Initiating Coverage

January 8, 2014
Gujarat Pipavav Port Ltd. (GPPL)
Ready to Embark on a High Tide...

Current We initiate coverage on Gujarat Pipavav Port Ltd. (GPPL) with BUY rating and Price Target of Rs 75.
Our rationale for BUY is on the back of (1) Scale-up in Container volumes (from 570,500 TEUs in CY12
CMP : Rs.62 to 715,200 TEUs in CY14E) to lead to 25.3% revenue CAGR during CY12-14E, (2) likely pick-up in
exports-imports cycle, (3) continued growth trends from PRCL, and (3) unlevered Balance Sheet with
Rating : BUY 69.9% earnings CAGR during CY12-14E.

Target : Rs.75 Investment Rationale

Strong parentage support: APMM Group currently owns 43.01% of Gujarat Pipavav port (GPPL), India’s
STOCK INFO first private sector port built via PPP model. Strong parentage from APMM (also a key anchor client)
comforts us about (1) alignment with international shipping routes, (2) best business and governance
BSE 533248
practise followed in the industry, and (3) access to experienced professional management team.
NSE GPPLIN
Bloomberg GPPV IN Rising market position: Gujarat based port’s are well positioned to have access to North & North-
Reuters GPPL BO Western India. Pipavav port located in Gujarat benefits from (1) gain in volumes, given their close
proximity to JNPT, which is running at peak utilization, and (2) access to North & North-West hinterland.
Sector Port
In 9mCY13 (Sep-13 ending) GPPL’s Container Terminal business handled 467,000 Twenty Foot
Face Value (Rs) 10
Equivalents (TEUs).
Equity Capital (Rs mn) 4,834
Mkt Cap (Rs mn) 30,118 Healthy Cargo Growth: We expect GPPL to post healthy container volume growth of 12.0% CAGR
52w H/L (Rs) 67/ 41 during CY12-14E. Our Container volume growth assumption factors in (1) increased traction from
recently (last 2-3 quarters) won clients, thereby, reducing dependency on APMM (contributes ~35%
3m Avg Daily Vol. in mn (BSE + NSE) 955,146
of Container traffic), 2) pick-up in exports-imports cycle, (3) location advantage to hinterlands of North
SHAREHOLDING PATTERN % & North-West India, and (4) spill-over traffic from APMM’s Terminal at JNPT (152 nautical miles away
(as on 30th Sep. 2013)
from GPPL) to flow to GPPL (as JNPT port is running at peak utilization levels).
Promoters 43.0 Strong relations with Shipping Lines: Strong parentage support from APMM coupled with GPPL’s
location advantage, has helped it market itself successfully. Currently, GPPL has relations with over 10
FIIs 33.5
of the Top 15 Shipping lines globally. These relationships provide near-to-medium term business visibility.
DIIs 12.9
Public & Others 10.6 Q3CY13 Results - Robust volumes drive Revenue growth: In Q3CY13 (Sep-13 ending), GPPL reported
Source: BSE
revenues of Rs 1.18 bn, an increase of 36.5% over Q3CY12, reflecting 29.4% & 31.3% y/y increase in
Container & Bulk Cargo Volumes. EBITDA increased 106.1% y/y to Rs 532 mn (margins improved from
STOCK PERFORMANCE (%) 1m 3m 12m 29.9% in Q3CY12 to 45.1% in Q3CY13). We expect GPPL to report 25.3% and 69.9% y/y revenue and
PAT CAGR during CY12-14E to Rs 5.8 bn and Rs 2.1 bn, respectively, backed by ramp-up in recent
GPPL 9 36 29
contracts signed with shipping lines, congestion/ rollovers at JNPT Port, and full impact of tariff hikes
SENSEX -3 2 5
to be seen from here-on. We have not modeled any revenue flowing in from GPPL’s long-term
Source: IndiaNivesh Research agreements with Aegis Logistics, Gulf Petrochem & Indian Molasses Co., who own the Liquid Tanks.
GPPL v/s SENSEX Healthy earnings growth with Lower debt: We expect GPPL to report 69.9% net profit CAGR during
160 CY12-14E, on the back of strong top-line growth and improvement in operating metrics. Our earnings
140 growth assumption factors in lower y/y interest expenses in CY14, as we expect capex cycle to kick-in
120
100
from CY15E onwards. This healthy earnings growth is on a highly unlevered balance sheet (CY14E debt
80 at Rs 2.7 bn, 0.2x D/E ratio), where most Infra players have been reeling under heavy balance sheet
60
stress.
40
20 Growth at PRCL to continue: PRCL reported ~Rs 1,790 mn of top-line (18.3% y/y growth) and ~Rs 464
0
mn of PAT (PAT margins of 25.9%) in FY13. The company announced its maiden dividend (interim) of
04/01/2013

25/01/2013

15/02/2013

08/03/2013

29/03/2013

19/04/2013

10/05/2013

31/05/2013

21/06/2013

12/07/2013

02/08/2013

23/08/2013

13/09/2013

04/10/2013

25/10/2013

15/11/2013

06/12/2013

27/12/2013

Rs 380 mn. With traction in business from here-on (as rail volumes from GPPL would further increase
from current levels), we expect strong growth at PRCL business. Also, strong financial performance
GPPL Sensex
should translate to higher dividend pay-out.
Source: Capitaline, IndiaNivesh Research
Valuations
At CMP of Rs 62, GPPL is trading at CY13E and CY14E, P/E multiple of 20.3x and 14.1x, respectively. We
have valued the core business of GPPL using Discounted Cashflow to Equityholders (DCFE) and valued
Daljeet S. Kohli the Associate entity PRCL using the Book Value method. On using the Sum-of-the-Parts (SoTP) model,
Head of Research we arrived at CY14E based price target of Rs 75/ share. Given the 21% upside potential the stock has
from current levels, we recommend BUY on the stock.
Mobile: +91 77383 93371, 99205 94087
Tel: +91 22 66188826 Financials
daljeet.kohli@indianivesh.in YE December (Rs mn) Net Sales EBITDA Adj. PAT Equity Cap. EPS (Rs) RoE (%) P/E (x)
CY11A 3,662 1,520 571 4,236 1.3 7.2% 46.3x
Y. Santosh
CY12A 3,715 1,374 740 4,834 1.6 6.1% 38.0x
Research Analyst
CY13E 4,589 1,930 1,489 4,834 3.1 10.9% 20.3x
Mobile: +91 77383 93416 CY14E 5,831 2,526 2,134 4,834 4.4 13.0% 14.1x
Tel: +91 22 66188840 CY15E 6,732 2,921 2,432 4,834 5.0 12.6% 12.4x
s.yellapu@indianivesh.in Source: IndiaNivesh Research

IndiaNivesh Securities Private Limited

IndiaNivesh Research 601 & 602, Sukh Sagar, N. S. Patkar Marg, Girgaum Chowpatty, Mumbai 400 007. Tel: (022) 66188800
IndiaNivesh Research is also available on Bloomberg INNS, Thomson First Call, Reuters and Factiva INDNIV.
 Initiating Coverage | Gujarat Pipavav Port Ltd. Ready to Embark on a High Tide...

