2.7bn
+29%YoY on Rs139mn derivative loss vs Rs11mn derivative gain 2Q11.
East port & APCT/Dudgeon Point +ves but to up capex/lower RoE
MSEZ is scaling-up its ports business – it has bagged ports at Goa & Hazira and
is working on a port in Orissa. Apart from 80mtpa Abbot Point Coal Terminal in
Australia, it is developing a 30-60mtpa coal terminal at Dudgeon Point and may
set-up 35-50mtpa port to evacuate coal from Tanjung Enim mines of PTBA for
ADE. Expect these capex to be lower RoCE v/s its core Mundra port. New project
concessions wins and SEZ land bank scale up to 32k acres are catalysts. Risks:
Global weakness impacting port traffic, reducing viability of imported coal in India
& slow recovery in private capex at SEZs.

Mundra Port And Special Economic Zone: 2QFY12 Marginally Ahead Citi Research

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Mundra Port And Special Economic Zone
(MPSE.BO)
Alert: 2QFY12 Marginally Ahead
 Headline numbers marginally ahead – Mundra Port reported a PAT of Rs2.73bn, up
29% YoY and marginally ahead of CIRA (Rs2.68bn). Revenues were ~9% ahead of
CIRA expectations, and were up 44% YoY.
 EBITDA margin decline was compensated for by other operational income –
Although EBITDA margins of ~64.4% were weaker than expected (~67.6%), the impact
was offset by higher-than-expected other operational income of Rs320m (CIRA at
Rs140m). This comprised of (1) SEZ income of Rs65m pertaining to small incremental
plots of earlier customers and (2) construction income of Rs220m. Interest expenses
and depreciation were also higher than expected. Interest costs this quarter included
an MTM provisioning of Rs230m due to rupee depreciation, and were also impacted by
lower interest income due to lesser investible surplus.
 Coal drives cargo growth – Mundra Port registered a ~34% YoY cargo growth, largely
driven by strong growth in coal (~70% YoY) and liquid cargo (~33% YoY).Container
growth in 2QFY12 was 17% YoY.
 Maintain Buy – MPSEZ remains our preferred pick on a play of the India ports theme,
with its diversified cargo mix (bulk, container, liquid) and customer mix (captive,
merchant).

Mundra Port and SEZ: Strong results led by volume growth across the board ::Kotak Securities

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Mundra Port and SEZ (MSEZ)
Infrastructure
Strong results led by volume growth across the board. MPSEZ reported strong
2QFY12 revenues of Rs6.2 bn, up 50% yoy primarily on strong volume growth (up
33.5% yoy). Net PAT of Rs2.7 bn was up 29% yoy, 14% ahead of estimates. Volume
growth was led by (1) coal, up 70.4%, (2) crude oil, up 63.3% and (3) container, up
16%. The port continued to outperform the sector – its ranking jumping to #4 (from #7
in FY2011) among major ports in terms of volumes handled. Retain BUY.

MUNDRA PORT & SEZ Delivering on promises ::Edelweiss

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Mundra Port & SEZ (MPSEZ) reported a Q2FY12 PAT of INR2.8bn - in line
with our estimates - led by a 34% surge in cargo volumes at 16.8 mt (our
estimate at 17 mt). While the capacity expansion continues on account of
recently acquired projects as well as the brownfield expansion, we see a
pick-up in utilisation levels. Rising yields will help expand RoE going
forward. We maintain ‘BUY’ with a target price of INR 168.
Volume growth remains strong
MPSEZ’s flagship, Mundra port reported a strong cargo volume growth of 34% YoY led
by an overall growth in dry cargo, bulk and liquid cargo at 46%, 41% and 33%
respectively during the quarter. Container cargo grew lower by 16% to 4.4 MMT.
Realisation surges, margin set to improve
The company reported a spurt in realisation to INR349/t, up 7.7% QoQ. We believe the
take or pay contract with Tata Power would have marginally contributed to the spike in
realisation. EBITDA margins were flat at 66.3% YoY (68.5% in Q1FY12). We expect the
incremental coal cargo at the mechanised coal terminal and crude volume at the SPM
terminal to help improve margins going forward.
Incorporating Abbot in valuations
We have incorporated Abbot Point terminal acquisition in both financials and
valuations. We are not factoring any income-tax benefits in the Australian port and
assumed expansion of 30 MMT to 80 MMT which is likely to be fully operational by
2017 at a cost of AUD600mn, contributing INR8/share to our SOTP.
Outlook and valuations: Momentum intact; maintain ‘BUY’
While the growth momentum at Mundra port would persist, performance of other
domestic and global projects - which it has acquired through bidding - will be key
monitorables going forward. The high visibility and scale up of cargo along with the derisked
revenue model should aid valuations. At CMP of INR150, the stock is trading at
consolidated FY12E and FY13E EV/EBITDA of 17.8 and 12.0 respectively. We maintain
BUY/SO with our revised SOTP of INR 168/share (INR 157 earlier).

