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Signs non-binding port concession MoU with GMB…

About the stock: Gujarat Pipavav is a South-West Gujarat based port with an MNC promoter (APM Terminals – Maersk Group). It lies at a strategic international maritime location, which connects India with the Far East on the one side and Middle East, Africa, Europe and the US, on the other.

* The port container capacity is at 1.35 million TeUs, bulk capacity at 4-5 million MT and liquid capacity at 2 million MT

* Container segment comprises ~70% of revenues

Q2FY22 Results: De-growth in container volumes negated by growth in bulk.

* Net revenues grew 7% YoY to | 195 crore

* EBITDA grew 6% YoY to | 109 crore with margins at 56% (vs. 56.3% in Q2FY21)

* However, PAT de-grew 8% to | 46 crore, as a strong operational performance was negated by an exceptional expense of | 9 crore (related to plant and property damage by cyclone in Q1)

What should investors do? We expect the normalisation of global container trade (in the medium term) and extension of agreement (in the medium term) to be key triggers for a re-rating of the stock.

* We remain positive on the stock and maintain our BUY recommendation

Target Price and Valuation: We value the stock at | 130 i.e. 19x P/E on FY23E EPS

Key triggers for future price performance: In spite of a tariff hike (5-6%), GPPL container realisation is still at a sharp discount to Mundra (~15%), which the management expects to reduce (via frequent small hikes).

* DFC commissioning is expected from September onwards (higher market share and time tabled train running)

* Addition of two service lines is expected to boost Exim volumes

* Debt free company with return ratios reaching 16%+ levels in FY23E

Alternate Stock Idea: Apart from GPPL, we remain positive on Adani Ports

* Adani Ports and Special Economic Zone (APSEZ) is the largest commercial port operator with 25% share of India’s port cargo movement. The company has evolved from a single port dealing in a single commodity to an integrated logistics platform

* We have a BUY rating on the stock, with a target price of | 900

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