IPO Note | Gujarat Pipvav Port Ltd | 23 August 2010 Aditya Birla Money

Gujarat Pipavav Port Ltd (GPPL) – Engineering India’s Success Short to medium term Investors AVOID

Company background and business model Long term Investors SUBSCRIBE

Gujarat Pipavav Port Limited (GPPL) is promoted by APM Terminals B. V. (the ports and
terminals company of the AP Moller-Maersk group) with its subsidiaries APM Terminals
Issue Details
Mauritius Holding Limited and APM Terminals Mauritius Limited. The company has the
exclusive right to develop and operate Port Pipavav, India's first private sector port and Issue Opens Aug 23, 2010
related facilities until September 2028. The port has multi-cargo and multi-user
Issue Closes (Institutions) Aug 25, 2010
operations. During 2009, APM terminals Pipavav handled 3.37mn tonnes of bulk cargo
Issue Closes (Retail) Aug 26, 2010
and 0.32 mn TEU’s of container cargo.
Equity Offerings (In mn) 104.2
GPPL is principally engaged in providing port handling and marine services for container
Face Value 10.0
cargo, bulk cargo and LPG cargo. The container cargo handling capacity at the port is
0.6 million TEUs (twenty-foot equivalent unit – a 20-foot long container) and the bulk Price Band `42 - `48

cargo handling capacity is 5 mn tonnes p.a. Port Pipavav is strategically located near the Issue Size (in bn) `5.0
entrance of the Gulf of Khambhat (formerly known as the Gulf of Cambay) on the main Minimum Application Lot 130
maritime trade routes, which helps the company to serve imports from and exports to the
Max Application money(Retail) `99,840
Middle East, Asia, Africa, the United States, Europe and other international destinations.
Issue Type 100% Book Building
Presently APM Terminals owns a 57.9% equity interest in Gujarat Pipavav Port Limited.
Listing NSE & BSE

Key Strengths BRLMs

Kotak Mah Cap
Co,IDFC Cap Ltd

Source: RHP
Strategically located in high growth north and northwest regions of India

 Port Pipavav is one of the principal gateways on the west coast of India. It is Shareholding Pattern (%)
strategically located near the entrance of the Gulf of Khambhat on the main maritime
trade routes, which helps it to serve imports from and exports to the Middle East, Pre Issue Post Issue
Asia, Africa and other international destinations. The landlocked north and Promoter 57.9 42.0
northwestern region of India, currently generates 30.0% of the container throughput Public & Others 42.1 58.0
from India. Port Pipavav is located in close proximity to the markets of these regions
and will be able to capitalize on the upcoming opportunity. Source: RHP

Strong and well renowned promoter Issue Structure (In No Shares)

 The company’s promoter, APM Terminals, is the one of the largest container terminal
Issue size (@ `48) 115.9mn
operator in the world with a strong global network of 50 terminals in 34 countries and
5 continents. During 2009, APM Terminals handled 31.0 mn TEU’s and had revenues of which employee reservation 2.1mn
of over US$3bn. GPPL receives various benefits from its relationship with APM Net issue 113.8mn
Terminals such as access to modern technology, operational know-how, increased
Of which offer for sale (move down) 11.7mn
bargaining power and competitive rates for purchase of port equipment, and access
to experienced personnel resources from APM Terminals. Maersk Line and Face value `10 each
Safmarine Container Lines, part of the APMM Group, are also among the largest Fresh issue 104.2
customers of the company and operate regular cargo shipping service from its Port to
Break-up of net issue to public:
international destinations, including the Middle East, Europe and the United States.
QIB's portion (minimum) 68.3mn
Flexibility in determining tariffs
Non-institutional portion (minimum) 11.4mn
 The company is not covered within the regulatory purview of the Tariff Authority of Retail Portion (minimum) 34.1mn
Major Ports, and is entitled to determine the tariffs at the Port, subject to the
Source: RHP
provisions of the Indian Ports Act, 1908, as amended. Company’s ability to determine
tariff rates helps the company to compete effectively and dictate the terms and
conditions. Analyst Details
 
Strong and well developed infrastructure Shreyans Mehta
 Port Pipavav currently allows vessels with up to 14.5 metre draught at chart datum 022-42333544
and deploys three tugs for providing pilotage and towage services. The company has shreyans.m@adityabirla.com
four dry cargo berths with a total length of 1,075 metres and an LPG berth with a
service deck of 65 metres. The 4,550 metre channel length at the Port allows day and
night marine operations throughout the year. The container berth is equipped with
eight quay cranes to handle ship-to-shore operations and the company‘s container
yard is equipped with 18 RTGs which are expected to achieve fuel savings of ~45%
as compared to regular RTG’s.

