Avoid Gujarat Pipavav Port IPO - Way2Wealth

Gujarat Pipavav Port is principally engaged in providing port handling and marine services for: (i) container cargo, (ii) bulk cargo, and (iii) LPG cargo. In addition, it operates a CFS and also generates revenue from land-related and infrastructure activities. It currently accepts vessels with up to 14.5 metre draught at chart datum and deploys three tugs for providing pilotage and towage services. It has four berths with a total length of 1,075 metres used for handling bulk and containerised cargo and an LPG berth with a service deck of 65 metres and a length between extreme mooring dolphins of 308 metres. The 4,550 metre channel length at the Port allows day and night marine operations throughout the year. It has created extensive support infrastructure to handle container, bulk and LPG cargo, such as container yards, yard handling equipment, quay cranes, rubber-tyred gantry cranes, paved rail sidings, warehouses, open stackyards and a port users' building to accommodate the offices of custom house agents, stevedores agents and shipping lines.

Key Concerns:

- Small number of customers and partners account for a large proportion of its revenue. Any loss of its major customers or any significant decreases in spending by some or all of its top five customers on our services may reduce the demand for Port and the services that are offered and may adversely affect the revenue, profitability and results of operations.

- Failure to meet traffic volume obligations under the Traffic Guarantee Agreement could materially affect its business, cash flows and results of operation.

- Reduction in business with APMM Group companies, or decrease in the direct or indirect benefit from such companies could adversely affect its financial condition and results of operations.

- Inability to effectively manage growth or successfully implement business plan and growth strategy could have an adverse effect on its business, results of operations and financial condition.

Valuation & Advise: At the lower and upper end of the price band, the issue is quoting at P/BV of 4.3-4.9x its Dec FY09 Book Value of Rs 9.78. Its peer in this space is Mundra Port trading at P/BV of 9x and PE of 46x FY10 EPS of Rs. 17.5 per share. The traffic at ports in India is expected to increase to 954 million tons per year by 2012 & 1167 million tons by 2014. Traffic at the ports is expected to surge at a CAGR of 9.7% from 2008-2014 due to buoyant Indian economic growth. But we do believe that GPPL as compared to Mundra Port is comparatively smaller and it will take time for the company to deliver a positive PAT. One can definitely look for better avenues to park their money for better returns. Since not much peers are available we suggest going long on Mundra Port to enjoy higher comparative valuation. We give an AVOID for the issue.

Source : Equity Bulls

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