Outperform on GPPL, but risks remain

Written by IDFC | Updated: Aug 28 2013, 15:07pm hrs
The National Green Tribunal (NGT) has kept in abeyance for six months the environment clearance granted for Pipavav Ports expansion. NGT has also asked the MoEF and EAC to appraise the project afresh.

The order pertains to Gujarat Pipavav Ports (GPPL) expansion plans and does not impact its current operations. GPPL had received the environment clearance for its expansion in June-12 and has planned approximately R11 billion capex for expanding both the container and bulk handling capacities.

Current container handling capacity stands 1.3 million TEUs on the quay side and 0.85m TEUs on the yard side. Bulk handling capacity currently stands at 4 million-5 million tonnes. After expansion, container handling capacity (both land and quay side) will increase to 1.5 million TEUs and that for bulk will increase to 10mt.

At 14.1x CY14 estimated earnings and 1.4x P/B, we maintain outperformer with a price target of R66.

Our view is that GPPL currently has enough spare capacity to cater to the likely cargo growth over the next three-four years.

Hence, we do not see any adverse impact on its near-term volumes/ earnings due to this order. We also note that GPPL has not yet commenced the capacity expansion and has not drawn down any debt, which minimises cost over-runs on the project.

However, GPPL could be at risk of losing volumes to competing ports in case of an excessive delay (>12-18 months) in getting the clearance. Also, in case environment clearance for the expansion is revoked, it will be a major set-back for the company.