Standard Chartered Securities: Gujarat Pipavav Port (OUTPERFORM): Near-term growth funded

- Gujarat Pipavav Port (GPPL) has raised Rs2.0bn through a QIP and intends to raise an additional Rs1.5bn through promoter allotment. The funds are for expanding capacity and reducing debt.

- We expect GPPL's cargo traffic to post 16% CAGR over CY11-16E, supported by 18% CAGR in container volume and 9% CAGR in the bulk segment.

- We maintain an Outperform rating as it is an attractive long-term structural play on Indian ports, though it looks expensive on FY13 estimates and lacks near-term triggers.

- We revise down our DCF-based price target to Rs68 (from Rs72) to factor in the dilution.

Looking to raise Rs3.5bn. GPPL has raised Rs2.0bn through a QIP and intends to raise Rs1.5bn from its promoter, APM Terminals, through a preferential allotment at Rs58.45. This would ensure funding for the capex plan (expanding capacity by 13mtpa). We had previously anticipated that free cash flows would meet the funding commitment.

The growth trajectory remains unchanged. We do not expect cargo growth to rise and we maintain our view of 16% CAGR growth in volume terms - driven by 18% CAGR growth in the container segment and 9% CAGR growth in the bulk segment over the next five years (CY11-16E). The port is likely to gain market share in the container segment, but it lacks growth momentum in bulk cargo, in our view.

We revise EPS and PT. Though we maintain our revenue and volume estimates, we revise our EPS, capex and cash flow estimates to factor in the 14% dilution in equity. Refer to Fig 1 for details on volume, realisation, utilisation and cash flows.

Capacity utilisation. We believe GPPL has allocated adequate current capex for the next five years, with utilisation reaching 80% by CY16E. GPPL would have to start the next round of capacity build out from CY17E to support its next leg of growth. This implies FCFF will remain passive over a long period.

Solid play, but on a long-term horizon. We maintain our view of GPPL as a structural, clean play on Indian ports. We maintain Outperform, as GPPL is an attractive long-term structural play on Indian ports, though it looks expensive on FY13E and lacks near-term triggers. It is currently trading at 23x PER, 12.4x EV/EBITDA and PBR of 2.2x (CY12E) with an ROE of 10% and EBITDA CAGR of 24% (CY11-15E).

Source : Equity Bulls

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