Company Overview
India's first BOT Port project was awarded in Aug-1992 to a JV led by Gujarat Maritime
Board (GMB) and SeaKing Engineers Limited (SKIL). In 1998, GMB divested its stake
in the JV in favour of SKIL. Later in 2005, SKIL the then promoter of GPPL sold its
entire stake to APMM Group led consortium of investors. APM Terminals, part of
AP Moller Maersk (APMM) group is the largest Terminal operator with network of
69 ports (and 160+ Inland Container Services) across 68 countries. APM Terminals
through APM Terminals Mauritius Ltd. (ATML) holds 43.01% stake in GPPL.

Container Volumes at GPPL

700

600

500

400
Rail Line
(in '000 TEUs)

Commissioned Fresh Agreement

was signed with
300 APM

200
APM joins SKIL

100

0
FY98 FY99 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13

Concession Agreement APM Terminals start

signed with GMB & SKIL Com. Operations

Source: Company Filings; IndiaNivesh Research

Details of Port Concession Agreement

GPPL entered in to 30 years concession agreement with Gujarat Maritime Board
(GMB) to build, construct, operate and maintain Pipavav port, located at Amreli
district, Gujarat on Sep 30, 1998.
GPPL is one of the most efficient ports located in Gujarat, Western India. This port
has location advantage given that 2 islands act as natural breakwater. This port is
strategically located near the entrance of Gulf of Khambhat. Their strategic location
positions it to be identified as a main maritime trade route, which is helpful in
import & export from USA, Middle East and other European nations.

Snapshot of past developments

Since GPPL reported turnaround in their financials in CY11, growth prospects of the
company have been hindered due to slowdown in global economy. Also, in Mar-12,
GPPL lost 2 Maersk shipping lines to another group company, Gateway Terminals

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India (GTI, JV between APM Terminals and the Container Corporation of India). As a
result, the Container volumes at GPPL declined from 610,200 TEUs in CY11 to
570,500 TEUs in CY12. Since H2CY12, GPPL has taken efforts to reduce its
dependence on any one shipping company (~20 Shipping companies serve GPPL
resulting in decline in APMM’s contribution to ~35%). Over the last 4-5 quarters we
have seen gradual improvement in their operating performance with new client
wins and ramp-up in business from these new client wins.

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6 major Ports (west coast) running at peak
Utilization + Better Operating Efficiencies at
GPPL + slow-down in capacity additions =
Gains for GPPL
Investment Rationale
GPPL’s rising Market position
We are impressed by the structural growth story emerging from Gujarat based
private ports on the back of regulatory landscape challenges, better operational
efficiencies playing-out (vs. government owned ports).
Over the last 2-3 decades, we have seen emergence of Gujarat based private ports
as new hub for handling cargos and shipments. Favorable policy announcements
by Gujarat state government such as (1) awarded port projects on Public Private
Partnership (PPP) model on Build Own Operate Transfer (BOOT) basis with 30 year
concession agreements (extendable by 20 years), (2) scheme of lower royalty
payments and strong execution mechanism (granting faster state level approvals)
has helped the state emerge as new Port hub.
Currently, Gujarat’s coastline has 42 ports (41 being non-major and the other one
being Kandla). However, out of 42 only 21 are operational, as of now. Ports across
Gujarat account for ~40% of total cargo handled at Western Coast of India.
Currently, there are only 6 major ports (excluding Adani) in Western Coastline. Most
of these ports (ones enjoying location advantage such as JNPT, Mumbai port) are
running at full capacities and the ones with smaller capacities and inefficient practices
are running at lower capacity utilization levels. Given that tariff is governed by Tariff
Authority for Major Ports (TAMP), these ports lack motivation to do more of business.
As a result, we sense huge opportunity and market share gains for non-major ports
(inc. of Pipavav Port), in near-to-medium term.
FY13 Traffic handled (mn tn) & Capacity Utilization (%)
100 140%

90 118% 85
120%
109%
80
101%
67 95% 100%
70

60 58
80%
68%
50
60%
40 48% 37

30 40%

20 18 16
20%
10

0 0%
Murmugao Port Kochi Port Trust Mumbai Port New Mangalore Jawarharlal Nehru Kandla Port Trust
Trust Trust Port Trust Port Trust

Source: Company Filings; IndiaNivesh Research

With slow-down in the Indian economy, most of the proposed capex execution
across these major ports has slowed. Further, if we look at government’s spending
plans in west coast, then majority of budgeted spending is towards JNPT & Mumbai
Port Trust.
Actual/ Proposed Exp. on Actual FY12 Revised FY13 Budgeted FY14
Major Ports on West Coast Plan Non-Plan Total Plan Non-Plan Total Plan Non-Plan Total
Murmugao Port Trust 0 717 717 0 714 714 1,100 0 1,100
Kochi Port Trust 751 922 1,673 0 935 935 300 931 1,231
Paradip Trust 0 789 789 0 1,273 1,273 0 969 969
Mumbai Port Trust 0 2,079 2,079 0 3,771 3,771 0 4,276 4,276
New Mangalore Port Trust 0 382 382 0 360 360 0 750 750
Jawarharlal Nehru Port Trust 0 1,405 1,405 0 3,412 3,412 0 15,591 15,591
Kandla Port Trust 0 570 570 0 1,669 1,669 0 1,455 1,455
Total 751 6,864 7,614 0 12,133 12,133 1,400 23,971 25,371
Y/Y change (%) 59% 109%
Source: Budget Documents; IndiaNivesh Research

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Slower pace of granting clearances, regulatory overhangs coupled with slow-down

in economy has lead to actual spending lesser than targeted in FY14E. On a whole,
we are confident that companies like Gujarat Pipavav Ports Ltd. (GPPL) and Adani
Ports & SEZ would be benefitting the most from current capacity constraints at
JNPT.

