3QFY2016 Result Update | Infra
February 2, 2016
Gujarat Pipavav Port
NEUTRAL
CMP
`156
Performance Highlights
Target Price
-
Particulars (` cr)
3QFY16 2QFY16
% chg (qoq) 3QFY15
% chg (yoy)
Investment Period
-
Net Sales
152
140
8.3
170
(10.3)
EBITDA
87
68
28.2
86
1.4
Stock Info
Sector
Infrastructure
Adj. PAT
53
61
(12.6)
89
(40.3)
Source: Company, Angel Research
Market Cap (` cr)
7,539
Net debt (` cr)
(245)
For 3QFY2016, Gujarat Pipavav Port (GPPL) reported 10.3% yoy decline in
Beta
0.8
revenues to `152cr. On sequential basis revenue was up 8.3%. Reported top-line
52 Week High / Low
262/136
number is below our expectation of `170cr. Top-line de-growth on a yoy basis is
on account of (1) 9.2% decrease in Container business volumes (to 178,000TEUs),
Avg. Daily Volume
733,016
and (2) 63.3% decrease in Dry Bulk business (to 443,000MT).
Face Value (`)
10
BSE Sensex
24,539
GPPL reported an EBITDA of `87cr, which is ahead of our expectation of `81cr.
Nifty
7,456
The reported EBITDA margin of the company came in at 57.1%, up from 48.2% in
Reuters Code
GPPL.BO
the sequential previous quarter and from 50.5% in the corresponding quarter a
year ago. EBITDA during the quarter benefitted from shift in business mix and `1cr
Bloomberg Code
[email protected]
of reversal with regards the dredging cost.
GPPL reported an Adj. PAT of `53cr, down 40.3% yoy, and 12.6% qoq. Adj. PAT
Shareholding Pattern (%)
margin for the quarter came in at 35.0% vs 52.7% in the corresponding quarter a
Promoters
43.0
year ago. Adj. PAT number, on yoy basis, was impacted by (1) `28cr of tax
MF / Banks / Indian Fls
9.9
expense (vs tax exemption in 3QFY2015), (2) 53.4% increase in depreciation
FII / NRIs / OCBs
39.5
expenses to `25cr, and (3) 1.6% decrease in other income to `20cr. The sharp
Indian Public / Others
7.6
increase in depreciation expense is owing to the change in the estimated useful life
of assets.
Outlook and Valuation: At the current market price of `156, GPPL is trading at
Abs. (%)
3m 1yr 3yr
FY2016E and FY2017E P/E multiple of 31.4x and 31.4x, respectively. We have
Sensex
(7.7)
(15.4)
24.2
valued the Ports business using free cash flow to equity holders (FCFE) to arrive at
GPPL
(3.9)
(24.6)
271.3
FY2017E based business value of `160. We have assigned 10x P/E multiple to our
FY2017E earnings estimate of Pipavav Rail Corporation Ltd (PRCL) to arrive at
3-year price chart
business value of `7 (adj. for 38.8% stake). On using the sum-of-the-parts (SOTP)
300
based valuation methodology, we arrive at a FY2017E based price target of `167.
250
Given the limited upside potential in the stock from the current levels, we maintain our
200
Neutral rating on the stock.
