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The increased government focus on infrastructure and initiatives such as National Logistics Policy have brought this segment into the spotlight.
Gujarat Pipavav Port is a prominent player among private port operators in the country. It is currently trading at a trailing EV/EBITDA of 10.21 times and trailing PE of 18.9 times. Its listed peers are Adani Ports — trailing EV/EBITDA of 17.4 times and trailing PE of 33.4 times, and the recently listed JSW Infrastructure, trading at a trailing EV/EBITDA of 19.5 times and trailing PE of 38 times.
While the valuation of the company looks reasonable, the Exim volumes have been coming down due to sluggish global trade, a trend expected to continue in the next few quarters. This is also a segment that brings in better realisations. Exim brings more than half the revenues for the company. Sluggishness in global trade being a headwind, new investors need not enter at this juncture. Existing investors, though, can continue to hold the stock.
Business
Pipavav Port is located in Gujarat on the west coast of India and has immediate access to markets in north-west India via road and rail. The port also has electrified access to the Western Dedicated Freight Corridor (WDFC). The port handles four types of cargo i.e., containers, bulk cargo, liquid cargo, and RORO (roll in and roll off) i.e., automobiles.
The port has capacity to handle 1.35 million TEU (Twenty equivalent units) containers. It is well-equipped with modern and efficient container handling equipment and operates technically advanced terminal operating system. Bulk cargo handling capacity is 4 million metric tonnes (MMT) and it handles commodities such as coal, cement, clinker, fertilisers, steel, iron ore, etc. and specialised project cargo.
The port has capacity to handle 2 MMT of liquid cargo per annum and has a dedicated liquid bulk jetty equipped to handle petroleum products, chemicals, vegetable oils, bitumen, LPG cargo, etc. The port has strategic tie-ups with Aegis Logistics, Gulf Petrochem and IMC Ltd for import and export of liquid/gas commodities. Gujarat Pipavav Port has partnered with NYK Auto Logistics, which specialises in the logistics operations of automobiles for export and coastal shipping.
In June 2023 quarter, container volume of the company grew 6 per cent to 1.99 lakh TEUs YoY; liquid cargo handled in this period rose 29 per cent to 2.62 metric tonnes and RORO units handled grew 118 per cent to 14,025 car equivalent units (CEUs). However, the bulk cargo handled was 6.71 lakh metric tonnes, which is 28 per cent lower YoY. According to reports available publicly, Containers have a volume share of 75 per cent, followed by bulk cargo volume (18 per cent) and the balance 7 per cent volume share is of liquid cargo.
Prospects
Management commentary indicates that the exim volumes of the company saw a decline of 6-8 per cent in June 2023 quarter (QoQ). Exim business was affected because of two reasons predominantly. One, the port being non-functional for 16 days in June 2023 quarter due to cycloneBiparjoy and two, a bleak global trade scenario. For perspective, the value of exports(merchandise) in June 2023 quarter dropped by 22 per cent YoY to $32.9 billion and the import in the same period fell 17.4 per cent YoY to $53.1 billion.
The management stated that the environment for global trade is muted, especially in terms of exports, and this is expected to persist in Q2FY24. Post that, the management expects some uptick. In the latest quarter, volume growth in most segments has been due to the increased coastal and transhipment volumes, which have relatively lower realisations. As of FY23, the EXIM revenue was 59 per cent of total revenues for the company.
On other fronts, the company is doing capex of $90 million, which is around ₹748 crore on its liquid cargo capacity, increasing its overall liquid cargo capacity to 5.2 million metric tonnes, which is expected to start functioning from May 2025. The capacity utilisation of liquid terminal (FY23) was 77 per cent. The company has also included three more geographies to its container segment, which is expected to add nearly 32000 TEUs volume annually. These new services are — one, the Far East service, second to Bangladesh and third is the coastal shipping service.
The port is connected to Western DFC (Dedicated freight corridor) which runs from Dadri in UP to JNPT in Mumbai. The trains on DFC are 2.1 times longer than goods trains on normal lines, can carry 2.4 times the load and have 163 per cent higher speed. This will make the port more connected and is also expected to increase the volumes handled and reduce the transit time.
Financials
The revenue of the company in June 2023 quarter was ₹215 crore, 4 per cent higher YoY. EBITDA was ₹106 crore in June 2023 (5 per cent lower YoY) and EBITDA margin for June 2023 quarter is 49 per cent against 54 per cent for the same period previous year. Net profit in Q1FY24 was ₹65.9 crore, which is 15 per cent higher YoY, and the net profit margin was 31 per cent against 28 per cent for the same period previous year.
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