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Research
Gujarat Pipavav Port - Strategic location, capex to drive growth; initiating with a Buy - Anand Rathi
Posted On : 2013-04-29 21:29:05( TIMEZONE : IST )
Key takeaways
Strategic location, a key advantage. The company, Gujarat Pipavav Port (GPP), operates a multi-purpose port at Pipavav in south-west Gujarat. The all-weather facilities are protected by two islands which act as a natural breakwater. The port is 152 nautical miles from JNPT, India's largest container terminal (~10 hours running time) and offers excellent access and options to global shipping lines. It is also well connected to India's northwest, which accounts for ~60% of container volumes by road and rail.
Capex to gear up for future opportunities. GPP is in the process of executing capex of ~Rs. 11bn to expand its present berth capacity. It plans to double container capacity by 1QCY15 to 1.5m TEUs and increase bulkhandling capacity to 10m tons. On the bulk-handling capacity expansion, it would stand to benefit from the additional demand for coal that would arise from proposed power plants of groups like Videocon, Torrent Power, Simplex and Visa. It would also be in a position to benefit from the pick-up in trade from an improving economy.
Operating leverage to aid margin growth. GPP has successfully managed to turn around its business operations, making a profit of ~Rs. 740m in CY12 against losses in CY10. The main reason was higher utilisation levels, which have aided its margin expansion from 7.6% in CY08 to 43.1% in CY12. We expect the operating margin to improve to 46.1% in CY15, given the steady improvement in utilisation levels.
Our take. We believe that JNPT's present saturation levels and the good connectivity to the Pipavav port would result in diversion of container volumes to GPP. With its planned capex, it would benefit from an improving trade scenario in future and from its strong parentage. At our target of Rs. 62, the stock would trade at a P/BV of 2x its CY14e earnings and a P/E of 21.7x. We initiate coverage on it with a Buy. Risks. Further slowdown in trade, increasing competition.