150
Key Financials
100
Y/E March (` cr)
FY13
FY15*
FY16E
FY17E
50
Net Sales
474
792
632
705
0
% chg
67.2
(20.2)
11.5
Net Profit
192
389
240
240
% chg
102.6
(38.4)
0.2
Source: Company, Angel Research
EBITDA (%)
44.9
53.8
51.6
52.2
EPS (`)
4
8
5
5
P/E (x)
39.2
19.4
31.4
31.4
P/BV (x)
4.0
3.8
3.2
3.1
RoE (%)
14.7
24.3
12.5
11.2
RoCE (%)
13.3
26.4
15.9
16.7
Yellapu Santosh
EV/Sales (x)
16.1
9.2
11.6
10.3
022 - 3935 7800 Ext: 6811
EV/EBITDA (x)
35.8
17.1
22.6
19.7
[email protected]
Source: Company, Angel Research; Note: CMP as of February 2, 2016; *GPPL switched from Dec to Mar year ending
Please refer to important disclosures at the end of this report
1
GPPL | 3QFY2016 Result Update
Exhibit 1: 3QFY2016 Performance
Particulars (` cr)
3QFY16
2QFY16
% chg (qoq)
3QFY15
% chg (yoy)
9mFY16
9mFY15
% chg
Net Sales
152
140
8.3
170
(10.3)
465
483
(3.6)
Total Expenditure
65
73
(10.2)
84
(22.2)
224
228
(1.6)
Operating Expenses
29
33
(9.7)
47
(37.0)
103
118
(13.2)
Employee benefits Expense
13
14
(7.1)
12
8.4
40
36
9.0
Other Expenses
23
26
(12.4)
25
(9.5)
82
73
12.0
EBITDA
87
68
28.2
86
1.4
241
255
(5.3)
EBIDTA %
57.1
48.2
50.5
51.9
52.8
Depreciation
25
23
9.8
16
53.4
72
50
44.2
EBIT
62
45
37.5
69
(10.8)
170
205
(17.3)
Interest and Financial Charges
0
0
6.3
0
(19.6)
0
18
(99.4)
Other Income
20
16
24.3
20
(1.6)
53
72
(25.8)
PBT before Exceptional Items
82
61
34.1
89
(8.7)
223
259
(14.1)
Exceptional Items
0
(60)
0
(60)
0
PBT after Exceptional Items
82
121
(32.7)
89
(8.7)
283
259
9.2
Tax
28
68
(58.5)
0
96
0
% of PBT
35
56
nmf*
34
nmf*
PAT
53
53
0.4
89
(40.3)
187
259
(28.0)
Adj. PAT
53
61
(12.6)
89
(40.3)
247
259
(4.8)
PAT %
35.0
37.8
52.7
40.1
53.7
Adj. PAT %
35.0
43.4
52.7
53.0
53.7
Dil. EPS (after excep. Items)
1.10
1.10
0.0
1.85
(40.5)
3.86
5.37
(28.1)
Adj. Dil. EPS (after excep. Items)
1.10
1.26
(12.7)
1.85
(40.5)
5.07
5.37
(5.6)
Source: Company, Angel Research; Note: nmf*- Not meaningful; ** GPPL switched from Dec to Mar year ending
Top-line disappoints
GPPL reported 10.3% yoy decline in revenues to `152cr for 3QFY2016. On
sequential basis revenue was up 8.3%. Reported top-line number is below our
expectation of `170cr. Top-line de-growth on yoy basis is on account of (1) 9.2%
decrease in Container business volumes (to 178,000 TEUs), and
(2)
63.3%
decrease in Dry Bulk business (to 443,000MT). Decline in Container and Dry Bulk
revenues is attributable to (1) re-alignment of services by FE3, and (2) impact of
global slowdown.
Bulk volumes were impacted due to lower fertilizer and mineral volumes (declined
on qoq basis). A sharp decline in the coal volumes (owing to lower imports and
rail freight differential) contributed to the decline in yoy Bulk volumes. Coal volume
used to account for 60% of the Bulk volumes, but the mix declined to 40% during
3QFY2016.
The only positive on the top-line front is the 29% yoy increase in the Liquid Cargo
business to 189,000MT and further ramp-up in Ro-Ro business (7 calls/~4,500
cars were handled during the quarter).
February 2, 2016
2
GPPL | 3QFY2016 Result Update
Exhibit 2: Container volumes decline 9.2% yoy
Exhibit 3: Bulk volumes decline 63.3% yoy
250
60
1,600
140
120
1,400
200
40
100
1,200
80
150
20
1,000
60
40
800
20
100
0
600
0
400
(20)
50
(20)
(40)
200
(60)
0
(40)
0
(80)
Container Volume (TEUs in '000s)
yoy change (%)
Bulk Volumes (MT in '000s)
yoy change (%)
Source: Company, Angel Research
Source: Company, Angel Research
EBITDA Margin dips below 50% levels
GPPL reported an EBITDA of `87cr, which is ahead of our expectation of `81cr.
