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Strong fertilizer volumes boost cargo growth
* Gujarat Pipavav Port Ltd. (GPPV) reported a strong set of Q3FY20 results, surpassing our and consensus estimates on improved volumes and realizations. Better realization and a fall in operating expenses led to a 307bps yoy improvement in EBITDA margins to 59.5%.
* Overall, port volumes grew 6.0% yoy to 3.7mn tons, driven by higher bulk (+120.7% yoy) and liquid volumes (+30.2% yoy). This was offset in part by a 7.9% yoy fall in container volumes on trans-shipments decline and a 55.0% yoy fall in RORO volumes to 9,000 cars.
* EBITDA grew 18.6% yoy to Rs1.2bn (above est.), driven by higher volumes and lower employee and other expenses. PAT rose 130.5% yoy to Rs1.2bn, supported by a writeback of Rs601.7mn in deferred tax expenses.
* We have raised our earnings estimates for FY21/22, mainly to factor in Q3FY20 tax implications and the strong traction in bulk volumes. We have shifted our DCF base to FY21E and thus revise our SoTP-based TP to Rs97. Maintain Hold.
High fertilizer and liquid volumes aid cargo growth: GPPV’s revenues rose 12.5% yoy to Rs2.0bn in Q3FY20, above our expectations of Rs1.8bn. Growth was driven by a 6.0% yoy rise in overall volumes to 3.7mn tons and a 6.8% yoy rise in blended realization to Rs497/ton. Total port volumes growth was driven by strong bulk (+120.7% yoy to 0.735mn tons) and liquid volumes (+30.2% yoy to 0.194mn tons). Growth in bulk volumes was led by higher fertilizer offtake which increased 121% yoy to 0.533mn tons, while liquid volumes were boosted by higher yoy LPG imports. Container volumes, however, declined 7.9% yoy due to low trans-shipment volumes. The port handled 9,000 cars (-55% yoy) in its RORO business.
EBITDA of Rs1.2bn (+18.6% yoy) was higher than expectations of Rs1.0bn on account of higher volumes and improved blended realizations and a fall in operating expenses (due to a change in accounting standard on lease where the long-term operating lease has been reclassified as financial lease and is reflected in the balance sheet). EBITDA margins improved 307bps yoy to 59.5% (est.: 55.7%). Financial and depreciation expenses increased due to a change in accounting standard related to operating lease and asset revaluation. PAT rose 130.5% yoy to Rs1.2bn, supported by a write-back of Rs601.7mn in tax expenses on a re-assessment of deferred tax liability.
Outlook and valuations: We have raised our earnings estimates for FY20 to factor in Q3FY20 tax implications (tax write-back) and strong traction in bulk volumes. We now expect:
1) container volumes to see a CAGR of 5.0% and reach 1.15mn TEUs by FY24E from 0.90mn TEUs in FY19;
2) bulk cargo volumes are expected to see a CAGR of 6.2% to 2.7mn tons in FY24E;
3) liquid volumes to rise at a CAGR of 12.8% to 1.16mn tons in FY24E. In addition, we have shifted our DCF base to FY21E and thus revise our SoTP-based TP to Rs97 from Rs92. We maintain Hold rating. Persistent demand imbalances at the port due to a lack of a feeder cargo availability remain a key risk.
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