Gujarat Pipavav Port shares factor in the positives
The sharp run-up in GPPL's shares suggests that investors may have captured the good news to a considerable extent
Shares of Gujarat Pipavav Port Ltd (GPPL) did well in 2014. Consider this: the GPPL stock more than tripled last year, while the S&P BSE 200 index rose by 35%.
What were the reasons for this outperformance? Firstly, container volume growth has been strong. For the nine months ended September, the company’s container volume increased by about 25% year-on-year to about 584,000 twenty-foot equivalent units (TEUs). Higher volumes were helped by addition of new services and upgrading existing services.
Container volume for GPPL was expected to grow by approximately 17% to 770,000 TEUs in CY14E and by approximately 18% to 910,000 TEUs in CY15E, pointed out a report from Kotak Securities Ltd on 9 January. “Strategic location on the west coast and ability to provide seamless railway connectivity to hinterland helps GPPL attract container volumes from the capacity constrained congested JNPT port in Mumbai," added the Kotak report.
Secondly, profitability has been strong. Revenue growth for the nine months ended September was about 33% against the same period last year. A strong operating profit performance and, accordingly, an improvement in operating margin, helped the company report relatively better net profit growth. GPPL’s total operating expenses increased at a much slower pace of 4%, helping operating profit growth of 65% to ₹ 287 crore.
Operating profit margin increased to 58% for the nine months ended September, higher than 46.5% seen in the same period last year. It also helped that other income more than doubled (up 121%) for the nine months ended September to ₹ 31 crore. GPPL’s pre-tax profit thus doubled to ₹ 231 crore. Slower pace of depreciation costs and a decline in finance expenses also helped profit growth in the nine months ended September.
The company plans to enhance its container-handling capacity to about 1.35 million TEUs from about 850,000 TEUs at present. According to IIFL Institutional Equities, such timely capacity addition improves GPPL’s competitive position. “With robust cash flows ( ₹ 400 crore PA) and a healthy balance sheet with debt-to-equity ratio of 0.2 times (net cash company), funding capex does not seem a challenge to us," wrote analysts from IIFL in a note on 2 January.
While that augurs well, the sharp run-up in GPPL’s shares suggests that investors may have captured the good news to a considerable extent.
For the December quarter, even as analysts expect a strong quarter, volumes may be sluggish due to the high base effect of last year. Moreover, outlook for the company’s bulk handling business is subdued. Those factors should keep near-term upsides capped.
The writer doesn’t own shares in the above-mentioned companies.
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