We spoke with MSEZ management for an update on traffic and progress on expansion plans. Long-term assured growth remains intact, with some near-term positive surprises possible.
Following extremely strong 29% volume growth in the last nine months, management expects much slower growth in the next three months. However, growth is still ahead of the expected decline in traffic for competing ports.
The management expects growth to rebound in FY3/10, given the diversified nature of its bulk cargo (see Figures 1 and 2) and picking up of cargo from long-term contracts.
MSEZ has a long-term agreement with Adani Power for imported coal. It expects 1,320MW to be operational by April 2010 against our estimates of 2012, leading to potential upside on volumes.
It has also started exporting cars from its dedicated terminal and expects to ramp up to 0.1m in a year.
The company recently received environmental clearance for developing 40km of waterfront. The total capacity can move up to 250 MTPA (million tonnes per annum) against current capacity of 45 MTPA.
We reiterate our belief that MSEZ will continue to take market share from competition, given its unique positioning and assured contracts.
The stock is trading at premium to its Asian counterparts, which is justified, in our view, given the expected 40% CAGR growth in the next five years, much above that of its peers.
We maintain our OUTPERFORM rating with a 12-month price target of Rs460 based on a Sum of Parts methodology.