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 IPO Note | Gujarat Pipvav Port Ltd | 23 August 2010 Aditya Birla Money

Object of the Issue

 
 Prepayment of loans of the company (` 3000 mn)
 Investment in capital expenditure. (` 1112.4 mn)
 Balance for general corporate purposes. 

Company’s strategy going forward

 
Develop land to aid the growth of its Port operations
Under the Concession Agreement, GPPL has the right to develop approximately 1,561 acres of land. The company has developed 485
acres of land and has a balance of 1,076 acres of land which it can utilize for expanding its port operations. With ample land availability, the
company can significantly increase its capacity through marginal investments and capitalize on the opportunities. In order to utilize
available waterfront and land area company also plans to develop and sub-lease land to third parties, thus providing it an opportunity to
earn incremental revenues

Increase bulk cargo volumes and enter strategic arrangements for use of port facilities
The company plans to set up a dedicated coal terminal and has entered into MOU with companies to use its port facilities for transporting
coal for their power plants. Strategic relationships through long-term contractual agreements will enhance the company’s business
prospects by bringing stable and increased cargo traffic in the future.

Key Industry growth drivers

 
Ports are an important form of infrastructure in Indian economy. They play a vital role in facilitating international trade and commerce by
providing an interface between the ocean transport and land-based transport. Ports are the gateways to India's International trade
especially the sea transportation, which handle over 90% of foreign trade. India has 12 Major ports and about 200 minor ports. Indian
Shipping Industry has, over the years, played a crucial role in the transport sector of India’s economy. Approximately 95% of the country’s
trade by volume and 70% by value is moved through Maritime Transport.

The Major Ports handled a total traffic of 530.53 million tonnes during the financial year 2008-09 and 411.95 million tonnes up to December
2009 in the financial year 2009-10. The Shipping ministry is estimating a traffic of 600.8 mn tones during the year 2010-11
 

Traffic handled at major ports (mn tonnes)

 
Target 2009 Actual 2009 Actual 2008 2009-10 2010-11
Port (April-Dec.) (April-Dec.) (April-Dec.)
Port Target Actuals Target
Kolkata 10.03 9.63 8.26
Kolkata 13.41 13.05 14.1
Haldia 33.44 24.61 31.86
Haldia 42.71 33.25 34.5
Paradip 40.24 41.73 32.50
Paradip 56.03 57.01 63
Visakhapatnam 50.06 49.31 48.22
Vizag 67.01 65.5 70
Chennai 47.64 45.83 41.66
Tuticorin 16.34 17.63 16.42 Ennore 12.45 10.7 13.2

Cochin 13.85 12.06 11.77 Chennai 64 61.06 65.51

New Mangalore 29.82 27.11 27.71 Tuticorin 22.01 23.79 25.13

Mormugao 31.74 31.26 26.46 Cochin 18.96 17.43 19.1
Jawaharlal 50.41 44.55 44.10 New Mangalore 40.34 35.53 38.74
Nehru Mormugao 45 48.85 50
Mumbai 39.47 40.36 38.58 Mumbai 53.46 54.54 58
Kandla 58.30 59.74 55.74 JNPT 67.88 60.75 62
Ennore 9.25 8.13 8.52 Kandla 78 79.52 85
All Major Ports 430.59 411.95 391.80 Port Blair N.A N.A 2.5
Source: Annual Report 09-10; Ministry of Shipping Total 581.26 560.98 600.78
Source: Ministry of Shipping
 
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 IPO Note | Gujarat Pipvav Port Ltd | 23 August 2010 Aditya Birla Money

Ports in Gujarat
 Gujarat state ranks 1st in terms of Cargo amongst all non major ports.
 Ports in Gujarat accounts for a ~35% of the total traffic handle by all ports in India.
 1st Indian state to have an LNG terminal (2/3 in India are in Gujarat)
 1st Indian state to have a Chemical terminal.
 1st private port “Pipavav”

 
Source: www.gujaratindia.com Source: www.gujaratindia.com

Total traffic for Non-Major ports grew at over 16% CAGR during 2004-2010 to cross 206mt in 2009-10; as compared to 10% CAGR for
India.
 Non- Major ports in Gujarat account for:-
 Over 70% of total traffic handled by all the Non-major ports in India
 Over 20% of total traffic handled by all ports in India together
 Over 70% of total traffic handled by all the Ports in Gujarat