The reported EBITDA margin of the company came in at 57.1%, up from 48.2% in
the sequential previous quarter and from 50.5% in the corresponding quarter a
year ago. EBITDA during the quarter benefitted from a shift in the business mix
and `1cr of reversal with regards to the dredging cost.
Exhibit 4: EBITDA% expands to 57.1%
Exhibit 5: PAT% declines to 35.1%
100
60
100
80
90
90
80
80
60
70
70
40
60
60
50
50
40
40
40
20
30
30
20
20
20
10
10
0
0
0
0
EBITDA
EBITDA Margins (%)
PAT
PAT Margins (%)
Source: Company, Angel Research
Source: Company, Angel Research
GPPL reported an Adj. PAT of `53cr, down 40.3% yoy, and 12.6% qoq. In
2QFY2016, GPPL reversed asset impairment provision (`60.4cr) and deferred tax
charge of `60.0cr (for 1HFY2016) to arrive at an Adj. PAT of `61cr. Adj. PAT
margin during the quarter was at 35.0% vs 52.7% in the corresponding quarter a
year ago. Adj. PAT number on yoy basis was impacted due to (1) `28cr of tax
expense (vs tax exemption in 3QFY2015), (2) 53.4% increase in depreciation
expenses to `25cr, and (3) 1.6% decrease in other income to `20cr. A sharp
increase in depreciation expense is owing to change in estimated useful life of
assets.
February 2, 2016
3
GPPL | 3QFY2016 Result Update
Revision of our estimates
On incorporating adjustments for (1) decline in Container & Dry Bulk business
volumes, which could lead to change in the EBITDA mix, and (2) tax treatment, we
are reducing our PAT estimates for FY2016E and FY2017E to `240cr and `240cr,
respectively.
Exhibit 6: Revised estimates
FY2016E
FY2017E
Particulars (` cr)
Old New
% chg.
Old New
% chg.
Net Sales
629
632
0.5
684
705
3.1
EBITDA
321
326
1.6
357
368
3.1
EBITDA Margins (%)
51.0
51.6
52.2
52.2
Rep. PAT
309
240
(22.3)
284
240
(15.5)
Rep. PAT Margins (%)
49.1
38.0
41.5
34.0
Source: Company, Angel Research
February 2, 2016
4
GPPL | 3QFY2016 Result Update
Investment Arguments
Stable Container volumes and ramp-up in Bulk business to lead
to strong revenues for FY2016-17E
Ramp-up of operations from Hanjin, Maersk, and NMG helped GPPL report an
18.7% CAGR in Container volumes during CY2010-14 to 780,000 TEUs. Also, in
the last few quarters, GPPL has maintained an average quarterly Container volume
run-rate of ~180,000+ TEUs with the exception of 2QFY2016 (where it reported
~146,000 TEUs). Again, with the exception of 2QFY2016 and 3QFY2016, the
Container business in the prior 5 quarters has been running at over 90% utilization
levels (at the yard level). Sensing that the port would soon hit peak utilization, GPPL
embarked upon an expansion plan. This expansion plan (yard level capacity would
increase from 850,000 TEUs to 1,350,000 TEUs) is likely to get completed by
4QFY2016.
Notably, at the backdrop of a global slump in the pricing environment, many
shipping lines are exploring alternatives. This when coupled with loss of business
from FM3 and NMG in 2QFY2016, indicates that GPPL may find it challenging to
further scale up operations from here-on. Accordingly, we now expect GPPL to
report ~712,000 and ~758,000 TEUs for FY2016E and FY2017E, respectively.
Similarly, despite the recent traction in Bulk volumes business, we are now building
lower volumes for FY2016-17E.
Given the loss of business and slump in the global pricing environment, we expect
delays in ramp-up in operations from here-on. Accordingly, we have revised down
our estimates for FY2016-17E.
Ramp-up in Liquid Farms business:
Sensing business opportunity, GPPL tied-up with Aegis Logistics, IMC, and Gulf
Petrochem to construct and set-up Liquid Tank Farms. We expect GPPL to continue
reporting strong growth in profitability, well aided by ramp-up in business in Liquid
Tank Farms, which also happens to be a high margins business. EBITDA margin in
Liquid Tank Farms is in the range of 65-70%.