Gujarat Pipavav Ports Ltd. (GPPL) Port Terminal Facilities

GPPL’s port has Container Yard capacity of 0.85 mn TEUs (quayside handling capacity
of 1.3 mn TEU’s), Bulk Cargo capacity of 4-5 mn tonnes, Liquid Cargo capacity of ~2
mn tonnes. With container capacity of 0.85 mn TEUs and draft of 14.5 meters (at
high tide), we expect Pipavav to comfortably accommodate 5,000-6,000 modern
TEU ships. The container terminal is well supported by 3 Container Freight Stations
(one each managed by Box Trans Logistics, LCL Logix Park & APM Terminals Inland
Services).
Pipavav operates 5 Terminals, 2 Terminals to handle Bulk & break-Bulk cargo; 2
Quay length
Port Particulars Cargo Type Terminals to handle Containers and 1 Terminal to handle LPG. Coal & Fertilizer are
(mt)
the 2 main commodities in the Bulk Cargo segment being handled by Pipavav Port.
Pipavav Port (Berth 1)
360 Dry Bulk Cargo Pipavav is well connected via rail and road networks. Pipavav Ports has 38% stake in
Pipavav Port (Berth 2)
Pipavav Railway Corp. Ltd, India’s first Rail JV, with the balance stake held by Indian
Pipavav Port (Berth 3) 330 Multi-Purpose Railways. Some of the unique features of this rail network are:
Pipavav Port (Berth 4) 385 Container
 Well connected to Inland Container Depot’s (ICDs) network.
Pipavav Port (Liquid Jetty) 65 LPG
Source: Company Filings; IndiaNivesh Research  Handle 22 trains each way/ day.
 Well capable to handle high cube double-stack containers.
 Well connected to Dedicated Freight Corridor (DFC).
Also, the port is well connected to National Highway (NH) 8E through a four lane
road network (this road stretch is approx. 10 kms).
Ramp-up in Operations likely to be seen in
CY14E across both Container & Bulk Cargo (led GPPL to gain from coal imports
by Coal imports)
Despite India being ranked as the 4rth largest player with coal reserves in world,
India continues to import coal (as demand outpaces domestic supply). During FY07-
12, demand for coal increased at 6.5% CAGR to 696 mn tonnes, whereas domestic
supply increased at 5% CAGR to reach 535 mn tonnes, indicating gap of 161 mn
tonnes (and actual imports of 103 mn tonnes). Commissioning of new Thermal
power plants in FY13 (on the back-drop of coal deficit scenario) led to import of 135
mn tonnes and we expect such imports to increase to 184 mn tonnes by FY17E.

Coal Requirement vs Domestic Supplies and Coal Shortage (in mn tn)

1,200

991
1,000 930
873
820
800 770
696 696
668
636
605
578
600 535

400

200

0
FY12A FY13A FY14E FY15E FY16E FY17E
(103)
(200) (135) (146) (157) (170) (184)

(400)

Coal Requirement Domestic Supply Coal Shortage

Source: Planning Commission; CIL; IndiaNivesh Research

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Power sector happens to be the largest consumer of coal. With ~85-90 GW of

capacity additions likely (during FY12-17E, majority of them being Thermal), there
exists huge opportunity for coal imports to be fulfilled through Western Coast line
(thereby benefitting Gujarat Pipavav port). Pipavav being dependent more on coal
imports should gain the most from continuous increase in coal imports to India.
Also their strong road-rail connectivity to Northern & North-Western India, coupled
with impressive operational metrics, comforts us that Gujarat Pipavav would
continue to be the preferred port by the shipping lines over the western coast.

Healthy Container Volume growth

Strong relationships with Shipping Lines + Since losing 2 of Maersk shipping lines in CY11, GPPL witnessed 6.5% y/y decline in
Recent Client wins = Strong growth in its CY12 Container volumes to 570,500 TEUs. Since then the company has made up
Container Volumes the loss of business by signing-in other shipping lines. We are seeing quarterly
Container volumes of over 160,000 TEUs in last 2-3 quarters (similar to volumes
seen prior to loss of business from Maersk). In Q3CY13 GPPL reported Container
volumes of 163,000 TEUs, which reflects 14.0% q/q and 29.4% y/y growth. Growth
in volume reflects (1) partial impact of new client addition- New Gulf Service (NMG)
Middle-East service line, which has potential to add ~50-60,000 TEUs p.a. and (2)
ramp-up in business from prior quarter client wins. NMG service has been operative
from Sep 19, 2013 (operated by Express Feeders, OEL & Simatech lines). We have
modeled Container Volumes of 644,400 TEUs for CY13 (indicating Q4CY13 volumes
of 177,400 TEUs), on the back of (1) Q4 seasonally being a good quarter, and (2)
ramp-up in volumes from recently added shipping lines.
We expect GPPL to post healthy container volume growth of 12.0% CAGR during
CY12-14E. Our Container volume growth assumption is on the back of (1) increased
Relationships with
business from APMM Group (contributes ~35% of Container traffic), (2) location
APM-Maersk
advantage with access to North & North-West hinterlands, (3) revival in the export-
CMA-CGM Group import cycle, and (4) spill-over traffic from APMM’s Terminal at JNPT (152 nautical
Hapag-Lloyd miles away from GPPL) to flow to GPPL.
MACS
Hyundai Merchant Marine (HMM) Strong relations with Shipping Lines
Emirates Shipping Line Currently, GPPL has relations with over 10 of the Top 15 Shipping lines globally, on
the back of its strong parentage. Relationships with some of these global top 15
OOCL shipping lines comforts us about GPPL’s near-to-medium term business visibility. A
Wan Hai Lines third of container volumes (i.e. 230,000-250,000 TEUs) are tied-up in long-term
MOL contracts and this comforts us about sustenance of the current run-rate across
Container volumes.
Samudera
Evergreen Line
We are assured that these Shipping lines could generate enough business
opportunity for Pipavav in near-to-medium term.
APL
CSCL
Q3CY13 Results - Robust growth across Containers volumes
Hanjin Shipping
In Q3CY13 (Sep-13 ending), GPPL reported consolidated revenues of Rs 1.1 bn, an
Source: Company Filings; IndiaNivesh Research increase of 36.5% over Q3CY12, reflecting 29.4% & 31.3% y/y increase in Container
& Bulk Cargo Volumes. In addition to higher container and bulk volumes, GPPL also
benefitted from higher realizations. GPPL switched from Rupee denominated to
Dollar denominated tariff rates in Aug-12, which also led to higher Q3CY12
realizations (INR depreciated vs. USD). Also, in later part Aug-13, GPPL reported
increase in tariff rates, the full impact of it should get reflected in Q4CY13 results.
We expect GPPL’s to report revenue CAGR of 25.3% during CY13-15E to Rs 5.8 bn,
backed by recent contracts signed with shipping lines and expected increase in
blended realizations. GPPL’s JV with Aegis Logistics to develop Liquid Tanks (to be
operational by early 2014) should contribute to revenues (not modeled in to our
estimates). Also, congestion/ rollovers at Jawaharlal Nehru Port Trust Port would
benefit GPPL’s container volumes.
Q3CY13 EBITDA increased 106.1% y/y to Rs 532.0 mn, and margins improved from
29.9% in Q3CY12 to 45.1% in Q3CY13. On a lower base, lower handling charges

