The significant increase in India?s international trade in the recent years has resulted in traffic handled at Indian ports increasing at a five-year CAGR of 11.1% to approximately 649 million tonne in fiscal 2007. The strong growth in India?s port traffic is expected to remain, with a growth of approximately 12% to 15% per year expected during the next two to three years.
Business
Mundra Port and Special Economic Zone (MPSEZ), a part of Adani Group, is the developer and operator of Mundra Port located in Gujarat. It has the exclusive rights to develop and operate Mundra Port and related activities until February 2031. The company began its commercial operations in October 2001. It has entered into a long-term agreement with Indian Oil Corporation to handle crude oil.
Apart from this, the company got the approval as a developer and operator for setting up a multi-product SEZs at Mundra in June 2006. For this SEZ, it has acquired a total land of 2658.2 hectares (approximately 6,568 acres). The SEZ developer has incentives from the government including exemptions from customs duty, income tax and other taxes. This results in reduced cost of infrastructure and other utilities for the SEZ developer and operator.
Objectives
The company intends to put up around Rs 1,771 crore (upper band) through the issue.
From this, it wants to utilise Rs 700 crore in the construction and development of basic infrastructure and allied facilities in the proposed SEZ at Mundra. Other than this, it will invest Rs 450 crore to construct and develop a terminal for coal and other cargo at Mundra port. This coal terminal will specially cater to power projects in Mundra. The remaining funds will be deployed in the promoter group entities and joint venture.
It will invest Rs 209.46 crore in Adani Petronet (Dahej) Port (APPPL), a joint venture with Petronet LNG (PLL). It has exclusive rights from PLL to finance, develop, operate and maintain a solid cargo port at Dahej. This agreement is for 30 years. MPSEZ holds 50% shareholding in APPPL. It intends to increase the shareholding to 74% as Petronet wants reduce the shareholding to 26% from the existing 50%.
The company will invest about Rs 22 crore in Adani Logistics (ALL) in which it holds 50%. ALL has the license from the Indian Railways to commence container train operations from JNPT/Mumbai port to locations in the National Capital Region and other locations. The concession agreement has a term of 20 years. Lastly, it intends to invest Rs 54.39 crore in Inland Conware (ICPL). MPSEZ has indirect holding through ALL in ICPL. It proposes to develop rail-linked inland container depots (ICDs).
Financials
The business of MPSEZ is capital-intensive, as the port business commands huge capital expenditure investment. And after seven years since the company commenced the Mundra port operations, its revenue from the port business has gone up to Rs 579.74 crore in the FY2006-07 from Rs 52.34 crore in FY2002-03. The company commands healthy operating margins, considering its business model where operating costs are less.
The operating margins in FY2006-07 were 54.34% and in the first quarter of FY2007-08 it was 60.26%. The net profit has grown from a loss of Rs 3.16 crore in the FY2002-03 to a profit of Rs 187.44 crore in FY2006-07.
Valuation
From the valuation perspective, the 12-month fully-diluted earning per share stands at Rs 4.64. Considering the upper and lower issue price, the company quotes a P/E of around 86.12(x) and 94.73(x) respectively. It must be noted that the construction of coal terminal and SEZ will take at least three years. The benefits will accrue gradually over the years, post-completion.
