Standard Chartered assigns outperform rating to Essar Ports

Standard Chartered assigns outperform rating to Essar Ports

New Delhi: Buoyant over the performance of the private sector ports, the Standard Chartered Group has assigned an ‘outperform rating´ to Essar Ports, the demerged entity of Essar Shipping Port and Logistics (ESPLL).

“We have identified our top picks, Essar Ports and MPSEZ, using our eight-factor strategic rating score card. Essar Ports rates strongly for its captive demand and significant valuation upside," the report reads.

It has projected a target of 190 for Essar Ports Ltd, translating into a whopping 79% gain prospect on the base price 106 as of 16 June, giving a score of 23.6 on a scale of 32.

Comparatively, it projected a lower gain potential of 32% for Mundra Port and Special Economic Zone (MPSEZ), fixing a target of 201 against the base of 152, though it assigned a higher score of 26.1.

The factors taken into account in the equity research report -- dubbed ‘Scout´ -- include location, ecosystem, competition, parentage, capacity, execution capability, traffic growth and financial strength.

Standard Chartered has worked out the Net Asset Value (NAV) of the four ports of Essar at 271 per share and has fixed the target based on a 30% discount to it.

“Our sum-of-the-parts NAV of the four ports is 11100 crore or 271 per share; our price target based on 30% discount to NAV is 190," the report said.

It added, “The stock (Essar Ports) is trading at FY’13E PE (price earning), EV/EBITDA and PB (price to book ratio) of 14x, 9.5x and 1.7x, respectively. We expect 39 per cent revenue and 131% earnings CAGR over FY11-14E; expect cash RoE of 22% over FY12-14E."

The researcher has assigned the rating of “in-line" and “outperform" to two other port companies considered by it -- Gujarat Pipavav Ports and Marg, respectively -- commenting, “Marg is a high-risk, high-return play with high traffic growth, but high leverage. GPPL has strong management and operational/financial leverage but limited valuation upside".

Enumerating risks in Essar Ports, the research house stated, “Lack of external customers increases the dependence on the performance of group companies for cargo growth."

Essar Ports had witnessed massive buying at its counter in debut trade on 31 May and it skyrocketed by over 32.81% on the NSE.

Last month, ESPLL completed the demerger process for hiving off the company into two entities -- Essar Ports Ltd and Essar Shipping Ltd.

According to the demerger plan, ESPLL became Essar Ports Ltd, while the Shipping, Logistics and Oilfield drilling businesses of the erstwhile entity stood spinned off into a separate company called Essar Shipping Ltd, which is expected to list in July, 2011.

Shares of Essar Ports and Mundra Ports and SEZ were trading at 98.1 (up 3.37%) and 156.35 (down 0.41%), respectively, on the BSE on Wednesday afternoon.

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