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 Initiating Coverage | Gujarat Pipavav Port Ltd.
69.9% Earnings CAGR during CY12-14E on a
unlevered balance sheet
Future Earnings growth also to get support
from: New revenue streams from Liquid Tanks
+ PRCL profits
IndiaNivesh Research
Ready to Embark on a High Tide...
(due to better commodity- coal mix) contributed to EBITDA margin expansion. With
increased demand for coal, we expect this trend of lower handling charges to be
seen in CY14E, too. Accordingly, we expect 30.9% y/y increase in CY14E EBITDA to
Rs 2,526 mn.
In addition to strong y/y EBITDA growth in CY14E, we expect GPPL to benefit from
(1) lower finance costs (as majority of capex gets spilled to CY15E, we expect debt
to decline to Rs 2.7 bn in CY14E), and (2) Profit from Associate- PRCL (Rs 89.9 mn
added to PAT in CY14E). As a result, we expect GPPL to report strong 43.4% y/y PAT
growth in CY14E to Rs 2,134.5 mn.
Healthy earnings growth with Lower debt
We expect GPPL to report 69.9% net profit CAGR during CY12-14E, on the back of
strong top-line growth and improvement in operating metrics. Our earnings growth
assumption captures the impact of (1) lower y/y interest expenses in CY14, as capex
cycle would get deferred to CY15E (vs. management expectations of CY14E) and (2)
Profit from Associates (i.e. from PRCL).
Interestingly, this healthy earnings growth is on the back of an unlevered balance
sheet (CY14E debt at Rs 2.7 bn and D/E ratio at 0.2x), when most of the Infra
companies have been reeling under heavy balance sheet stress. Even though
management has indicated that they are ready to go ahead with their Rs 11 bn
capex plan. Despite the recommendations accepted for environment clearance of
the proposed capex, the company has till now not received the clearance letter
from the Environment Ministry. With recent change of guard at the Environment
Ministry and 2014 General Elections scheduled ahead, we do not expect any further
developments atleast till Q4CY14E. Accordingly, we have not modeled any major
capex for CY14E in our model. We expect capex works to catch momentum in CY15E.
With Cash flow from Operations to the tune of ~Rs 5.4 bn (during CY13-14E), the
debt requirements to fund the capex would also reduce, thereby avoiding any further
strain on the financials.
New stream of revenues to come into force in CY14E
GPPL signed long term agreements with 3 firms, Aegis Logistics, Gulf Petrochem
and IMC to develop Liquid Farms/ Tanks in their port premises. The objective for
GPPL was to generate new revenue streams from excess land, where they could
facilitate clients store Liquid Gas/ Fuel. Management indicated that the construction
works of Aegis Logistics Liquid Tanks is almost done and should be operational in
Q1CY14. The remaining 2 should get operational in H1CY14E. Management has not
shared details of likely revenue numbers from Liquid Tanks business and as a result
we have not built the same in to our numbers. Management has highlighted that
there would be 2 revenue streams from this business- cargo handling charges (for
handling cargo) and lease rentals (for usage of Liquid Storage Tanks). Further,
management also highlighted that this business segment is a high margin business
at ~70% levels, in comparison to EBITDA margins in other segments.
Growth at PRCL to continue
PRCL, is an associate company of GPPL, where GPPL has 38% stake is the JV and the
remaining being held by Indian Railways. PRCL was the first BOT Rail JV formed to
run rail line between the port and Surendranagar. With connectivity to North &
North-Western India, the business could see huge boost (as transportation from
ports to ICDs would get cheaper and quicker).
PRCL reported ~Rs 1,790 mn of top-line (18.3% y/y growth) and ~Rs 464 mn of PAT
(PAT margins of 25.9%) in FY13. The company recently announced its maiden
dividend (interim) of Rs 380 mn. With traction in business from here-on (as rail
volumes from GPPL would further increase with port traffic switching over to Rail
route), we expect growth trends at PRCL to continue. Also, strong financial
performance of PRCL should translate to higher dividend pay-out.
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SWOT Analysis
Strengths Weakness
Assured business from APM as it continues to be one Heavy dependence on APM volumes (APM contributes
of Ports' anchor tenant ~35% of total volumes).

Location advantage vs. JNPT on all Operational Metrics Limited scope for Capacity Expansion as actual capex
could help in attracting volumes spends may get delayed

Excellent Rail-Road connectivity to North & North-

Western India
Opportunities Threats
Commissioning of Hazira Terminal & aggressive
With ~4 km of Waterfront capacity & Idle land, GPPL
expansion at JNPT could act as threat to
has huge scope for capacity expansion
growth prospects of GPPL
Additional volumes can be attracted as GPPLs rail arm Further delays in revival of capex cycle in Power
has upgraded their services to Double stack Rail sector, sudden dip in International economy could act
operations as risk for GPPL’s Bulk business volumes

Generate additional revenues by sharing land for

developing Liquid Tank Farms, Storage Tanks, etc.
Source: Company Filings; IndiaNivesh Research

Proposed Capex
GPPL embarked upon ~Rs 11 bn capex plan to expand its Container and Bulk capacity.
Delay in getting clearance led to 6-9 months delay. Even though GPPL has got all
clearances in place from Environment Ministry (in Nov-13), the final clearance letter
is yet to be handed over. With recent resignation of Environment Minister and 2014
General Elections scheduled ahead, we would be surprised if the company gets
clearance letter in next 5-6 months. With new government at the helm of affairs,
post 2014 General Elections, there exists high probability for clearance letter to be
delivered in Q4CY14E. Hence, against management and street’s expectations of
capex spends commencing from CY14E, we have modeled the same from Q4CY14E
onwards.

