Gujarat Pipavav Port - Bulk volumes surprise - Edelweiss

Gujarat Pipavav Port's (GPPL) Q2CY13 adjusted PAT of INR328mn was higher than our estimates but in line with consensus with the beat on bulk volumes of ~1MT against expected 0.5MT. The management expects cargo volume growth to continue despite difficult economic environment due to churn in liners and better service offerings. However, there are headwinds in terms of global trade growth, limited growth visibility in bulk cargo and marginal capex delay. Maintain 'HOLD'.

Bulk cargo, dollarisation aid profits

GPPL reported Q2CY13 revenue of INR1.22bn, 19% higher YoY and sequentially flat. While container volumes were ~13% sequentially lower owing to seasonality at 143K TEUs (+16%YoY), bulk, at ~1MT, was 77% higher YoY and 16% QoQ driven by jump in coal/mineral volumes on pre-monsoon stocking. With dollarisation, yield improved to INR396/t against last year's INR362/t. EBITDA margin was maintained at 45%.

Positive management commentary

The management highlighted there was a churn in service, related to Far East, while a domestic service was withdrawn. However, Mearsk upsized two services which along with likely traction in fertilizer volume in Q3 and sustenance of bulk cargo should ensure volume growth. The company indicated early signs of improvement in global trade, especially US and Europe, while cost optimisation by liners continues.

Liquid tanks on track, Capex to be back-ended; loan tied up

Liquid tank farms are likely to begin operations by end CY13 but volume scale up is seen by Q3CY14 with the entry of Gulf Petrochem by March'14. Capex on new phase continues but only ~INR1-1.2bn is expected to be spent in CY13. The management has tied up the entire USD152mn debt, of which, 2/3rd is dollar denominated.

Outlook and valuations: on the right path; Maintain 'HOLD'

The management is on track to ensure cargo growth and improve margins. We have recalibrated earnings by 6%/8% for CY13/CY14. The quarterly performance has been better but risk associated with the scale-up in cargo amidst weak macro remains, with the only savior in the form of USD/INR. At CMP of INR47/share, the stock is trading at 11x and 9.7x CY13 and CY14 EV/EBITDA. Maintain 'HOLD' with TP of INR51/share.

Source : Equity Bulls

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