To use IPO proceeds to repay debt: Gujarat Pipavav Port

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The initial public offering (IPO) of Gujarat Pipavav Port (GPPL) has opened for subscription today. The price band for the Rs 500 crore issue, which closes on August 26, is fixed at Rs 42-48 per share.

In an interview with CNBC-TV18, Prakash Tulsiani, MD, Gujarat Pipavav Port, speaks about the latest happenings in his company and sector.

Here is a verbatim transcript of the exclusive interview with Prakash Tulsiani on CNBC-TV18. Also watch the accompanying video.

Q: How much of a balance sheet easing will happen after this IPO? How much interest cost will get cut down, which flows back into your reported earnings because you have been reporting losses and a part of that a big reason for that is your debt burden?

A: We are APM terminals. Gujarat Pipavav Port is coming out with an IPO starting today for Rs 500 crore. Out of the Rs 500 crore, we will repay debt of Rs 300 crore that is an utilisation out of the IPO funds. So, Rs 300 crore, we will repay our debt. This debt is very expensive and plays a very significant cost on our profit and loss. So, we will be saving in the range of Rs 39-40 crore, once we repay the debt.

Q: What do you think are steady state margins for an asset like Gujarat Pipavav Port because your margins have been quite volatile, they have reached about 28-29% now? What do you think is steady state earnings before interest, taxes, depreciation and amortization (EBITDA) margin for your company?

A: In a port industry, typically it's an infrastructure industry, part of the infrastructure. So, what happens is that there is a gestation period because when we create our asset and after that once we start ramping up the volumes, it helps us to increase our profit margins. Presently, we are in the range of 33%. As we ramp up volume, we are at a very low base, as we ramp up volume we will see this growing significantly.

Q: Where do you see this ramp up of volume coming from in the next few quarters and how significant could it be?

A: If we see the port industry in India, specifically the container side, the major ports in Mumbai, if you see the north west region where most of the volumes come in India which is 60% upwards. Today, Mumbai ports are working above the designed capacity and there is no more space available in that region, so those volumes will come into Gujarat region and Pipavav is very strategically located. We are 150 nautical miles away from Mumbai and we have the connectivity. We have with us whatever is required by a world class port and also what is required by the shipping companies.

Q: If I am not wrong, your current utilisation ratio is just above 40%. What can you get it up to?

A: As the volumes ramp up, we can just go and typically in a port industry it can go up to number of 75-80%. So what I am saying here is that once the volumes go up, once the trade increases, once the gross domestic product (GDP) increases, we will see the growth coming in.