Mgmt. Estimates (CY14-16E)

Capex details (Rs mn) Container Bulk Com. Infra Total
Berth 2,280 545 0 2,825
Dredging 0 0 2,070 2,070
Yard & Conveyors 940 1,380 0 2,320
Equipments 2,380 285 0 2,665
Roads 0 0 545 545
Others 472 75 0 547
Total 6,072 2,285 2,615 10,972
Source: Company Filings; IndiaNivesh Research

Ourtake: Capex of Rs 11 bn may not be completed by CY16. Some portion especially

related to bulk business and dredging costs may get spilled-over to CY17E. Therefore
in our model we are buding in capex of Rs 8.5 bn between CY14-16E vs management
expectations of spending Rs 11 bn in this period.

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Management had earlier guided for ~Rs 11 bn of capex spending to be done during
CY14-16E, with ~Rs 6.0 bn to be spent towards Container capacity expansion,
~ Rs 2.3 bn towards Bulk berths and ~Rs 2.6 bn towards common Infrastructure.
Management expects Container capex spends to be incurred towards (1) Dredging
costs, (2) Berth Construction, (3) Equipment purchases, and (4) Construction of
Equipment yards. GPPL intends to expand quay length of its Container berth from
385 meters to 735 meters resulting in increase of the yard capacity from current
0.85 mn TEUs to 1.5 mn TEUs. As part of spending towards the Bulk berths, GPPL
intends to extend (1) Berth 1 by ~100 meters, (2) expand quay length from 690
meters (for 3 berths) to 800 meters at Dry Bulk berth, (3) Construct Conveyor belt
system, and (4) New Warehouse. Post the expansion, Bulk berths capacity would
increase from current 5 mn tonnes to ~10 mn tonnes.
Capex to get delayed, a boon in disguise
We expect Rs 7.5 bn of capex spends towards Container capacity expansion and
related Dredging expenses to commence from Q4CY14E onwards. Accordingly, we
have modeled Rs 1190.5 mn (mostly towards Common Infrastructure & Rail related)
and Rs 857.5 mn of capex spends in CY13E and CY14E. With ramp-up in capex
execution, we expect CY15E to witness Rs 5,647.5 mn of capex spending, mostly
towards Container capacity expansion.
This delay in capex is a boon in disguise for the company, as their depedency on
debt, as a source of funding would decline for further delays in commencement of
capex works. We expect GPPL to report Cash flow from Operations (CFO) to the
tune of ~Rs 8.7 bn (during CY13-15E), which could take care of almost entire capex.
Hence, we do not foresee any requirement for long-term debt from here-on. Even
though GPPL has raised ECB to the tune of ~Rs 8.0, there would be very minimal
requirement of debt draw-down happening in CY15E.

Cash Flow from Operations (Rs mn)

3,500
3,299.7

3,025.6
3,000

2,621.3

2,500 2,412.7

2,000

1,500

1,000

607.9
500

0
2011A 2012A 2013E 2014E 2015E

Source: Company Filings; IndiaNivesh Research

In absence of this capex, GPPL is likely to end CY14E with o/s debt of ~Rs 2.7 bn
(indicating debt to equity ratio of 0.2x). On pursuing this capex plan, we do not
foresee any major increase in financial leverage, going forward.

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Forecasts up to CY15E
Income Statement
We expect GPPL to report impressive 25.3% top-line CAGR during CY12-14E, on the
back of (1) 12.0% CAGR in Container Terminal Volumes (to ~715,200 TEUs) (2) 11.4%
CAGR in Bulk Volumes (to ~3.7 MTs) and (3) impact of recent increase in tariff rates
($ denominated).
Top-line & Bottom-line to report 25.3% & Growth in Container volumes is on a lower base, as GPPL had lost business (~1,200
69.9% CAGR during CY12-14E TEUs/week) from Maersk in 2012 (replaced large ship with smaller ship). Over the
last few quarters, GPPL has reported new client wins and currently GPPL has business
with over 10 of the top 15 global shipping companies. At current levels, the company
has been reporting quarterly Container volume run-rate of ~160,000 TEUs (almost
to levels before loss of business from Maersk). With ramp-up in operations from
deal wins in recent months, we are comforted that the current run-rate is
sustainable. Accordingly, we have modeled 177,400 TEUs for Q4CY13E to arrive at
CY13 total of 644,400 TEUs. We expect the growth momentum to continue and
accordingly, have modeled Container volume of 715,200 TEUs and 793,900 TEUs
for CY14E and CY15E, respectively. At CY14E and CY15E, container volumes, the
Container Terminal would be running at ~84% and 93% utilization levels. We expect
Container Terminal capacity addition to contribute to business from CY16E onwards.

Container Volumes (TEUs in '000s)

900

793.9
800

715.2
700
644.4
610.2
600 570.5

500 466.1

400

300

200 169.0 170.4 165.3 177.4

156.5 161.0 163.0
130.3 142.3 136.5 134.4 143.0
122.7 125.9
105.5
88.1
100

0
Q1CY10 Q2CY10 Q3CY10 Q4CY10 CY10 Q1CY11 Q2CY11 Q3CY11 Q4CY11 CY11 Q1CY12 Q2CY12 Q3CY12 Q4CY12 CY12 Q1CY13 Q2CY13 Q3CY13 Q4CY13E CY13E CY14E CY15E

Source: Company Filings; IndiaNivesh Research

Q2 and Q3 happen to be the best quarters for Bulk volumes. GPPL reported Bulk
volumes of 0.98 mn tonnes in Q3CY13 (taking the total to 2.58 mn tonnes for
9mCY13). For their Bulk business, GPPL Imports/ Exports (1) Coal (yearly 1.5-1.8
mn tonnes, for UltraTech, Siddhi Cements and Narmada Cements), (2) Fertilizer
(yearly 1 mn tonnes), (3) Minerals (inc. of Bauxite, Limestone, Gypsum with 1-1.5
mn tonnes yearly capacity) and (4) Wheat. Management expected better demand
for Fertilizer and Wheat in Q4CY13 (these 2 to contribute ~80-85% of total bulk
volumes). Higher volumes and better realization from these two categories should
help GPPL cover-up for lower Coal volumes. Accordingly, we have modeled Cargo
volumes to be at 0.78 mn tonnes for Q4CY13 (taking CY13E total to 3.36 mn tonnes).
Also, from here-on we expect gradual uptick in Bulk volumes and accordingly have
modeled 11.4% CAGR in volumes during CY12-14E to 3.7 mn tonnes.

