Recommendation from Ports sector

This section gives a recommendation of a stock having a stock price below Rs 150 with sound fundamentals and expected to give handsome returns over a one-year time horizon.

GUJARAT PIPAVAV PORT : SMOOTH SAILING ALL THE WAY

HERE IS WHY
✓Sustained demand predicted for port services
✓Strategic placement and connectivity
✓Healthy ROE and ROCE

The Indian ports and shipping industry plays a vital role in sustaining growth in the country’s trade and commerce domain. India is the sixteenth-largest maritime country in the world with a coastline of 7,516.6 km. The country has 12 major ports and 200+ notified minor and intermediate ports. The National Perspective Plan for Sagarmala aims to develop six new mega ports. India’s key ports had a capacity of 1,598 million tonnes per annum (MTPA) in FY22. From April-October 2022, the key ports in India handled 446.50 million tonnes (MT) of cargo traffic. 

In FY23 (until September 2022), merchandise exports reached USD 231.88 billion. India has plans to invest USD 82 billion in port projects by 2035. This presents a huge opportunity to invest in port companies and hence our low-price scrip for this issue is Gujarat Pipavav Port Ltd., which was incorporated on August 5, 1992 to construct, operate and maintain an all-weather port at Pipavav, District Amreli in Gujarat. The port is designed to handle bulk, container, liquid cargo and RORO (roll-on, roll-off) and to provide port services such as marine facilities, material handling and storage operations

Gujarat Pipavav Port is India’s first private sector port located on the southwest coast of Gujarat near Bhavnagar. The port is strategically placed on the international maritime trade route which connects India with the US, Europe, Africa and the Middle East on one side and the Far East on the other side. The port’s container handling capacity is 1.35 million TEUs, bulk cargo capacity is 4-5 million MTPA and liquid cargo capacity is approximately 2 million MTPA. In Q4FY23, Gujarat Pipavav Port’s consolidated revenue increased by 6.85 per cent YoY to ₹243.73 crore compared to ₹219.67 crore and sequentially dropped by 6.32 per cent.PBIDT excluding other income increased by 1.55 per cent to ₹129.94 crore as compared to ₹127.97 crore from the same year’s previous quarter and sequentially decreased by 8.29 per cent. The company’s net profit stood at ₹84.04 crore compared to ₹79.35 crore, a sequential growth of 5.92 per cent and a reported rise of 17.16 per cent YoY in the same quarter. The PBIDT excluding other income margins increased by 119 bps QoQ and stood at 55.36 per cent. Net profit margin grew by 413 bps QoQ and stood at 35.80 per cent. 

At TTM, Gujarat Pipavav Port is trading at a PE of 17.3x, which is slightly lower than its three-year median PE. The company has maintained a three-year healthy ROE and ROCE of 11.3 per cent and 16 per cent, respectively. The company has recorded a three-year compounded sales and profit growth of 8 per cent and 2 per cent, respectively. The company has a strong balance-sheet with debt-to-equity of 0.03x with an interest coverage ratio of 57.6x. Gujarat Pipavav Port is expected to increase cargo handling, expand capacity, improve operational efficiency and explore new business opportunities in FY24.

In addition to this, we believe that the Indian economy’s growth and demand for port services will drive this growth, making the company well-positioned for success. Gujarat Pipavav Port is developing new terminals and optimising processes to handle more cargo and improve profitability. The company is also exploring new business opportunities, such as leasing land for industrial development and providing logistics services to diversify revenue streams and reduce port fee dependence. Considering all these factors, we recommend BUY.