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Volume weakness continues

Gujarat Pipavav Port Limited’s (GPPL) Q3FY22 recurring PAT declined 31% YoY to Rs374m (estimate: Rs428m) with performance remaining impacted by weak cargo. Reported PAT was higher at Rs438m after accounting for insurance proceeds (net) of Rs98m. Container volumes continue to disappoint driven by skipped calls, absence of incremental volumes from new services and company’s relatively weaker competitive standing on the west coast vis-à-vis JNPT and Mundra. Given this we have lowered our container cargo estimates by 13% each in FY23/24 leading to earnings downgrade of 23%/21%. On the other hand, GPPL’s strong balance sheet and dividend yield of 5-6% on FY23/24 revised estimates restrict downside in the stock with upside potential if growth improves. Downgrade to ADD from BUY with revised price target of Rs104.

Realizations improve but margins decline due to higher employee/other expenses

Realization grew 2% YoY to Rs556/MT (up 6% QoQ) and operating expenses declined 5.5% yoy to Rs100/MT (in-line). However, EBITDA declined 5.6% yoy (down 2.5% qoq) to Rs286/MT (estimate: Rs309/MT) due to higher employee/other expenses. GPPL expects cost of ~USD11mn towards repairs of damage caused by cyclone Tauktae (Rs299m booked in 9M) and expects this expense to be largely covered by insurance.

Sharp decline in cargo volumes led by weak container and bulk volumes

Total cargo declined by 16.6% YoY to 3mt led by weaker container and bulk volumes. Container cargo declined 21% YoY to 157k TEUs (flat QoQ) due to higher skipped calls. Lower fertilizer imports amid delay in government tendering due to high international prices led to sharp decline in bulk volumes (down 14% YoY/52% QoQ to 0.67mt). Mineral volumes also contracted sharply QoQ as Ultratech’s captive jetty is now operational again and most of the volumes have gone back to its own jetty. Liquid volumes grew sharply by 43% YoY to 244k MT led by higher LPG volumes.

Liner additions have happened volume recovery to take time

GPPL has added Middle East service (NMG) in Jan-22 with potential annual cargo of 30- 35k TEUs. However, ramp-up would be gradual over the next 3-4 months to the potential annual run rate. Volume ramp up for earlier addition of Cosco’s CI 1 service (potential of 50k TEUs/annum) is taking time as Cosco is unable to make regular calls due to vessel shortages. Due to weaker than expected ramp-up in volumes, we have cut our container cargo estimates sharply by 13% each in FY23/24E to 721k/822k TEUs from 624k TEUs in FY22E. Meanwhile bulk volumes too have weakened significantly.

Growth remains weak but strong balance sheet/high dividends restrict downside; ADD

Container volumes continue to disappoint driven by skipped calls, absence of incremental volumes from new services and company’s relatively weaker competitive standing on the west coast vis-à-vis JNPT and Mundra. On the other hand, dividend yield of 5-6% on FY23/FY24 revised estimates restrict downside with upside potential if growth improves. The stock trades at PE of 14.8x and EV/EBITDA of 7x on FY24 basis. We downgrade to ADD from BUY with revised price target of Rs104.

Valuations

Container volumes continue to disappoint driven by skipped calls, absence of incremental volumes from new services and company’s relatively weaker competitive standing on the west coast vs. JNPT and Mundra. On the other hand, dividend yield of 5-6% on FY23/24 revised estimates restrict downside with upside potential if growth improves. The stock trades at PE of 14.8x and EV/EBITDA of 7x on FY24 basis. We downgrade to ADD from BUY with revised price target of Rs104.

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