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Motilal Oswal
Gujarat Pipavav (Buy)
CMP: ₹87.85
Target: ₹100
Gujarat Pipavav Port (GPPV) possesses distinct advantages such as a) location, which enables access to the global trade route/rich northern hinterland (60 per cent of cargo traffic in India); b) infrastructure advantages with long water frontage (3 km of which only 1 km is utilised), contiguous land (1,561 acres, 45 per cent unutilised) and rail/road connectivity, proximity to dedicated freight corridor; and c) strong parentage that provides “trade and technology” edge (30 per cent of current volume). Thus, GPPV is best placed to tap the high growth in container traffic volumes on India’s West Coast (GPPV grew 16 per cent in CY13, vs 3.6 per cent container traffic growth on West Coast).
We value GPPV using the discounted cash flow method and assign terminal growth rate of 2 per cent and WACC of 10.7 per cent as point valuation may not fully capture the available growth opportunity. Near debt-free status, strong earnings/ cash flow visibility and professional management are the key differentiators.
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