Absence of SEZ revenue hurts Mundra Port’s margins

Absence of SEZ revenue hurts Mundra Port’s margins

Mundra Port and Special Economic Zone Ltd (MPSEZ) has seen a 26% increase in total cargo during the first six months of the fiscal, helped by a higher share of coal and containers. This accounted for 54% of the total cargo handled by MPSEZ. For the major ports, coal has remained flat (up 1.5%) and containers have grown 11%. Over the same period, coke/coal traffic has grown 52% and container traffic 33% at Mundra.

Further, MPSEZ benefited from the shutdown of Mumbai Port Trust and Jawaharlal Nehru Port Trust for at least a week due to a collision of ships. The data shows the increasingly important role private ports are playing in the economy.

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Meanwhile, for the quarter ended September, the company’s volumes have increased 24%. Volume growth in dry bulk cargo and container/cars cargo was strong. Dry cargo benefited from coal volumes, which accounted for about one-fourth of the total volume of the company in September while containers accounted for 30% of the total volume.

However, liquid cargo volume fell 17% in the September quarter due to a shutdown of the plant refinery. The company maintains that price realization stood at $325-350 ( 14,430-15,540 today) per tonne on different products and that they were in the same range last year. This has led to a 26% increase in total operating income to 413.5 crore.

Operating profit margins show a decline of 546 basis points to 66.2% from 71.6% last year. One basis point is one-hundredth of a percentage point.

This was mainly due to the absence of SEZ income this time in total revenue. The company maintains that SEZ income of 18 crore (about 35 crore last year) was not accounted for this time and will reflect in the December quarter financials. Operating profit thus grew at a slower pace of 17% to 274 crore. Net profit though increased 21% to 212 crore, as finance costs declined sharply. This was because the company’s cost of borrowing has declined.

On a sequential basis, numbers were disappointing with flat revenue and net profit, and the Street wasn’t pleased. The MPSEZ stock fell 3.7% on Monday to 164.50 while the BSE-100 was up 0.5%.

In the last one year, the stock has outperformed the BSE-100, but has underperformed since the beginning of this fiscal. “We have reduced our FY11-12 estimates by 2.6-5%, as we believe management is consciously moving slow on SEZ development, evaluating synergy with Mundra Port. After a recent site visit to Mundra Port and the SEZ, we emerge more positive on execution capabilities and lower discounting rate for SEZ cash flows by 200 basis points to 12% (in line with other MPSEZ projects valued)," wrote analysts from JPMorgan in a note to clients on 15 October. Most of the positives seem to be factored in the stock price at the current levels.

Graphic by Yogesh Kumar/Mint

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