Accumulate MUNDRA PORT AND SPECIAL ECONOMIC ZONE (MPSEZ); target- RS.166:: Kotak Sec,

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MUNDRA PORT AND SPECIAL ECONOMIC ZONE (MPSEZ)
PRICE: RS.153 RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.166 FY13E: P/E: 18.8
Mundra Port and Special Economic Zone ( MPSEZ) is the largest private port
( minor port) in the country providing port services for a diversified cargo
including bulk, liquid and container cargo. It also provide value added
service including container rail and storage service. Its superior
infrastructure and natural advantages have helped the company increase its
volume at a CAGR of 33 % over FY06 -FY11 to ~52 mn tonnes and we
estimate a CAGR of 29% over FY11-14E led by strong volumes growth in
bulk (40%), container (18%) and crude and Petroleum Oil and Lubricant
(POL) (~14 %). A significant portion of these volumes (~ 50% by FY13E)
would come from long term contracts. The company is also aggressively
expanding in other coastal parts of India and even abroad. We incorporate
robust growth in volumes in medium term for MPSEZ. However, due to the
recent run up in the price, we initiate coverage on the stock with an
ACCUMULATE rating and a price target of Rs 166.
Key investment argument
q Strong and quality infrastructure - attracts volumes. Mundra port is
strategically located on the west coast spread across 36,000 acres catering to an
industrious Gujarat with proximity to industrialized NCR. The fourth generation
port has superior infrastructure and support services to meet ~150mtpa traffic
presently and would ramp it up to 225 mtpa in near term (FY15E). The port has
one of the deepest drafts (max 32 meters) capable of accommodating even ultra
large vessels. As a result, it is able to attract huge volumes and benefits from
economies of scale and higher operational efficiency. It also offers integrated
logistics (effective connectivity via rail & road) to meet customer requirement.
q Volumes to cross 100 million tonnes port by FY14E - Volumes at Mundra
to grow at a healthy 29% CAGR over FY10 to FY14E. Overall port traffic in
India has grown at 11% over the past five years, with non major ports witnessing
13% growth; we estimate 11% overall growth in port volumes during FY11-14E
(Crisil estimate 10% CAGR over FY11-14E). MPSEZ has seen 33% traffic growth
over FY06 - FY11 and we estimate a CAGR of 29% over FY11-14E led by strong
volumes growth in bulk (40%), container (18%) and crude and POL (~14 %).
We believe Mundra on the west coast is well poised to capture higher traffic
share due to its natural advantage, superior infrastructure and tie ups with oil
and power majors.
q Assured contracts/revenues to form ~50% of the business by FY13E.
Mundra has signed long term contracts with IOC and HPCL for handling crude
and petroleum products, with Adani power ( 4600 mw) and Tata power ( UMPP
of 4000 mw) for handling thermal coal and with Maruti for exporting cars from
Mundra. Of the 93 million tonne that we expect Mundra to handle by FY13E, 45
million tonnes (~50%) are assured from the aforesaid contracts. This would
provide Mundra with assured revenues of ~Rs 16 bn and PAT of ~Rs 7bn per
annum by FY13E.
q MPSEZ enjoys natural advantage. MPSEZ has two strong natural advantages;
1) Deep draft of up to 32 mts which can easily accommodate the next
generation vessels like ULCC/ Chinamax, leading to economies of scale for the
customer and 2. Good proximity to highly-industrialized and landlocked northern/
north western states of Delhi, Punjab, Haryana, Rajasthan and West UP which
reduces the road and rail distance to NCR by 218 km vis-à-vis Mumbai (JNPT).
Both these natural advantages are critical for the customer to reduce logistics
cost and it has helped MPSEZ to attract volumes at the port

