Subscribe to GPPL IPO for long term: Aditya Birla Money

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Subscribe to GPPL IPO for long term: Aditya Birla Money

The Rs 500 crore initial public offering (IPO) of Gujarat Pipavav Port (GPPL) opened for subscription.

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The Rs 500 crore initial public offering (IPO) of Gujarat Pipavav Port (GPPL) opened for subscription. Aditya Birla Money has advised only very long term investors to subscribe to the issue, in its research report dated August 23, 2010.

GPPL is the developer and operator of APM Terminals Pipavav, which has multi-cargo and multi-user operations. It has the exclusive right to develop and operate APM Terminals Pipavav and related facilities until September 2028 pursuant to the Concession Agreement with GMB and the GoG. The price band for the issue, which closes on August 26, is at Rs 42-48/share.

The report says, "The strong parentage of A.P Moller-Maersk group and strategic location are some of the key positives for the company. GPPL has been reporting losses at the net level due to higher depreciation and higher financing cost, however its operational profits have grown over the last three years. EBITDA margin has moved from 7% to 20% levels. The funds from the IPO would be used to reduce debt which would provide some cushion on the interest servicing front. Also it has been plagued by some of the terms of the contract wherein it has to pay penalty for non fulfilment of minimum cargo lifting guarantee to the railways. We expect with pick up in volumes this railway guarantee shortfall (3 Lakh tonne) would perish. The March 2010 numbers cannot be extrapolated for the full year as this is a weak quarter due to lower trades from chemical segment."

"At the offer price of Rs 48, GPPL would be discounted at 2.5x P/BV post IPO. The only comparable within the listing space is Mundra port which is almost 7x the size and is currently valued on earnings. The infrastructure set-up has already been done for GPPL and the business is seeing good traction now. Moreover the strategic location of the port coupled with a solid parentage provides us confidence on sustainability of the business model and the growth prospects of the company. Valuations appear a bit stretched but then a quality paper would warrant some premium. Looking from a tactical perspective, we do not expect significant listing gains and therefore advise only very long term investors to subscribe to the issue," according to report.

Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.               

To read the full report click on the attachment