Buy Gujarat Pipavav Port, target price Rs 85: ICICI Direct

ICICI Direct has given a buy rating to Gujarat Pipavav Port with a 12-month target price of Rs 85. The share price moved up by 3.70 per cent from its previous close of Rs 71.55. The last traded stock price is Rs 74.20.

According to the brokerage, Gujarat Pipavav’s Q4FY20 revenues de-grew 10 per cent year on year to Rs 162 crore. Container volume (makes up 70 per cent of revenues) also de-grew 10 per cent but saw a favourable mix (Exim volumes grew 3-4 per cent year on year). EBITDA margins grew 673 bps to 62 per cent (330 bps Ind-AS 116 effect with rest due to lower bulk handling volumes), leading to flat growth in absolute EBITDA at Rs 100 crore. However, due to higher depreciation, interest and lower profit from Pipavav Rail Corp, PAT de-grew 10 per cent to Rs 54 crore. The company announced a final dividend of Rs 3.5 (5.3 per cent yield).

Investment Rationale

The brokerage points out that Gujarat Pipavav expects to become a Dedicated Freight Corridor (DFC) compliant by the fourth quarter of the calendar year 2020 (Q4CY20), provide time table bound services to its clients and also attract potential clients from other ports (ex-Gujarat). It is running at nearly 65 per cent capacity utilisation and is expected to undertake major capex once utilisation reaches 80 per cent. According to the brokerage,higher utilisation with a favourable product mix remains key to stronger earnings for GPPL. Post DFC, incremental free cash flow (FCF) could be further utilised for port expansion (mostly greenfield expansion). The target price has been revised to Rs 85 (at FY22E P/E multiple of 13).

Financials

For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 161.94 crore, down -17.62 per cent from last quarter sales of Rs 196.58 crore and down -10.10 per cent from last year's same quarter sales of Rs 180.13 crore. The company reported net profit after tax of Rs 47.90 crore in the latest quarter.

Promoter/FII Holdings
Promoters held 43.01 per cent stake in the company as of March 31, 2020 while FIIs held 20.18 per cent, DIIs 27.69 per cent and public and others 9.13per cent.