Guj Pipavav Port IPO: How good is it?

Excerpts from Bazaar on CNBC-TV18 Watch the full show » RELATED NEWS Subscribe to GPPL IPO for long term: Aditya Birla Money Subscribe to Gujarat Pipavav Port IPO: Mehta Equities What do experts, brokerages say about Gujarat Pipavav IPO? Avoid Gujarat Pipavav Port IPO: Way2Wealth To use IPO proceeds to repay debt: Gujarat Pipavav Port

Q: Aside from valuations, you also have an issue with the health of the balance sheet, you feel it is overly leveraged.

Thununguntla: Leverage is very high because current debt/equity ratio is to the tune of some 6:1 or so. Once the issue comes, probably it will come down. But definitely the debt/equity ratio is very high because, for example, if it is a five-year old company, one can always say the company is going through a gestation period. This company was incorporated in 1992, so it is eighteen years back. So, eighteen years, the company had to post profits so how long can we wait for that eventuality of the breakeven point because that means there is an element of execution risk attached to the whole story. So, one has to keep that into mind.

On top of that, when a series of pipeline of IPOs and FPOs are about to come, why to get into an issue where the fundamentals are debatable. So, why not to concentrate on some quality PSU FPOs and IPOs which are awaiting to come where atleast the quality of the balance sheet is almost assured. Only debate can be about valuation, but quality is assured. So, I believe investors may prefer to give it a miss.

Q: What are you working with in terms of revenue targets for this year and next year, assuming that you are talking about scalability in revenue performance?

Desai: I believe they are supposed to increase the container tariff by around 20-25% because in CY09 they had reduced the container tariff in order to attract the warrants with the slowdown in the economy. So, this container tariff will improve.

Also, if you see the capacity utilization, it is currently around 50%, which will go upto around 75-80% with the growing traffic with all the infrastructure in place. So, I think there is a better operating leverage, so 25-30% of revenue growth will be there over the next two-three years.

Q: What is your fair value for the stock?

Desai: Once you get more clarity on the improvement in operational efficiencies with the improvement capacity utilisation, the restructuring of the debt, we feel the discount over the Mundra will get narrowed down. Our fair value is in the range of Rs 50-55.