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Bulk Volumes (MTs in '000s)

4,500

4110.2

4,000
3690 3736.6

3,500 3360 3366.3

3011
3,000

2,500

2,000

1,500 1360
1220
1018 986
1,000 890 900 873
760 780 751 760 786.3
650 627 576
490
500

0
Q1CY10 Q2CY10 Q3CY10 Q4CY10 CY10 Q1CY11 Q2CY11 Q3CY11 Q4CY11 CY11 Q1CY12 Q2CY12 Q3CY12 Q4CY12 CY12 Q1CY13 Q2CY13 Q3CY13 Q4CY13E CY13E CY14E CY15E

Source: Company Filings; IndiaNivesh Research

GPPL had switched to dollar denominated tariff system from Aug-2012 onwards.
Prior to that, average blended realizations of the company were at approx. $ 7.1/
MT. Post switching to dollar tariff system, realizations shoot-up by 16.9% y/y to
$ 8.4/ MT in CY12. Given that the tariff hikes were made in Aug-2013 (in the range
of 7.5-15% for various cargo handling and Infra services), full impact of it would be
seen in Q4CY14E and CY14E. Accordingly, we have modeled ~6% and 12% increase
in tariff rates for CY13E and CY14E, respectively.
On a whole, we expect GPPL to report strong 25.3% top-line CAGR during CY12-14E
to Rs 5.8 bn.
Y E December (Rs mn) CY2011A CY2012A CY2013E CY2014E CY2015E
Container Volumes (TEUs) 610,200 570,500 644,400 715,200 793,900
Growth % -6.5% 13.0% 11.0% 11.0%
Bulk Volumes (mn tonnes) 3.69 3.01 3.37 3.74 4.11
Growth % -18.4% 11.8% 11.0% 10.0%
Crude (mn tonnes) 0.0 0.0 0.0 0.5 0.8
Growth % na na na 60.0%
Blendid Realization ($/MT) 7.1 8.4 8.8 9.9 10.2
Growth % 16.9% 5.7% 11.9% 3.5%

Net sales 3,661.9 3,715.4 4,588.7 5,830.8 6,732.5

Growth % 1.5% 23.5% 27.1% 15.5%
EBITDA 1,520.0 1,373.8 1,930.0 2,526.0 2,921.3
Growth % -9.6% 40.5% 30.9% 15.6%
EBITDA Margin % 41.5% 37.0% 42.1% 43.3% 43.4%
Depreciation 557.8 549.4 570.3 594.0 691.5
Other Income 460.7 599.4 538.1 471.0 451.0
Finance Costs 851.9 684.2 409.2 358.4 390.8
PAT 571.0 739.6 1,488.6 2,044.6 2,290.0
Profit from Associates 0.0 0.0 0.0 89.9 141.8
Adj. PAT 571.0 739.6 1,488.6 2,134.5 2,431.8
Growth% 29.5% 101.3% 43.4% 13.9%
PAT margin % 15.6% 19.9% 32.4% 36.6% 36.1%
Source: IndiaNivesh Research

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GPPL pays royalty to Gujarat Maritime Board (GMB) on the basis of cargo handled.
Also, after signing the Offshore Services Agreement with APMM (in Apr-12), GPPL
pays fee on cargo handled. Royalty paid to GMB would increase 20% once every
three years, up till the end of concession period. Currently, GPPL pays royalty charges
of 5% for Solid and 10% for liquid products to GMB. Additionally, yearly lease rent
of Rs 2.96 mn is paid to GMB (lease rates to increase once every 3 years by 20%).
Also, as per the Offshore Services Agreement with APM Terminals, GPPL pays fee of
$0.2 per 16 tonnes on Bulk Cargo volumes and $1 per TEU handled on Container
Terminal business.
Currently royalty, as % of net sales stand at ~3%.
After considering delays in capex execution, we expect GPPL to focus more on
bringing operational efficiencies in to play in CY14E. EBITDA margin expansion trend
is likely to continue on the back of higher volumes and realizations, better mix,
more of fixed costs at the port being covered. Accordingly, EBITDA margins would
expansion from 37.0% in CY12 to 43.3% in CY14E. In other words, EBITDA of the
company would report 35.6% CAGR during CY12-14E. In-line with EBITDA margin
movement, PAT margins are also likely to expand. With capex delays, there is a
possibility of existing debt being repaid (thereby interest expenses would decline
y/y to Rs 358.4 mn in CY14E) in CY14E, resulting in some financial leverage. Also,
profit from PRCL (its Associate) would add to PAT of the company. Accordingly, we
have modeled PAT margins to expand from 19.9% in CY12 to 36.6% in CY14E. In
other PAT would report 69.9% CAGR during CY12-14E to Rs 2.1 bn.

Balance Sheet & Cash Flows

Capex Funding Update: GPPL has an unlevered Balance Sheet currently, as they
repaid large portion of o/s debt in CY12. We expect GPPL to end CY13E and CY14E
with o/s debt of Rs 2.8 bn and Rs 2.7 bn (indicating D/E ratio of 0.2x), respectively.
Our lower debt level assumption factors in delays in capex spends (we modeled
capex spends to commence from Q4CY14E onwards).
We view this delay in capex to be a boon for the company (from balance sheet
stress perspective), as the company would generate Rs 8.7 bn of Free Cash Flows
during CY13-15E and majority of it could be used towards capex funding. This would
translate to minimal debt requirements and as a result, we expect D/E ratio to be at
comfortable 0.2x levels.

