We recently interacted with the management of Gujarat Pipavav Port (Pipavav) on business operations. Focused efforts to win new clients have seen it winning another new liner recently post the incremental two liners in 3QFY16. In the next 12 months it should benefit from leverage on normalised operations and capex linked efficiencies. Pick-up in India trade is a joker in the pack, with maiden dividend a near-term trigger.
Pipavav’s loss of its second parent liner to Adani Group in 2QFY16 did shake some investor confidence on the port holding its own. Since then, it has won two new liners (one to West Asia and one coastal) in 3QFY15. Additionally, INDFEX (India Far East Express) has included Pipavav as a Port of Call for its route spanning 11 ports including JNPT. 7-9% volume loss from shift in parent liner will gradually be recovered from these three new services. Management’s focus on strengthening marketing efforts to win new liners in this sluggish volume environment is yielding results.
Strong B/S coupled with robust operational performance leading to cash flow CAGR of 15-20% would drive sustained medium-term re-rating. Maintain ‘buy’ with R205 SOTP-based TP. Risks: Aggressive competition from Mundra.