Mundra Port & SEZ : Buy for compelling earnings visibility :Nomura research,

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Best placed to leverage high FCF generating assets for new growth opportunities


Action: Premier infrastructure company in India; BUY
Mundra Port (MSEZ) is among the largest beneficiaries of an increasing
demand-supply mismatch in India’s port capacity. Together with MSEZ’s
competitive advantages – attractive location and connectivity – this
provides strong visibility to our traffic estimates for MSEZ.
 We note that ~90% of MSEZ’s estimated traffic comprises coal, crude
oil, and container. Of this, coal and crude oil are unlikely to see any
impact from global macro concerns, while container traffic should
continue to benefit from a shortage of capacity on India’s west coast.
 Adani Group has ambitious plans across its three key business verticals
– power, coal and logistics and inter-linkages between them is expected
to drive MSEZ’s future investment and growth plan, in our view.
 We estimate MSEZ will generate INR13.61bn of FCF p.a. from FY12F,
and that it is one of the few infrastructure companies in the country to do
so. This allows MSEZ to benefit from rising port opportunities both in
and outside of India without too much balance-sheet risk. While newer
opportunities will likely be ROE-dilutive, we expect them to be NPV +ve.
Valuation/Catalysts: inexpensive, strong earnings growth
As strong earnings growth continues, we believe the stock will witness
upside triggers. At 18.5x FY13F EPS of INR8.11, we think the valuation is
inexpensive for this high growth, high ROE, FCF-generating business with
strong visibility. Our TP of INR180 is based on a sum-of-the-parts
analysis. Together with the recent stock correction, this implies about 15%
potential upside. Reaffirm BUY

Mundra Port- Jun-q PAT slightly below estimate, but stock valuations appear attractive::JPMorgan

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Mundra Port and SEZ Ltd Neutral
MPSE.BO, MSEZ IN
Jun-q PAT slightly below estimate, but stock
valuations appear attractive


 MPSEZ reported net sales of Rs5.16B (up 27.2% YoY), slightly ahead of
our estimate of Rs5.03B: Total cargo handled at MP in Jun-q was 15.08MMT
(up 19.5%), in line with feedback received from management earlier. Implied
realization of Rs342/MT (including SEZ income of ~Rs60mn@Rs10mn/acre)
compares favorably with our est. of Rs335/MT.
 Jun-q PAT of Rs2.54B (up 20.4% YoY) was 4.3% below our estimate of
Rs2.66B (consensus Rs2.69B). EBITDA margin of 68.5% (down 114bp) was
below our estimate of flat margins. Margin pressure was led by 150bp higher
operating expenses owing to an initial period of activity at the 60MMT coal
terminal, and higher employee costs (+30bp YoY). Other operating income was
Rs136MM (up 40%); for FY12 management has guided to ~Rs1-1.1B. Tax rate
of 6.3% in Jun-q was below estimates (10%). Although the company has
applied MAT (~20% including surcharge) to calculate tax, it availed itself of an
offsetting MAT credit of ~Rs528MM in Jun-q. Imposition of MAT ahead of
FY12 deadline appears a conservative move. Management has guided that
similar MAT credits will be used through FY12 to keep the effective tax rate
below the 10% level.
 Following the results our FY12/FY13 consolidated EPS estimates are down
by 2.3% and 1.1% respectively: We adjust our FY12 estimates for lower
operating income (Rs1.1B vs. Rs1.39B earlier). We lower standalone EBITDA
by 50bp to 67.8% (down 40bp YoY) to account for near-term operating cost
pressures.
 We maintain our Mar-12 SOP PT of Rs168: Our PT implies 21% upside
from the current share price. The stock is trading at ~15.4x FY13E EPS.
Implied FY13E EV/EBITDA of 13.8x at our PT is backed by estimated
consolidated EBITDA CAGR of 39.4% over FY11-15. We continue to view
MPSEZ as an attractive long-term investment. We think MPSEZ stands out
with its strong growth, RoE and cash flow profile, with a relative absence of
issues plaguing the infra sector currently (fuel, environment, funding). MPSEZ
has corrected 10% since the Karnataka Lokayukta (KL) report was published
last week. Although the KL report does not mention MPSEZ’s involvement
explicitly, the stock has corrected due to feared rub-off effect of any adverse
legal outcome on the entire group, in our view (see our 2 Aug. report). This may
continue to be a near-term overhang and keeps us Neutral on the stock. Traffic
volatility at Mundra Port is a key upside/downside risk.

