Gujarat Pipavav Port’s Q4FY16 adjusted PAT, at Rs 558 m, was marginally lower than estimated impacted by slowdown, though offset by all–time high margin. Considering: very high dividend payout and commitment to maintain it (sustainable dividend yield of 2–3%), a big change; only infra asset with zero debt and pure play on container flows into India with adequate headroom for growth; our assumptions building in gradual pick up in volumes yielding EPS CAGR of 23% over FY16 — 18E; and our target price of `175, we upgrade to ‘buy’ from ‘hold’.
Container volumes, at 177k TEU, were flat QoQ, but lower than 201k TEU reported in Q4FY15, impacted by slowdown in EXIM trade. Though benefits of new liners are likely to flow in ensuing quarters, management maintained that it is too early to comment on volumes from these. EBITDA margin, at ~63% (adjusted for one–offs), is the highest since listing. Moreover, the company’s employee cost dipped owing to lower incentive pay out; though a surprise, it follows the trend seen in a few other MNCs (KSB Pumps). Deferred tax of `310mn led to adjusted PAT of `558mn (down from Rs 892mn YoY).
With zero debt and completion of most current capex, GPPL was anticipated to start paying dividend. However, the surprise element was that the payout turned out to be the maximum permissible under company law.