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Weak global macros weigh on GPPL volumes ahead

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

Q4FY23 Results: QoQ lower bulk volumes impacted EBITDA.

• Net revenues grew 7% YoY to | 235 crore

• EBITDA remained flat at | 130 crore with margins at 55.4% (vs. 58.3% in Q4FY22)

• However, PAT grew 31% to | 97 crore as the operational performance was supported by higher other income and lower depreciation

What should investors do? Q1FY24 has begun with headwinds for global container trade. Although ocean freight rates have corrected 50-60% of their previous highs, Indian exports have remained subdued (especially merchandise, handicraft). However, sentiments are expected to pick up as the year progresses (with a pick-up of Chinese manufacturing and lower US inventory levels). However, any stride by GMB towards extension of GPPL port asset will be a key trigger towards a re-rating of the stock.

• We change our stance from BUY to HOLD recommendation on the stock

Target Price and Valuation: We value the stock at | 120 i.e. 15x P/E on FY25E EPS.

Key triggers for future price performance:

• Addition of three service lines in FY23 expected to boost Exim volumes

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

• Debt free company with RoIC reaching ~40%+ levels in FY24E

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 | 800

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