Mundra Port & SEZ -- Inline 1Q; Port Good; SEZ Weak 􀂄 BofA Merrill Lynch,

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Mundra Port & SEZ Ltd.
Inline 1Q; Port Good; SEZ Weak
􀂄 Rec PAT +19%YoY as coal & containers drive cargo +19%YoY
MSEZ’s 1QFY12 Rec. PAT of Rs2.6bn +19%YoY (in line with BofAMLe) on port
income +26%YoY - +6%YoY in port tariffs and volume +19%YoY. ASP rose on
high-margin cargo growth – Fertilizer +65%YoY, container 23% and a fall in low-
ASP liquids. Start-up expenses of the new coal terminal caused the EBITDA
margin to fall 114bps. We maintain our Neutral rating ,despite a compelling asset,
on the initial lower return on the Australian acquisition, leveraged consol. balance
sheet post acquisition (net D/E 2.4x) and lower stock upside vs. other developers
in our coverage. Its EPS CAGR of 32% over FY11-13E is well reflected in its
premium valuation, at 24x FY12E EPS.
Fertilizer +65%, Coal +43% & container +23%
Mundra Port saw 1Q cargo of 15.1mmT, led by lower ASP coal +43%YoY (63% of
incremental cargo), while high-ASP container cargo grew at muted 23%YoY (31%
of incremental cargo). SEZ revenue was minuscule at Rs60mn @ Rs10mn/acre.
MSEZ provided for MAT, but claimed almost equal (Rs528mn) credit to off-set tax
burden. 1QFY12 Rec. PAT Rs2.6bn +19%YoY (in line with BofAMLe), on 6%YoY
growth in port tariffs @ Rs338/tn and +19%YoY cargo volume led port income
+26%YoY. Treasury income fell 72%YoY on lower liquidity. However, Rep. PAT
came in at Rs2.5bn +20%YoY, on a Rs18mn derivative loss vs. Rs46mn in 1Q11.
East port & APCT/Dudgeon Point +ves but to up capex/lower RoE
MSEZ is scaling up its ports business – it has bagged ports at Goa and Hazira,
and is working on an east coast port in India. Apart from the 80mtpa Abbot Point
Coal Terminal in Australia, it is developing a 30-60mtpa coal terminal at Dudgeon
Point and may set up a 35-50mtpa port to evacuate coal from the Tanjung Enim
mines of PTBA for ADE. We expect these capex to be lower RoCE vs. its core
Mundra port. We value MSEZ at Rs159, based on a SOTP of project DCFs. New
project concession wins and SEZ’s land bank scale up to 32k acres are catalysts.
Risks: Global weakness impacting port traffic and a slow recovery in private capex
at SEZs