Outlook and Valuation
We expect GPPL to report soft earnings during FY2016-2017E, on the back of (1)
weak container volume growth outlook, and (2) delays in further ramp-up in the
Bulk business.
At the current market price of `156, GPPL is trading at FY2016E and FY2017E P/E
multiple of 31.4x and 31.4x, respectively. At current valuations, the stock price is
capturing all the possible positives.
We have valued the Ports business (on revised numbers) using free cash flow to
equity holders (FCFE) to arrive at FY2017E based business value of `160. Given
that the company is debt free, has negative working capital, strong market
positioning, and better revenue visibility, we have assumed cost of equity of 11%
for discounting the FCFE. We have assigned 10x P/E multiple to our FY2017E
earnings of Pipavav Rail Corporation Ltd (PRCL) to arrive at a business value of `7
(adjusted for
38.8% stake). On using the sum-of-the-parts based valuation
methodology, we arrive at FY2017E based price target of `167. Given the limited
upside potential in the stock from the current levels, we maintain our Neutral
rating on the stock.
February 2, 2016
5
GPPL | 3QFY2016 Result Update
Exhibit 7: SoTP Valuation Summary
Valuation
Particulars
Valuation (` cr)
Stake (%)
Per Share (`) Valuation Basis
(adj. for stake; ` cr)
Pipavav Port
7,750
100
7,750
160
FCFE valuation, 11% Cost of Equity
Pipavav Rail Corp.
903
39
350
7
10x FY17E P/E
Total Value of GPPL
8,653
8,100
167
Source: Angel Research
Company Background
Gujarat Pipavav Port Ltd (GPPL) is India's first BOT Port project awarded to SKIL
Infrastructure led JV (Gujarat Maritime Board being the other partner in the JV) in
1992. In 2005, an APM Terminals (part of AP Moller Maersk) led consortium
bought the entire stake in GPPL from SKIL. APM Terminals, through APM Terminals
Mauritius Ltd, holds 43.01% stake in GPPL.
Details of the Concession Agreement
Gujarat Pipavav Port Ltd. (GPPL) signed a 30 years’ concession agreement with a
JV led by Gujarat Maritime Board (GMB; SKIL being the other partner) to build,
construct, operate and maintain Pipavav Port, at Amreli district in Gujarat in Aug-
1992. In 1998, GMB divested its entire stake in GPPL to SKIL. Later in 2005, SKIL
divested its entire stake to APM Terminals led investors.
GPPL is looked upon as one of the most efficient port operators by shipping liners.
Located near the entrance of the Gulf of Khambhat, this port enjoys a location
advantage as the 2 islands act as natural breakwater. This location advantage
helps it in being identified as part of the main maritime trade route, which is
helpful in import and export to USA, Middle East, China and other European
markets.
February 2, 2016
6
GPPL | 3QFY2016 Result Update
Income Statement
Y/E March (` cr)
CY13
FY15*
FY16E
FY17E
Net Sales
474
792
632
705
% Chg
67.2
(20.2)
11.5
Total Expenditure
261
366
306
337
Operating Expenses
132
185
145
162
Employee benefits Expense
42
62
52
59
Other Expenses
87
119
109
116
EBITDA
213
426
326
368
% Chg
100.6
(23.5)
12.8
EBIDTA %
44.9
53.8
51.6
52.2
Depreciation
61
83
97
112
EBIT
152
343
230
256
% Chg
126.0
(33.0)
11.5
Interest and Financial Charges
37
26
0
0
Other Income
61
116
74
102
PBT
175
433
304
358
Tax
0
0
125
118
% of PBT
0.0
0.0
41.0
33.0
PAT before Exceptional item
