Technology

For 3QFY2016, Gujarat Pipavav Port (GPPL) reported 10.3% yoy decline in
revenues to Rs152cr. On sequential basis revenue was up 8.3%. Reported top-line
number is below our expectation of Rs170cr. Top-line de-growth on a yoy basis is
on account of (1) 9.2% decrease in Container business volumes (to 178,000TEUs),
and (2) 63.3% decrease in Dry Bulk business (to 443,000MT).
GPPL reported an EBITDA of Rs87cr, which is ahead of our expectation of Rs81cr.
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 shift in business mix and Rs1cr
of reversal with regards the dredging cost.
GPPL reported an Adj. PAT of Rs53cr, down 40.3% yoy, and 12.6% qoq. Adj. PAT
margin for the quarter came in at 35.0% vs 52.7% in the corresponding quarter a
year ago. Adj. PAT number, on yoy basis, was impacted by (1) Rs28cr of tax
expense (vs tax exemption in 3QFY2015), (2) 53.4% increase in depreciation
expenses to Rs25cr, and (3) 1.6% decrease in other income to Rs20cr. The sharp
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 Rs156, GPPL is trading at
FY2016E and FY2017E P/E multiple of 31.4x and 31.4x, respectively. We have
valued the Ports business using free cash flow to equity holders (FCFE) to arrive at
FY2017E based business value of Rs160. We have assigned 10x P/E multiple to our
FY2017E earnings estimate of Pipavav Rail Corporation Ltd (PRCL) to arrive at
business value of Rs7 (adj. for 38.8% stake). On using the sum-of-the-parts (SOTP)
based valuation methodology, we arrive at a FY2017E based price target of Rs167.
Given the limited upside potential in the stock from the current levels, we maintain our
Neutral rating on the stock.

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