Gujarat Pipavav Port (Pipavav) has put behind a difficult 2Q of lost shipping liners, bad weather and disrupted rail operations. The next 12 months it should benefit from leverage on normalised operations and capex linked efficiencies.
Pipavav’s parent company Maersk moved a liner during 2QFY16 from Pipavav to Mundra Port. The first liner loss in 2012 was linked to diversification on ports for the parent among other factors. This second liner loss has been due to Pipavav not being able to accommodate a revised berthing time, given near 100% capacity utilisation. Post its expansion from 0.8 to 1.3 mn TEUs by June 2016 it will be better placed to accommodate incremental cargo. Our volume estimates have adjusted for the 70-80,000 TEU annual loss of the liner shift. If Pipavav manages to recover it post expansion it will add 7-9% to our FY17E-18E volume estimates.
Strong balance sheet along with robust operational performance would drive sustained rerating in the medium-term. We maintain Buy with sum-of-the-parts target price of Rs 215. Risks are aggressive competition from Mundra leading to market share loss, and prolonged benign port volumes.