Mundra Port & SEZ Ltd. — Inline 1Q; Port Good; SEZ Weak ::BofA Merrill Lynch,

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Mundra Port & SEZ Ltd. — Inline 1Q; Port Good;
SEZ Weak
Country Overview
Rec PAT +19%YoY as coal & containers drive cargo +19%YoY
MSEZ’s 1QFY12 Rec. PAT of Rs2.6bn +19%YoY (in line with BofAMLe) on port
income +26%YoY - +6%YoY in port tariffs and volume +19%YoY. ASP rose on
high-margin cargo growth – Fertilizer +65%YoY, container 23% and a fall in low-
ASP liquids. Start-up expenses of the new coal terminal caused the EBITDA
margin to fall 114bps. We maintain our Neutral rating ,despite a compelling asset,
on the initial lower return on the Australian acquisition, leveraged consol. balance
sheet post acquisition (net D/E 2.4x) and lower stock upside vs. other developers
in our coverage. Its EPS CAGR of 32% over FY11-13E is well reflected in its
premium valuation, at 24x FY12E EPS.
Fertilizer +65%, Coal +43% & container +23%
Mundra Port saw 1Q cargo of 15.1mmT, led by lower ASP coal +43%YoY (63%
of incremental cargo), while high-ASP container cargo grew at muted 23%YoY
(31% of incremental cargo). SEZ revenue was minuscule at Rs60mn @
Rs10mn/acre. MSEZ provided for MAT, but claimed almost equal (Rs528mn)
credit to off-set tax burden. 1QFY12 Rec. PAT Rs2.6bn +19%YoY (in line with
BofAMLe), on 6%YoY growth in port tariffs @ Rs338/tn and +19%YoY cargo
volume led port income +26%YoY. Treasury income fell 72%YoY on lower
liquidity. However, Rep. PAT came in at Rs2.5bn +20%YoY, on a Rs18mn
derivative loss vs. Rs46mn in 1Q11.
East port & APCT/Dudgeon Point +ves but to up capex/lower RoE
MSEZ is scaling up its ports business – it has bagged ports at Goa and Hazira,
and is working on an east coast port in India. Apart from the 80mtpa Abbot Point
Coal Terminal in Australia, it is developing a 30-60mtpa coal terminal at Dudgeon
Point and may set up a 35-50mtpa port to evacuate coal from the Tanjung Enim
mines of PTBA for ADE. We expect these capex to be lower RoCE vs. its core
Mundra port. We value MSEZ at Rs159, based on a SOTP of project DCFs. New
project concession wins and SEZ’s land bank scale up to 32k acres are catalysts.
Risks: Global weakness impacting port traffic and a slow recovery in private
c apex at SEZs.

Mundra Port and SEZ: Strong operations continue:: Kotak Sec,

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Mundra Port and SEZ (MSEZ)
Infrastructure
Strong operations continue. MPSEZ reported strong 1QFY12 revenues of Rs5.3 bn,
up 27% yoy primarily on strong volume growth (up 20%). Net PAT of Rs2.3 bn was up
20% yoy, broadly in line. Volume growth was led by (1) coal, up 43%, likely led by
progress on Adani power plant and (2) container, growth of 23%. The port continued
to outperform the sector - jumps to 5th rank (from 7th in FY2011) among major ports in
terms of volume handled. Retain BUY.


Strong results driven by volume growth - in line with estimates; continues to outperform sector
􀁠 Revenues up 27% yoy led by strong volumes. MPSEZ reported 1QFY12 standalone revenues
of Rs5.3 bn recording a strong 27% yoy growth, marginally (about 3%) ahead of our estimates.
The strong revenue growth was primarily led by higher volumes - up 20% yoy.
􀁠 EBITDA margin at 68.5%; broadly in line. EBITDA margin declined by about 110 bps yoy to
68.5% (our estimate of 68%). The margin decline was led by higher operating expense (150
bps) and employee cost (40 bps) as percent of sales. The margin decline was partly
compensated by lower other expenses as percent of sales.
􀁠 Net PAT up 20% yoy, in line with estimates. MPSEZ reported a net PAT of Rs2.5 bn in
1QFY12, up 20% yoy - broadly in line with our estimate. The company has availed a MAT credit
benefit of Rs528 mn in the quarter leading to a low reported effective tax rate of 6.3%.
Strong volume growth led by bulk (progress of Adani power) and container volumes
Strong volume growth (20%) was led by (1) strong bulk cargo growth (23% yoy), especially coal
(up 43% yoy) likely on account of the increased coal requirement for Adani’s power plant based
on progress in commissioning of the project and (2) container volumes (up 22.8% yoy) likely led by
container terminal-2. The port has outperformed the sector in terms of volume growth (major port
volumes recorded a 5.3% yoy growth in 1QFY12). The port now ranks 5th among major ports in
terms of total cargo handled - a jump of two positions (versus 7th rank in FY2011).
Retain estimates and target price of Rs175/share; reiterate BUY
Mundra port is currently trading at relatively attractive valuation of 10.4X FY2013E EV/EBITDA
(target price implies EV/EBITDA of 13X) cheaper than global ports average of 12-13X. We retain
our earnings estimates of Rs6.9 and Rs10.3 for FY2012E and FY2013E, respectively. Retain BUY
(TP: Rs175/share) on (1) reasonable valuations, (2) low leverage=low interest sensitivity, (3) good
cash flow generation and (4) strong operational asset. Key risks relate to (1) sustaining and
increasing tariffs, (2) optimal utilization of cash flows and (3) slower-than-expected SEZ area
absorption.