Gujarat's Percentage Share of Cargo Handled by all Precentage Share of Commodities

Non-major Ports in India in Gujarat (2009-10)
100%
Others
80% 14%
Fertilizer &
60% FRM
4%
40%
Coal
20% 11%
POL
0% Building 60%
Materials
Fertilizer
Materials
POL

Iron Ore

Coal

Total
Others
Building

& FRM

7%
Iron Ore
4%
2002-2003 2008-2009

Source: www.gujaratindia.com Source: www.gujaratindia.com

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 IPO Note | Gujarat Pipvav Port Ltd | 23 August 2010 Aditya Birla Money

Exports (Gujarat)
Major Commodities Export to
Import Export Traffic (In LT)
Petroleum and Chemical UAE, Europe, Singapore, Indonesia 2500
2000
1500
Minerals UAE, China, Georgia, Japan
1000

Food Grains & Agri 500

USA, UAE, China, Japan, Indonesia
Products 0
Import Export Total
General Cargo Europe, Sri Lanka, UAE
2008-09 2009-10

Source: www.gujaratindia.com

Imports (Gujarat)
Major Commodities
LNG and LPG
Import From
Container Traffic Handled by Private
UAE, Qatar, Panama Post in Gujrat (MMT)
20

South Africa, Indonesia, Australia, 15

Coal
China 10

Crude Oil & Petroleum 5

UAE, Brazil, Maxico
Products 0
2005-06 2006-07 2007-08 2008-09 2009-10
General Cargo USA, Europe, Gulf
GPPL-Pipapav GAPL-Mundra

Source: www.gujaratindia.com

Destination “Gujarat”
 
The Central government envisages investment of $19bn during XI1th 5 year plan of which ~$12bn is expected to be contributed by the
private sector. The Government of Gujarat has signed 5 MOU’s worth `206.5bn for private port expansion while Bharat Oman and Cairn
Energy have signed MOU’s during Vibrant Gujarat 2009 for SBM worth `11bn and marine infrastructure respectively, which will further
boost the traffic growth in Gujarat and benefit port companies operating in and around the coast of Gujarat.

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 IPO Note | Gujarat Pipvav Port Ltd | 23 August 2010 Aditya Birla Money

Key Risks
 

Stretched balance sheet

 The company has incurred net losses since fiscal year ended March 31, 2005 till quarter ending March 31, 2010 mainly because of
high leverage and higher interest cost. Company’s debt to equity stood at 3.9:1 as on March 31, 2010 while average cost of debt is
~13%. The management expects to bring down the debt –to- equity to 1:1 by year end and save `0.3-0.4bn in interest.

Failure to meet traffic volume obligations under the Traffic Guarantee Agreement could impact the company’s bottomline directly

 The company has entered into a Traffic Guarantee Agreement with the Ministry of Railways/Western Railways and Pipavav Railway
Corporation Ltd(PRCL)in which, the company has guaranteed to provide rail freight traffic of one mn tonnes in the first year of
operations, two mn tonnes in the second year of operations and three mn tonnes from the third year of operations onwards (“Minimum
Guaranteed Quantity”) to PRCL until June 2034. As of March 31, 2010, the company was unable to meet the Minimum Guaranteed
Quantity and as per the terms of the Traffic Guarantee Agreement a total compensation of `1,437.3 mn was payable to PRCL. If the
trend continues it could have an adverse effect on company’s financials.

Major Equity Issuances since 2000

Date of Allotment Name of Allotee Equity Shares Issue Price (`)

Aug 4,2000 UTI 40,25,000 80.0

June 29, 2001 APM Terminal Holdings Ltd 10,000,000 70.0

Sep 12,2001 UTI India Infrastructure Unit Scheme 1999 58,75,000 80.0

Oct 19,2001 New York Life Intl India Fund, Mauritius LLC 59,96,560 80.0

April 27,2005 IDFC Infrastructure Fund 3,30,00,981 40.0

Oct 1,2007 Rights issue- APM Terminals Mauritius Ltd 62,97,063 50.0

Dec 13,2009 Preferential allotment - APM Terminals Mauritius Ltd 2,11,64,021 47.2
Source: RHP

Outlook and Valuations

 
The strong parentage of A.P Moller-Maersk group, strategic location are some of the key positives for the company. GPPL has been
reporting losses at the net level due to higher depreciation and higher financing cost, however its operational profits have grown over the
last three years. EBITDA margin has moved from 7% to 20% levels. The funds from the IPO would be used to reduce debt which would
provide some cushion on the interest servicing front. Also it has been plagued by some of the terms of the contract wherein it has to pay
penalty for non fulfilment of minimum cargo lifting guarantee to the railways. We expect with pick up in volumes this railway guarantee
shortfall (~3 Lakh tonne) would perish. The March 2010 numbers cannot be extrapolated for the full year as this is a weak quarter due to
lower trades from chemical segment.

