Gujarat Pipavav: Waiting for a white knight
Reports that the promoter of Gujarat Pipavav Port Ltd is looking to exit the company have brought little cheer to investors. The stock has continued to trend lower. It lost about 17% in the last one year, taking stock returns in the last three years at 5.6%. In comparison, consider Adani Ports and Special Economic Zone Ltd’s gain of 73% in the last one year.
The stark underperformance is surprising, considering that Gujarat Pipavav is part of APM Terminals, one of the largest container terminal operators in the world.
To be sure, Gujarat Pipavav and Adani Ports are strictly not comparable. Gujarat Pipavav has stuck to one port in Gujarat while Adani added several ports in the rest of the country.
Even so, if one compares the companies’ core ports, Gujarat Pipavav’s performance pales in comparison to Adani’s. In the seven years from fiscal year 2010 (FY10) to March this year, container volumes at Gujarat Pipavav, which have been its core traffic, increased 42%. But cargo volumes at Adani’s Mundra port, which also includes non-container traffic, almost tripled from FY10.
The strong growth underscores Adani’s dynamic approach. The company has been regularly expanding capacities to capture new business opportunities. Of late, it has ramped up container handling capacities to offset the slowdown in coal traffic. Gujarat Pipavav on the other hand saw only one major expansion, notably in container handling capacity.
The new capacities and traction in liquid and roll-on roll-off or four-wheeled cargo are expected to help Gujarat Pipavav report better earnings performance in future.
But given the underutilization of the existing capacities, growing competition from other ports and the lack of a growth push by the parent, many analysts are wary of Gujarat Pipavav’s long- term prospects. Revenues and profits are expected to increase, but growth expectations are muted. According to an ICICI Securities Ltd report released in May, improving turnaround time at Jawaharlal Nehru Port, a large container port in the country, and Adani’s focus on container business at its Mundra port and the resultant rise in competition can weigh on Gujarat Pipavav’s realizations and revenue visibility.
While the concerns seem to be weighing on the stock, the prospect of an ownership change is bringing in a ray of hope. Given its relatively small contribution, the focus of the parent firm on Gujarat Pipavav has been limited in terms of expansion of the port, hinterland connectivity, cargo diversification and client acquisition, Kotak Securities Ltd’s private client research said in a note. A new and more focused strategic owner can significantly change the operations and financial performance of the port, says the broking firm.
The port has much potential. It has good draft (that helps handle large ships), and rail and road connectivity. According to Kotak Securities, the unutilized land can be used to expand capacities by as much as five times. The only challenge is to find the right buyer.