UBS: Mundra Port and SEZ - Misses estimates led by lower volumes and other income

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UBS Investment Research
Mundra Port and SEZ 
Misses estimates led by lower volumes and 
other income 
 
„ Operating profit up 25% YoY; Volumes increase 20% YoY
MSEZ reported Q1FY12 revenues of Rs5.3bn (+27% YoY, UBS-e Rs5.6bn),
operating profit of Rs3.6bn (+25% YoY, UBS-e Rs3.9bn) and pre-ex PAT of
Rs2.5bn (+17% YoY, UBS-e Rs2.9bn, consensus Rs2.7bn). EBITDA margins at
69% were in-line with our estimates. The miss was led by lower volumes of ~15mt
(+20% YoY), lower other income of Rs61m (due to utilization of funds for capex;
UBS-e Rs200m; Rs210m in Q1FY11) and lower-than-expected SEZ land leases.
„ Fresh lease of ~6acres in SEZ; Coal/container volumes increase 43%/23%
~6acres were leased to existing users for ~Rs60m. Q1 contract income was Rs65m.
Coal/container volumes grew strongly- coal was 5mt (from 3.5mt) and containers
4.1mt (from 3.4mt). Volumes across categories witnessed strong growth except
steel and POL which declined 28% and 13% YoY respectively.  
„ Action: Maintain Buy; MSEZ maintains FY12 volume outlook of 75-80mt
FY12 volume growth is likely to be back-ended (UBS-e 76mt). Realization/margin
remains robust- Revenue/EBITDA per ton (adjusting for SEZ/contract income)
increased to Rs343/235 per ton in Q1FY12 from Rs318/223 in Q1FY11 and
Rs.342/229 in Q4FY11 (higher than our expectations; also aided by the Tata Power
take or pay contract). MSEZ is our preferred stock in the Adani group.
„ Valuation: SOTP-based PT of Rs180
Our valuation comprises 1) Port- Rs145, 2) SEZ- Rs19 and 3) Investments- Rs14.


Q Mundra Port And Special Economic Zone
Mundra Port and Special Economic Zone (MPSEZ) is one of the largest noncaptive private sector ports in India. It has a concession to operate the port until
FY31. The port has a deep draft and is closer to the northern hinterland than
some other western ports. It has effective handling capacity of 50-55mtpa and
can handle diverse cargo. MPSEZ is developing a special economic zone, which
has a notified area of about 14,600 acres.
Q Statement of Risk
We believe the key risks for MPSEZ include: dependency on a few big
customers to generate a large proportion of revenue; slowdown in cargo volume
growth; capacity expansion at existing ports and development of new ports; and
delays in private sector capex plans impacting SEZ land monetization.

Mundra Port and SEZ - Consolidated picture looks better than previously thought:: JPMorgan

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Mundra Port and SEZ Ltd Neutral
MPSE.BO, MSEZ IN
Consolidated picture looks better than previously
thought


