GPPLs 3.4x CY15E P/B looks rich in the context of our expectation for tax adjusted RoE of 16.4% in CY16E. Its 18x CY15E P/E (22.2x adjusted for tax) also seems to be factoring in strong earnings growth over multiple years. FCF yield is unexciting at 4-5% over CY15E-17E before dropping to 0-4% over three years (capex, tax) on our estimates. GPPLs concession ends in CY28 (no terminal value) and there is currently limited visibility on the company expanding outside the Pipavav Port (single-asset company). We raise our EPS estimates sharply to factor-in stronger-than expected traffic and margins in the last three quarters, but downgrade our reccommendation to sell (from buy) as our revised FV of R110/share (from R65) points to 24% potential downside.
In the last six months, GPPL stocks have more than doubled. Its 18x CY15E P/E (22.2x adj for MAT credit) looks expensive to us and appears to be pricing in continued strong earnings growth for next several years. GPPL has benefited from constrained capacities at major ports and their expansion delays in the last few years. Whilst we think it can further increase its market share until CY16E (16% container traffic CAGR assumed over CY13-16E), JNPT CT-IV (phase-I) should be operational in CY17E (FY18E). This, we expect, would moderate GPPLs traffic growth to only c.5% over CY16E-19E. We think EBITDA margin expansion is also likely to slow as GPPLs pricing discount vis--vis Mundra is now largely bridged.
Esprito Santo Securities