Shares of Gujarat Pipavav Port Ltd gained 7% on Wednesday, more than recouping the losses it suffered after announcing its September quarter results. The stock gained on reports that the parent group firm Maersk Line shifted a shipping line service to Pipavav port.
The new shipping line service can help arrest the flagging container volume at the port (see Chart). Slowing demand for coal means dry bulk volume are on a downtrend as well. Emkay Global Financial Services Ltd estimates the new service to take Pipavav’s monthly container volume run-rate to around 65,000 twenty-foot equivalent units (TEUs) next fiscal from around 55,000 TEUs in the current year.
As the new service begins to call at Gujarat Pipavav Port from the beginning for 2018, Emkay estimates the full benefits to reflect in the company’s earnings from next fiscal year. “As a result, we have raised our FY19E EPS estimate by 2.4%. We also introduce FY20E estimates," Emkay said in a note. “We also raise our FY20E volume growth assumption to 10% yoy (earlier 6% yoy)." EPS is earnings per share.
According to Emkay, the parent group’s objective to improve the profitability of the transport and logistics business may be helping drive Maersk Line (a group entity) services to its own ports.
“In the Indian context, the shipping giant has favoured adding new services or introducing dual calls for its existing services in the country at Pipavav and GTI, JNPT (APMT Mumbai), thus driving more volumes for these ports," Emkay adds.
The company has not revealed the strategy. Nevertheless, the strategy can help Gujarat Pipavav Port only to a certain extent. As Emkay points out, as new terminals come on stream (and reduce its bargaining power), the parent firm’s ability to convince shipping lines to call at Gujarat Pipavav Port is diminishing.
Further, there is another structural problem of demand imbalance at Pipavav, caused by feeder cargo availability, the broking firm points out.
While these concerns should bother the potential buyer, for now the addition of the new line is providing much required relief for investors. What is left now is for earnings to reflect these benefits.