GEPL Capital is bullish on Gujarat Pipavav Port (GPPL) and has recommended buy rating on the stock with a target price of Rs 70 in its February 22, 2013 research report.
"In Q4CY12, GPPL reported 3% Y-o-Y growth in total revenues to Rs 1,076 mn as compared to Rs 1,042 mn in Q4CY11. However, the interesting event to watch was sequential growth, after reckoning Q3CY12 as the worst quarter things turned the opposite for the company. On sequential basis the company reported 24% growth in Q4CY12 and the reason was 24% growth in container volume and almost 4% growth in realization. Container volumes for the Q4CY12 dropped by 8% Y-o-Y to 156,547 TEUs as compared to 170,380 TEUs in Q4CY11, however, on sequential basis the company gained ground and witnessed a massive increase of 24%. Dry-bulk Volumes witnessed 16% slide Y-o-Y and stood at 0.76 mn tonnes as compared to 0.75 mn tonnes in Q3CY12.
The main attraction of the quarter was pre-payment of long term (INR denominated) debt from the money received from QIP, which led to significant decline in interest cost on both Y-o-Y and q-o-q basis. Interest outgo of Rs 98 mn was down by 53% Y-o-Y and by 45% q-o-q. Long term deb at the end of December 2012 stands at around Rs 3,200 mn as compared to Rs 6,708 mn. This significant decline in interest cost led to massive jump in Net profits by 33% Y-o-Y to Rs 360 mn, which was around 340% up on sequential basis.
On cost front the company witnessed 8% Y-o-Y growth in total operating expenses to Rs 620 mn in Q4CY12. Operating cost which comprised of 58% of total cost, witnessed 22% increase on Y-o-Y basis on account of increase in equipment hire charges and high power and fuel cost. The end result was lower EBITDA margins at 47.8% vs 50.5% in Q4CY11.
GPPL has managed to add two new shipping lines to call on its port namely, APL and Hyundai. At present one vessel from APL and two vessels from Hyundai have started calling on GPPL. The important notification to make here is that these shipping lines are calling on Nhava Sheva International Container Terminals (NSICT) and now extended their reach till Pipavav Port. We strongly believe that congestion in JNPT will benefit nearby minor ports and in addition to that continuous delay in expansion of JNPT will further benefit nearby minor ports. The two new shipping lines were added in October and December 2012 helped the company to recover from the worst in witnessed in Q3CY11. They are expected to add around 55-60,000 TEUs for CY13.
GPPL has managed to sign a long term contract with two of its clients (name undisclosed) for 5 years. The management is expecting volumes of around 35% of the total expanded capacity to come from these long term clients. We believe that this strategy of the management will bear fruits and since the port business is of high fixed costs, such kind of long term contracts will help the company to recover majority of its fixed costs in the downturn.
The management's strategy of hunting new clients will not only help them to stabilize market share in the falling market but also will lead to increase when markets are booming. Due to proactive steps taken by management, GPPL has able to anchor the fall in volumes in Q4CY12 as compared to Q3CY12. Timely expansion of port capacities and logical diversification in liquid logistics business is expected to augur well for GPPL over a period of time. Though the economy is facing the headwinds and the macro situation is unfavourable at present, we strongly believe that with interest rate cycle on the reverse mode and some reformist steps taken by the government will turn the tables for the business climate. We maintain our BUY rating and price target of Rs 70," says GEPL Capital research report.
Public holding more than 90% in Indian cos
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