At the offer price of `48, GPPL would be discounted at 2.5x P/BV post IPO. The only comparable within the listing space is Mundra port
which is almost 7x the size and is currently valued on earnings. The infrastructure set-up has already been done for GPPL and the
business is seeing good traction now. Moreover the strategic location of the port coupled with a solid parentage provides us confidence on
sustainability of the business model and the growth prospects of the company. Valuations appear a bit stretched but then a quality paper
would warrant some premium. Looking from a tactical perspective, we do not expect significant listing gains and therefore advise only very
long term investors to subscribe to the issue.

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 IPO Note | Gujarat Pipvav Port Ltd | 23 August 2010 Aditya Birla Money

Income Statement

In ` million CY06 CY07 CY08 CY09

Net sales 1,350 1,516 1,673 2,191
YoY (%) 12 10 31
Total expenses 1,148 1,407 1,546 1,751
Operating expenses 487 597 609 948
Repairs and maintenance 138 106 136 158
Staff cost 106 138 202 240
Admin & Other expenses 417 565 598 405
EBIDTA 202 109 127 441
YoY (%) (46) 16 246
EBIDTA (%) 14.9 7.2 7.6 20.1
Depreciation 241 272 370 458
Non-operating income 75 134 311 54
EBIT 35 (29) 69 36
Interest 467 390 741 1,157
PBT (432) (419) (672) (1,120.8)
(-) Tax 84 39 0 55
PAT (516) (457) (672) (1,176)
Share of Associates 0 0 0 0
MI 0 0 0 0
PAT (after MI) (516) (457) (672) (1,176)
Source: RHP

Balance Sheet

In ` million CY06 CY07 CY08 CY09

Equity capital 2,619 3,455 3,455 3,149
Reserves (1,742) 1,080 348 (70)
Net worth 877 4,535 3,803 3,079
Total borrowings 5,858 6,168 7,415 10,891
Total liabilities 6,735 10,703 11,218 13,970
Net Block 6,110 6,034 8,589 12,712
Capital WIP 733 3,032 1,580 156
Investments 780 780 830 830
Current assets 941 3,098 2,418 1,782
Inventories 27 45 47 52
Debtors 97 34 73 217
Cash 481 2,545 1,700 798
Other Current Assets 20 103 103 33
Loans & Advances 316 370 494 682
Current liabilities 1,376 1,759 1,870 1,183
Provisions 454 482 328 326
Net current assets (889) 857 219 272
Total assets 6,735 10,703 11,218 13,970
Source: RHP

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 IPO Note | Gujarat Pipvav Port Ltd | 23 August 2010 Aditya Birla Money

Research Team
Vivek Mahajan
Head of Research
022-42333522
vivek.mahajan@adityabirla.com

Fundamental Team
Avinash Nahata Head of Fundamental Desk 022-42333459 avinash.nahata@adityabirla.com
Akhil Jain Metals & Mining 022-42333540 akhil.jain@adityabirla.com
Sunny Agrawal FMCG/Cement 022-42333458 sunny.agrawal@adityabirla.com
Sumit Jatia Banking & Finance 022-42333460 sumit.jatia@adityabirla.com
Shreyans Mehta Construction/Real Estate 022-42333544 shreyans.m@adityabirla.com
Dinesh Kumar Information Technology/Auto 022-42333531 dinesh.kumar.k@adityabirla.com
Pradeep Parkar Database/Production 022-42333597 pradeep.parkar@adityabirla.com

Quantitative Team
Rizwan Khan Technical and Derivative Strategist 022-42333454 rizwan.khan@adityabirla.com
Devarajan.S Derivatives Analyst 022-42333534 devarajan.s@adityabirla.com
Rahul Tendolkar Derivatives Analyst 022-42333532 rahul.tendolkar@adityabirla.com
Kunal Bothra Technical Analyst 022-42333537 kunal.bothra@adityabirla.com

Advisory Support
Lalitha.MR Advisory Desk – Retail 044-39181903 lalitha.r@adityabirla.com

Indranil Dutta Advisory Desk – HNI 022-42333494 indranil.dutta@adityabirla.com

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 IPO Note | Gujarat Pipvav Port Ltd | 23 August 2010 Aditya Birla Money

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