Working Capital Update:

Y E December (in days) CY2011A CY2012A CY2013E CY2014E CY2015E
Inventory Days 6 11 12 12 12
Debtor Days 32 41 43 36 35
Creditors Days 22 31 30 25 22
Working Capital Days 15 20 25 24 25
Source: Company Filings; IndiaNivesh Research

Strong Cash Flow generation potential of Rs
8.7 bn during CY12-14E
Ports in our view happen to be more of sticky business. Loss of Maersk business in
CY12 (till then the company was enjoying a healthy 15 days working capital cycle)
prompted company to go ahead and fetch new clients. In order to attract new clients,
we sense that company might have followed a bit of lenient working capital cycle
model (also the D/E ratio is maintained at comfortable level), resulting in WC cycle
expansion (to 25 days in CY13E). With new clients ramping-up business, we expect
the WC cycle to stabilize at current levels.

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Trading at 16.6% discount to CY14E SoTP
based PT of Rs 73
Valuation
At CMP of Rs 62, GPPL is trading at CY13E and CY14E, P/E multiple of 20.3x and
14.1x, respectively.
Pipavav Port has been awarded to GPPL on 30 years concession agreement, which
is likely to end on Sep 30, 2028.
In order to arrive at fair value of the port operations, we have used Discounted
Cash flow to Equity holders (DCFE) valuation methodology. While using the DCFE
methodology, we have used discounting rate of 11% to value future cash flows to
equity holders. Also, we have added the depreciated replacement value (Port
operations value while handing over the operations) to arrive business value from
port operations of Rs 71/share.

Particulars (Rs mn) CY13E CY14E CY15E

PBIT 1,897.8 2,402.9 2,680.8
Add: Depreciation 570.3 594.0 691.5
Less: Taxes 0.0 0.0 0.0
Less: Changes in WC (19.6) (89.6) 7.6
Less: Capex (1,190.5) (857.5) (5,647.5)
Cash flow avialable to Eq. & Debt. 1,258.0 2,049.9 (2,267.6)
Less: Interest Expenses (409.2) (358.4) (390.8)
Less: Debt Raised/ (Paid) (400.0) (100.0) 1,691.8
Free Cash flow to Equityholders 448.8 1,591.5 (966.6)
Source: Company Filings; IndiaNivesh Research

PV of Cash Per Share

Valuation Val. Method
Flows Val.
Value Per Share- from Operations DFCE Discount Rate- 11% 34,083 71
PRCL (38% stake) P/E FY15E P/E - 10x 2,389 4
Target Price Per Share 75
Source: Company Filings; IndiaNivesh Research

We have valued PRCL, the associate company by assigning 10x to its FY15E EPS to
arrive at per share value of Rs 4/share. We have used Sum-of-the-Parts based (SoTP)
based valuation methodology to arrive at CY14E based price target of Rs 75/share.
Given that stock is currently trading at 21% discount to its CY14E based price target
of Rs 75/share, we recommend BUY rating on the stock.

Risks to our estimates

 Losing business from any of the Shipping lines would be a negative risk to our
estimates.
 Government's proposal to regulate tariffs for non-major ports
 Sharp Rupee appreciation vs. USD would risk our revenue growth estimates
(as ~75% of revenues booked are in USD).
 Expansion plans (inc. of Bulk berths) may get prolonged due to delays in getting
the environmental clearances (despite approval of the recommendation made,
actual receipt of the clearance letter has not happened) and other reasons.

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Financial statements
Income statement Balance sheet
Y E December (Rs mn) CY2011A CY2012A CY2013E CY2014E CY2015E Y E December (Rs mn) CY2011A CY2012A CY2013E CY2014E CY2015E
Net sales 3,661.9 3,715.4 4,588.7 5,830.8 6,732.5 Share Capital 4,235.6 4,834.4 4,834.4 4,834.4 4,834.4
Growth % 1.5% 23.5% 27.1% 15.5% Reserves & Surplus 3,694.1 7,283.0 8,771.6 10,906.1 13,338.0
Operating Expenses 1,078.2 1,180.7 1,338.8 1,742.1 1,986.0 Net Worth 7,929.7 12,117.4 13,606.0 15,740.5 18,172.4
Employee cost 341.4 360.8 432.0 513.1 623.4 Long-term Debt & Oth. Liab. 7,169.6 3,367.9 3,147.7 3,070.7 4,763.5
Other Operating Expenses 722.2 800.2 887.9 1,049.5 1,201.7 Total Liabilities 15,099.2 15,485.4 16,753.7 18,811.2 22,935.9
Total Operating Expenses 2,141.9 2,341.6 2,658.7 3,304.8 3,811.2 Gross Block 17,514.8 17,821.4 19,011.9 19,869.4 25,516.9
EBITDA 1,520.0 1,373.8 1,930.0 2,526.0 2,921.3 Accumalated Depreciation 4,817.2 5,359.7 5,930.0 6,524.0 7,215.5
Growth % -9.6% 40.5% 30.9% 15.7% Net Block 12,697.7 12,461.8 13,082.0 13,345.5 18,301.5
EBITDA Margin % 41.5% 37.0% 42.1% 43.3% 43.4% Capital WIP 90.5 1,577.3 297.6 214.4 1,411.9
Depreciation 557.8 549.4 570.3 594.0 691.5 Investments 830.0 830.0 2,630.0 4,530.0 2,530.0
EBIT 1,422.9 1,423.8 1,897.8 2,402.9 2,680.8 Current Assets 1,280.4 1,164.7 1,502.5 1,655.7 1,720.9
EBIT Margin % 38.9% 38.3% 41.4% 41.2% 39.8% Inventories 57.0 114.5 153.0 194.4 224.4
Other Income 460.7 599.4 538.1 471.0 451.0 Sundry Debtors 323.6 418.1 548.1 583.1 654.5
Finance Costs & Prior Period Adj. 851.9 684.2 409.2 358.4 390.8 Cash & Bank Balance 705.3 510.7 676.4 743.3 706.9
PBT 571.0 739.6 1,488.6 2,044.6 2,290.0 Loans & advances 183.1 118.5 120.0 130.0 130.0
Tax 0.0 0.0 0.0 0.0 0.0 Other Current assets 11.4 2.9 5.0 5.0 5.0
Effective tax rate % 0.0% 0.0% 0.0% 0.0% 0.0% Current Liabilities & Prov. 743.0 1,148.8 1,338.4 1,514.4 1,608.3
PAT 571.0 739.6 1,488.6 2,044.6 2,290.0 Current Liabilities 667.8 971.6 1,096.2 1,158.1 1,196.9
Profit from JV/ associates 0.0 0.0 0.0 89.9 141.8 Provisions 75.2 177.3 242.2 356.3 411.4
Adjusted PAT 571.0 739.6 1,488.6 2,134.5 2,431.9 Net Current Assets 537.4 15.9 164.1 141.3 112.6
Growth% 29.5% 101.3% 43.4% 13.9% Other Assets 943.7 600.4 580.0 580.0 580.0
PAT margin % 15.6% 19.9% 32.4% 36.6% 36.1% Total Assets 15,099.2 15,485.4 16,753.7 18,811.2 22,935.9