 Concerns ease post closer look at A$1.83bn Abbot Point (APCT x50)
acquisition. MPSEZ will not be required to incur any further capex at the
50MTPA operating coal terminal or for enhancing rail road capacity, as feared
earlier. Management intends to keep the acquisition 100% debt funded at asset
levels, with no recourse to the parent. At three-month Libor + 305bps (<3.5%),
we think the deal funding appears cheap. In the medium term, O&M at the port
will continue to be handled by diversified mining group Xstrata, mitigating
operational risk. We believe MPSEZ will enjoy early-mover advantage at
Abbot, given scale of fresh concessions on the anvil (~240MMT) at the same
location. Based on management inputs regarding scale-up of volumes and
realizations at APCT x50, we estimate that the acquisition is FCF positive from
the current fiscal year and PAT positive from FY13 onwards (see APCT model
and key assumptions inside the report.)
 Consolidated picture- higher growth and profitability over the medium
term. Post APCT consolidation, FY11-15E EBITDA and PAT CAGR improve
to 39% and 35%, respectively (from ~32% level earlier). Our FY12 EPS
estimate is down ~7.7% mainly owing to Rs791mn loss in APCT as utilization
ramps up; FY13 estimate is up ~2%. Consol net-D/E is still comfortable at
2.27x (peak level in FY12). The acquisition is RoE accretive and we estimate
FCF yield of ~4.8% in FY13. (Also see F11 summary annual report takeaways
inside the report.)
 We est. 26% YoY PAT growth in Jun-q. MPSEZ will continue reporting
standalone quarterly results through FY12. According to management, the port
handled ~15MMT of cargo in Jun-q (up ~19% YoY). We expect coal and crude
traffic growth to drive volumes in 1Q.
Our revised Mar-12 SOP PT of Rs168 (vs. Rs155 earlier) factors in DCF
value of Rs4.5/share for APCT (~15.5x FY13 EV/EBITDA) vs. negative Rs10
earlier (at 15% premium to global avg. port valuation, 12x) owing to easing of
concerns. Although our PT implies only ~10% upside potential, we view
MPSEZ as an attractive long-term investment. We think MPSEZ stands out
with its strong growth, RoE and cash flow profile, with relative absence of
issues plaguing the infra sector currently (fuel, environment, funding, corporate
governance issues). Traffic volatility at Mundra Port is key upside/downside risk
to our estimates.

Mundra Port & SEZ - Growth conundrum ::CLSA

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Growth conundrum
While port capacities are constrained in India, there have been delays in
awarding projects. This, coupled with Adani Group’s interests in coal mines
outside India, has driven MPSEZ to evaluate overseas growth opportunities.
However, returns are unlikely to be as attractive as the Mundra concession.
The relatively expensive Abbot Point agreement is a case in point. The stock
builds in US$1.4bn of value accretion from new investments, and is trading at
a significant premium to global peers as well as Indian infra stocks. U-PF
stays; tweak TP to Rs138/sh to include Abbot Point, higher cost of equity.
Few value accretive growth opportunities in India. Capacity utilisation across
major ports is high at ~90% (cf. 60-70% optimum level) and consequently efficiency
levels are low. However, procedural delays in awarding BOT concessions has meant
that only 43% of projects targeted for the XI plan have become operational in first four
years. Further, bidding has been aggressive. For instance, PSA-ABG Infra has emerged
as the highest bidder for JNPT’s IV container terminal, offering 51% revenue share to
the port trust (highest ever for container berth), even though tariffs are regulated.
MPSEZ looking abroad. Such procedural delays and high competitive intensity, along
with Adani Group’s coal mining interests, explain MPSEZ’s rising propensity to invest
abroad. It has recently signed a US$2bn Abbot Point lease in Australia, for example.
Moreover, Adani Group is evaluating building Dudgeon Port in Australia (30-60mtpa,
~US$2.5-3bn investment) and constructing rail link/port in Indonesia (~US$1.5bn).
Our management conversations indicate these assets could be housed in MPSEZ.
Returns not as attractive Mundra concession. We do not expect new opportunities
to be as remunerative as the Mundra concession, implying falling return ratios. For
instance, we expect Dahej, Hazira and Mormugao projects in India to generate 12-20%
equity IRRs, compared to ~35% for Mundra. Similarly, Abbot Point leaves little scope
of disappointment, acquired at a punchy 21x FY12 EV/Ebitda.
Increasing balance sheet risk. MPSEZ’s investments outside Mundra and more
importantly, outside India, will sharply rise over time. For instance, in comparison to
Mundra’s gross block of US$1.7bn, it has invested US$2bn for Abbot, entirely
mezzanine debt funded (with parent-level guarantee), which will need to be rolled over
the next 9-12 months. Moreover, while projects outside Mundra more than double the
balance sheet, we expect them to add only ~40% to Ebitda and ~10% to PAT by FY15.
Stock builds in US$1.4bn of value accretion. While do not see any significant value
accretion from projects outside Mundra, the market appears to be pricing in US$1.4bn
of value accretion from new opportunities. Further, in our view, growth in Mundra Port’s
traffic and profits will moderate post FY13, as long term contracts with IOC, HPCL, Tata
Power and Adani Power plateau out. The stock trades at 24x FY12 PE, 0-80% premium
over global ports and ~50% to Indian infra stocks. Maintain U-PF; we tweak our TP to
Rs140/sh to include Abbot Point (+Rs11/sh), factor in higher cost of equity (-Rs6/sh).

