ICICI Direct recommended hold rating on Gujarat Pipavav with a target price of Rs 90 in its research report dated August 09, 2019.
ICICI Direct's research report on Gujarat Pipavav
Gujarat Pipavav Port’s (GPPL) container volumes grew 13% YoY. Bulk and RoRo volumes de-grew 18%, and 6% mainly due to lower growth in the fertiliser volumes and weak consumer demand, respectively, while liquid volumes grew 25%. This led overall revenue to remain flat YoY. Subsequently, EBITDA margins increased 576 bps mainly due to Ind-AS 116 adjustment of Rs 5.1 crore in the operating expense element. However, PAT grew 20% YoY mainly due to higher other income (includes dividend from subsidiary PRCL). The management expects the macro situation to remain tough due to the rising US-China trade war. However, it also expects its container import volumes on the Far-East to remain least impacted (GPPL 70-80% import dependence). GPPL also expects to become DFC compliant by Q2-Q3CY20. Hence, it expects to win market share from other container ports (ex-Gujarat) such as JNPT due to undertaking time bound operations.
GPPL is running at ~60-65% of capacity utilisation and is expected to undertake a major capex program once the utilisation reaches 80%. Higher utilisation with a favourable product mix remains key to the stronger earnings for GPPL. Post DFC, the incremental FCF could be further utilised for port expansion (mostly greenfield expansion). We maintain our target price at Rs 90 (at FY21E P/E multiple of 14) with a HOLD rating on the stock.
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