Gujarat Pipavav Port - Analysis

CRISIL has assigned a CRISIL IPO grade of "4/5" (pronounced "four on
five") to the proposed initial public offer (IPO) of Gujarat Pipavav
Port Ltd (GPPL). This grade indicates that the fundamentals of the IPO
are above average relative to the other listed equity securities in
India. However, this grade is not an opinion on whether the issue
price is appropriate in relation to the issue fundamentals. The grade
is not a recommendation to buy / sell or hold the graded instrument,
or a comment on the graded instrument’s future market price or its
suitability for a particular investor.




GPPL is backed by a strong promoter group - APM Terminals, which is
one of the biggest terminal and port operators in the world and the
IPO grade assigned to the company takes this into account. APM
Terminals brings to the company technological expertise, best
practices in port operations, and a strong and experienced management.
APM Terminals Pipavav enjoys favourable oceanographic conditions,
welldeveloped infrastructural facilities, and good rail and road
connectivity to the hinterland. The grade reflects APM Terminals
Pipavav’s strategic location in terms of proximity to the landlocked
north and north-western regions, which account for 65% of the
container cargo traffic in India. The grading takes into account
strong industry prospects. The container cargo market size of north
and north-western India is currently ~ 6 mn TEUs (twenty-foot
equivalent unit – a 20-foot long container) and is expected to grow at
a CAGR of 11- 12% over the next three to four years. Given that
Jawaharlal Nehru Port Trust (JNPT) is congested and there are no other
ports on the western side except Mundra to handle incremental traffic,
APM Terminals Pipavav is positioned well to attract this incremental
traffic. The port is located at an approximate distance of 150
nautical miles from the ports located in and around Mumbai. Hence,
ships calling to JNPT could sail to APM Terminals Pipavav if JNPT is
congested. The bulk handling capacity in Gujarat and Maharashtra is
expected to grow at a CAGR of 22% over the next five years from 61 mn
tonnes in FY09 to 167 mn tones in FY14. Further, the commissioning of
new power plants near the port augurs favourably for the bulk cargo
traffic growth at the port.


The grading is constrained by the incremental capacity expansion
planned by other ports on the western coast of India, viz. Mumbai and
JNPT ports. However, capacity expansion will take a minimum of
two-three years to become operational. The grading takes into account
the fact that GPPL does not have long-term contracts with companies
that use the port for the import and export of bulk cargo. The grading
also reflects low operating margins reported by the company from CY05
to CY08 compared with other players in the industry.


About the company and the issue Gujarat Pipavav Port Limited (GPPL),
incorporated in 1992, is the developer and operator of APM Terminals
Pipavav, India’s first private sector port. The company is promoted by
APM Terminals, one of the world’s leading terminal and port operators.
GPPL has the exclusive right to develop and operate APM Terminals
Pipavav and related facilities until September 2028 pursuant to the
Concession Agreement with Gujarat Maritime Board and the Government of
Gujarat. GPPL is principally engaged in providing port handling and
marine services for container cargo, bulk cargo and LPG cargo. The
container cargo handling capacity at the port is 0.6 mn TEUs and the
bulk cargo handling capacity is 5 mn tonnes p.a. In addition, GPPL
operates a container freight station for stuffing and de-stuffing of
container cargo to and from ships. It also generates revenue from
land-related and infrastructure activities. The company’s revenues
amounted to Rs 1.5 bn for the nine months ended September 2009, of
which container cargo accounted for 48%, bulk cargo accounted for 45%,
and marine services to Ultratech and land-related revenues accounted
for the rest. For the nine months ended September 2009, the company’
operating margins were 18.5%, which is significantly higher than 7.7%
in CY08. The improvement in operating margins can be attributed to the
increase in utilisation rates.


GPPL’s management is headed by Mr. Prakash Tulsiani, who has held
several management positions in the A.P. Moller - Maersk Group prior
to joining the company. GPPL has three independent directors - Mr. Per
Jorgensen (also the company Chairman), Mr. Pravin Laheri, IAS (Retd.)
and Mr. Abhay Bongirwar; two of them have been on the board for the
past two years. All of them are fairly involved in the company and
have a good understanding of the company's businesses. Of the expected
issue size of Rs 5,000 mn, GPPL plans to utilise around Rs 3,000 mn to
part pay the loan taken under the loan agreement; balance will be
utilised for investments in capital expenditure, equipments and
general corporate purposes.