Mundra Port-- Mar-q results incrementally positive, overhang of Abbot deal in the price :: JP Morgan

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Mundra Port and SEZ Ltd

Neutral

MPSE.BO, MSEZ IN

Mar-q results incrementally positive, overhang of Abbot deal in the price

• Mar-q ahead of estimates: MPSEZ reported standalone 4Q PAT of

Rs.3.35B (+74.4% YoY). Reported PAT was higher by ~Rs839MM due to

a change in accounting policy for SEZ income booked so far. Adj. PAT of

Rs2.51B (up 30.6% YoY) was well ahead of our and street est. (Rs2.2B).

Mundra Port: 4QFY11 results : CLSA

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4QFY11 results
Adjusted for the accounting change, MPSEZ’s 4QFY11 PAT stood at Rs2.5bn (up
31%YoY, 10%QoQ), in-line with our expectations. Adjusted revenues rose
23%YoY to Rs5.2bn - 7% below estimates on account of lower SEZ sales and port
realisations. Ebitda margins, however, expanded by 12.3ppt YoY (3.5ppt QoQ) and
other income rose sharply, boosting the bottom line. We increase our FY12-13 EPS
by 1-2% on higher container cargo and Ebitda margin expectations. Maintain U-PF
with a Rs133/sh target; we would view a ~10% correction as a good entry point.

Mundra Port & SEZ - Harbouring good times.:: Macquarie Research

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Mundra Port & SEZ
Harbouring good times
Event
 MSEZ reported its 4QFY11 and FY11 results, which were in line with our
estimates. Adjusted PAT of Rs9.02bn in FY11 was up 29% YoY on the back
of 29% growth in cargo volumes. We have an Outperform rating on the stock
with a target price of Rs148.

Mundra Port & SEZ - In-line Results; Growth pricedin :: BofA Merrill Lynch

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Mundra Port & SEZ Ltd.
   
In-line Results; Growth pricedin
„Rec PAT +32% as coal & containers drive cargo +35%YoY
MSEZ 4QFY11 Rec. PAT Rs2.6bn +32%YoY was 6% below BofAMLe on higher
tax (15% v/s 7%) on start of coal terminal. Fall in port tariffs by 5%YoY led to port
income +28%YoY despite 35%YoY growth of cargo volume. We hike our FY12-
13E cargo assumption by 4-9% on start of SPM 2 but maintain PO on 25bps hike
in cost of equity to factor-in rising 10-year bond. Maintain Neutral despite a
compelling assets on initial lower return on acquisitions, with lower stock upside
potential v/s other developers in our coverage. We believe its EPS CAGR of 32%
over FY11-13E is reflected in its premium valuations at 23x FY12E EPS.

Mundra Port and SEZ - Acquires US$2bn coal terminal in Australia :: JPMorgan

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Mundra Port and SEZ Ltd
Neutral
MPSE.BO, MSEZ IN
Acquires US$2bn coal terminal in Australia


• MPSEZ has acquired the long term lease of 50MTPA capacity
Abbot Point Coal Terminal (ABCT), located in Queensland
(Australia) for a consideration of AUD1.85bn (~US$2bn). According to
management, ABCT has an asset base of ~US$1.6bn. It is an operating
port and handled ~17MMT of coal in FY10 (year-end June). The
capacity of the terminal has recently been enhanced from 21MMT to
50MMT. The deal is fully debt funded and is expected to be closed by
June-2011. The acquisition loan has been raised for a period of 2 years
at Libor+200bps, management expects to refinance this debt at project
level over the next few months.