175
433
179
240
Exceptional item
(16)
45
(60)
0
PAT
192
389
240
240
% Chg
102.6
(38.4)
0.2
PAT %
40.5
49.1
37.9
34.1
Diluted EPS
4
8
5
5
% Chg
102.6
(38.4)
0.2
Note: * GPPL switched from Dec to Mar year ending
February 2, 2016
7
GPPL | 3QFY2016 Result Update
Balance Sheet
Y/E March (` cr)
CY13
FY15*
FY16E
FY17E
Sources of Funds
Equity Capital
483
483
483
483
Reserves Total
920
1,307
1,547
1,787
Networth
1,404
1,791
2,030
2,270
Total Debt
282
0
0
0
Other Long-term Liabilities
12
14
13
13
Other Long-term Provisions
24
24
24
24
Total Liabilities
1,721
1,829
2,067
2,307
Application of Funds
Gross Block
1,919
1,983
2,395
2,685
Accumulated Depreciation
561
645
740
852
Net Block
1,358
1,338
1,656
1,833
Capital WIP
106
65
40
14
Investments
83
83
83
83
Current Assets
Inventories
12
14
19
22
Sundry Debtors
34
36
35
37
Cash and Bank Balance
202
245
152
248
Loans, Advances & Deposits
66
202
202
202
Other Current Asset
4
7
4
4
Current Liabilities
145
163
126
139
Net Current Assets
173
340
286
373
Other Assets
1
3
3
3
Total Assets
1,721
1,829
2,067
2,307
Note: * GPPL switched from Dec to Mar year ending
February 2, 2016
8
GPPL | 3QFY2016 Result Update
Cash Flow Statement
Y/E March (` cr)
CY13
FY15P*
FY16E
FY17E
Profit before tax
192
433
304
358
Depreciation
61
83
97
112
Change in Working Capital
47
6
(43)
8
Interest Expenses & Other Adj.
(48)
13
0
(10)
Direct taxes paid
(22)
(41)
(125)
(118)
Cash Flow from Operations
230
494
233
350
(Inc)/ Dec in Fixed Assets
(91)
(23)
(370)
(265)
(Inc)/ Dec in Investments & Oth. Adj.
(85)
(40)
0
10
Cash Flow from Investing
(176)
(63)
(370)
(255)
Issue/ (Buy Back) of Equity
0
0
0
0
Inc./ (Dec.) in Loans
(17)
(282)
0
0
Dividend Paid (Incl. Tax)
0
0
0
0
Interest Expenses
(38)
(26)
0
0
Cash Flow from Financing
(54)
(308)
0
0
Inc./(Dec.) in Cash
(0)
124
(138)
95
Opening Cash balances
51
51
175
37
Closing Cash balances
51
175
37
133
Note: * GPPL switched from Dec to Mar year ending
Ratio Analysis
Y/E March
CY13
FY15P*
FY16E
FY17E
Valuation Ratio (x)
P/E (on FDEPS)
39.2
19.4
31.4
31.4
P/CEPS
29.8
16.0
22.4
21.4
Dividend yield (%)
0.0
0.0
0.0
0.0
EV/Sales
16.1
9.2
11.6
10.3
EV/EBITDA
35.8
17.1
22.6
19.7
EV / Total Assets
4.1
3.7
3.3
3.0
Per Share Data (`)
EPS (fully diluted)
4.0
8.1
5.0
5.0
Cash EPS
5.2
9.8
7.0
7.3
DPS
0.0
0.0
0.0
0.0
Book Value
38.7
41.3
48.0
50.7
Returns (%)
RoCE (Pre-tax)
13.3
26.4
15.9
16.7
Angel RoIC (Pre-tax)
12.6
25.7
15.0
15.8
RoE
14.7
24.3
12.5
11.2
Turnover ratios (x)
Asset Turnover (Gross Block) (X)
0.1
0.2
0.1
0.1
Inventory / Sales (days)
9
6
9
11
Receivables (days)
27
15
19
17
Payables (days)
55
58
72
57
Note: * GPPL switched from Dec to Mar year ending
February 2, 2016
9
GPPL | 3QFY2016 Result Update
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
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Disclosure of Interest Statement
GPPL
1. Analyst ownership of the stock
No
2. Angel and its Group companies ownership of the stock
No
3. Angel and its Group companies' Directors ownership of the stock
No
4. Broking relationship with company covered
No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors
Ratings (Based on expected returns
Buy (> 15%)
Accumulate (5% to 15%)
Neutral (-5 to 5%)
over 12 months investment period):
Reduce (-5% to -15%)
Sell (< -15)
February 2, 2016
10