Cash flow Key ratios

Y E December (Rs mn) CY2011A CY2012A CY2013E CY2014E CY2015E Y E December CY2011A CY2012A CY2013E CY2014E CY2015E
PBT (bef. Prior period adj.) 571.0 739.6 1,488.6 2,044.6 2,290.0 EPS (Rs) 1.3 1.6 3.1 4.4 5.0
Depreciation 557.8 549.4 570.3 594.0 691.5 Cash EPS (Rs) 2.7 2.9 4.3 5.5 6.2
Interest Income (123.0) (77.8) (75.0) (61.0) (65.0) DPS (Rs) 0.0 0.0 0.0 0.0 0.0
Other Non Cash Charges 837.8 644.3 409.2 358.4 390.8 BVPS (Rs) 37.4 36.9 37.4 42.0 50.8
Changes in Working Capital (1,201.2) 849.2 19.6 89.6 (7.6)
Tax (34.5) (83.5) 0.0 0.0 0.0 ROCE (%) 9.6% 8.3% 10.7% 12.4% 11.9%
Cash Flow from Operations 607.9 2,621.3 2,412.7 3,025.6 3,299.7 ROE (%) 7.2% 6.1% 10.9% 13.0% 12.6%
Capital Expenditure (532.1) (1,751.0) 89.2 (774.3) (6,845.0) RoIC (%) 3.6% 4.4% 8.2% 10.1% 9.3%
Free Cash Flow 1,139.9 4,372.3 2,323.6 3,799.9 10,144.7
Inventory Days 6 11 12 12 12
Interest Inc. & (Purch.)/ Sale of Cur. Invest. 521.8 123.2 (1,695.0) (1,726.2) 2,208.0 Debtor Days 32 41 43 36 35
Cash flow from Investments (10.3) (1,627.9) (1,605.8) (2,500.4) (4,637.1) Creditors Days 22 31 30 25 22
Working Capital Days 15 20 25 24 25
Equity Capital raised 0.0 3,500.2 0.0 0.0 0.0
Proceeds/ (Repayments) of borrowings (1,214.7) (3,721.2) (232.0) (100.0) 1,691.8 PER (x) 46.3x 38.0x 20.3x 14.1x 12.4x
Finance Costs (926.4) (667.0) (409.2) (358.4) (390.8) P/BV (x) 1.7x 1.7x 1.7x 1.5x 1.2x
Cash flow from Financing (2,141.1) (888.0) (641.2) (458.4) 1,301.0 EV/EBITDA (x) 21.4x 22.4x 15.8x 11.3x 11.0x

Net change in cash (1,543.5) 105.4 165.7 66.8 (36.3) M-Cap/Sales (x) 6.7x 6.8x 6.1x 4.9x 4.3x
Cash at the beginning of the year 1,948.8 405.3 510.7 676.4 743.3 Debt/Equity (x) 0.8x 0.3x 0.2x 0.2x 0.2x
Cash at the end of the year 405.3 510.7 676.4 743.3 706.9 Debt/EBITDA (x) 4.4x 2.2x 1.5x 1.1x 1.5x
Source: IndiaNivesh Research

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Disclaimer:
The projections and the forecasts described in this report were based upon a number of estimates and assumptions and are inherently subject to significant
uncertainties and contingencies. Projections and forecasts are necessarily speculative in nature, and it can be expected that one or more of the estimates on which
the projections are forecasts were based will not materialize or will vary significantly from actual results and such variations will likely increase over the period of
time. All the projections and forecasts described in this report have been prepared solely by authors of this report independently. All the forecasts were not
prepared with a view towards compliance with published guidelines or generally accepted accounting principles.
This report is for information purpose only and this document / material should not be construed as an offer to sell or the solicitation of an offer to buy, purchase or
subscribe to any securities, and neither this document nor anything contained therein shall form the basis of or be relied upon in connection with any contract or
commitment whatsoever. This document does not solicit any action based on material contained herein. It is for the general information of the clients of INSPL.
Though disseminated to the clients simultaneously, not all clients may receive this report at the same time. It does not constitute a personal recommendation or
take into account the particular investment objective, financial situation or needs of individual clients. Persons who may receive this document should consider and
independently evaluate whether it is suitable for its/ his/ her / their particular circumstances and if necessary seek professional / financial advice. Any such person
shall be responsible for conducting his / her/ its/ their own investigation and analysis of the information contained or referred to in this document and of evaluating
the merits and risks involved in securities forming the subject matter of this document. The price and value of the investment referred to in this document / material
and income from them may go up as well as down, and investors may realize profit / loss on their investments. Past performance is not a guide for future performance.
Actual results may differ materially from those set forth in the projection. Forward-looking statements are not predictions and may be subjected to change without
notice. INSPL accepts no liabilities for any loss or damage of any kind arising out of use of this report.
This report / document has been prepared by INSPL based upon the information available to the public and sources believed to be reliable. Though utmost care has
been taken to ensure its accuracy, no representation or warranty, express or implied is made that it is accurate. INSPL has reviewed this report and, in so far as it
includes current and historical information, it is believed to be reliable, although its accuracy and completeness cannot be guaranteed.
Following table contains the disclosure of interest in order to adhere to utmost transparency in the matter;

Disclosure of Interest Statement

1. Analyst ownership of the stock No
2. Group/Directors ownership of the stock Yes
3. Broking relationship with company covered No
4. Investment Banking relationship with company covered No

This information is subject to change without any prior notice. INSPL reserves the right to make modifications and alternations to this statement as may be required
from time to time. Nevertheless, INSPL is committed to providing independent and transparent recommendations to its clients, and would be happy to provide
information in response to specific client queries.

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