Gujarat Pipavav Ports Rating: Buy; better off in hard times due to its strengths

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Published: April 13, 2020 12:30:04 AM

FY20-22e Ebitda cut by 2-12% due to the impact of Covid-19; TP revised to Rs 90.

GPPV is better placed vs past downcycles and its peers given its strong balance sheet.

The COVID-19 outbreak globally drove a 38% decline in GPPV’s share prices YTD vs an average 35% decline for its listed peers and 33% decline in the local market index. However, with its net cash position (20% of market cap; Rs 11/share), GPPV’s EV has declined even more steeply by 50%, vs an average 19% decline for its leveraged peers and in particular the 26% decline for its closest peer Adani Ports and SEZ.

While COVID-19 headwinds will likely depress profits in FY21e, we argue that GPPV is better placed vs past downcycles and its peers given its strong balance sheet, parent group support (40-45% of container throughput), attractive yield (7.3% in FY21e), and trough valuation (under 4x consensus 12-m forward EV/Ebitda).

Headwinds from COVID-19: The 21-day lockdown will likely dry up exports in the near term while imports could be constrained. While we expect port throughput will likely further weaken in the coming months, GPPV is better placed with its bulk and liquid cargoes unaffected due to haulage via rail; its container throughput too has significant rail-based connectivity.

We cut our FY20-22e Ebitda forecasts by 2-12% and profit forecasts by 2-13%: We now expect container throughput to decline by 2% y-o-y in FY20e (vs 0% previously) and 7.5% in FY21e (vs +5%). We expect FY21e Ebitda to decline by 6% and recurring PBT to decline by 9% y-o-y before recovering in FY22e. Reiterate Buy, but trim DCF-based TP to Rs 90 (from Rs 105) on lower Ebitda estimates.

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