GPPL

Gujarat Pipavav Port has entered the primary market on 23^rd August 2010, with a fresh issue of Rs. 500 crore and offer for sale of upto 1.17 crore equity shares of Rs. 10 each, both, in the price band of Rs. 42 to 48 per share. The company will make a fresh issue of 10.4 to 11.9 crore equity shares, while the offer for sale will range between Rs. 49 to 56 crore, depending on the price discovered. The issue closes on 25^th August for QIB bidders and on 26^th August for HNI and retail category.

The company is the developer and operator of India’s first private sector port, APM Terminals Pipavav, providing port handling and marine services for container, bulk and LPG cargo. The company is promoted by APM Terminals, part of the USD 50 billion AP Moller-Maersk Group, which operates 50 terminals globally. The port has a concession agreement of 30 years, which expires on 30^th September 2028, extendable upto a maximum period of 2 years, subject to certain conditions.

The port, which commenced commercial operations in April 2002, has a deep water draught upto 14.5 metre and deploys 3 tugs for pilotage and towage services. It has a coal yard, 4 berths for bulk and container cargo aggregating to 1,075 metres and an LPG berth with a service deck of 65 metres. An all-weather port, protected by two islands acting as natural breakwater, Gujarat Pipavav port is strategically located near the entrance of Gulf of Khmabhat; being closer to north and north-west India (two regions together generating about 66% of total container throughput in India) vis-à-vis JNPT port at Mumbai.

The port has established good rail and road connectivity. Through rail, cargo is transported in double stack container rakes, on a 269 km broad gauge railway line, run by Pipavav Railway Corporation Ltd., in which the company holds 38.8% equity interest. Double stack container train ensures lower freight cost as well as faster evacuation of containers from the port. Also, 10 km long 4-lane road connects the port to the national highway.

Total cargo handled at the port increased from 1.66 million tonnes in CY07 to 3.37 million tonnes in CY09 of bulk cargo and from 0.19 million TEUs in CY07 to 0.32 million TEUs in CY09 of container cargo. For CY09 and 3 months ended 31^st March 2010, it reported operating revenues of Rs. 219 crore and Rs. 54 crore, respectively.

It has a right to develop 1,561 acres of land at the port, of which, approximately 485 acres has already been developed and balance will be used for additional berthing and cargo handling facilities both at the waterfront and in the back-up areas.

Of the Rs. 500 crore proposed to be raised by the company via fresh issue, Rs. 300 crore would be utilized to retire high-cost debt (bearing interest of 13-13.5%), Rs. 82.5 crore towards capital expenditure, Rs. 28.7 crore towards purchase of capital equipment and balance for general corporate purposes. The funds for all the above purposes will be deployed in CY10 itself.

Through the IPO, two funds, namely The Infrastructure Fund of India LLC and The India Infrastructure Fund LLC, are making a part exit of 50%, which have average cost of acquisition of Rs. 42.85 and Rs. 66.45, respectively. The company’s promoters, having invested in the company since June 2001, have an average cost of acquisition of shares of Rs. 44.30.

The company’s present equity stands at Rs.314.9 crore, which will increase to Rs.433.9 crores post IPO, assuming price being discovered at 48 per share. However, its networth, as on 31^st March 2010, stands at Rs. 280 crore, significantly lower due to annual losses.

Since the company is an infrastructure play, operating a fixed cost business, with negative profitability, it must be valued on assets / capital employed basis. The company’s capital employed, representing the total investment made to develop the port and related assets, as on 31^st March 2010, stands at Rs. 2,193 crore, of which Rs. 1,105 represents debt and the balance is equity.

At the upper end of Rs. 48 per share, the company will have a market cap of Rs. 2,011 crore on listing. Adding to this, the net debt of Rs. 749 crore, after deducting loan prepayment amount, leads to an enterprise value of Rs. 2,761 crore. This is very low compared to the size and nature of business. 

The company has invested Rs. 2,193 crore and is now available at a valuation of Rs. 2,761 crore i.e. at 1.26 times the amount invested. Excluding the debt portion above, the expected market cap of Rs. 2,011 crore is 1.85 times the equity component of the capital invested by shareholders. Post-listing, the company’s debt equity ratio will reduce to 1.0 from 3.9 presently.

The noteworthy feature of the project is that the port is already operational and most of the present shareholders (promoters and PE investors) have, at times in the past, acquired shares at prices higher than Rs. 48 per share. The company also stands to benefit from both the technological and operational know-how of its promoters APM Terminals as well as the group’s patronage. Moreover, increase in coal traffic, the largest bulk commodity handled at APM Terminals Pipavav presently in volume terms, will augment revenues for the company, going forward.

At the upper end of the price band, at 48, the company is valued at a PBV of 5.4 times, on pre-money basis and on 2.6 times, on post-money basis. Only other listed port operator, Mundra Port and SEZ, is presently trading at a PBV of 9.4 times, based on its book value as of 31^st March 2010 and on PBV of 8.9 times, based on book value as of 30^th June 2010. Thus, on a relative basis too, the issue is valued attractively.

As the infrastructure projects have huge potential and this being an operational port with the strong pedigree of the APMM Group, it represents an excellent investment bet and is recommended for investment even at the upper band of Rs.48 per share.