IPO Note | Gujarat Pipvav Port Ltd


23 August 2010

Aditya Birla Money

Gujarat Pipavav Port Ltd (GPPL) – Engineering India’s Success
Company background and business model
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 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 related facilities until September 2028. The port has multi-cargo and multi-user operations. During 2009, APM terminals Pipavav handled 3.37mn tonnes of bulk cargo and 0.32 mn TEU’s of container cargo. GPPL is principally engaged in providing port handling and marine services for container 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 cargo handling capacity is 5 mn tonnes p.a. Port Pipavav is strategically located near the entrance of the Gulf of Khambhat (formerly known as the Gulf of Cambay) on the main maritime trade routes, which helps the company to serve imports from and exports to the Middle East, Asia, Africa, the United States, Europe and other international destinations. Presently APM Terminals owns a 57.9% equity interest in Gujarat Pipavav Port Limited.

Short to medium term Investors


Long term Investors


Issue Details
Issue Opens Issue Closes (Institutions) Issue Closes (Retail) Equity Offerings (In mn) Face Value Price Band Issue Size (in bn) Minimum Application Lot Max Application money(Retail) Issue Type Listing Aug 23, 2010 Aug 25, 2010 Aug 26, 2010 104.2 10.0 `42 - `48 `5.0 130 `99,840 100% Book Building NSE & BSE Kotak Mah Cap Co,IDFC Cap Ltd

Key Strengths
Strategically located in high growth north and northwest regions of India

BRLMs Source: RHP

Port Pipavav is one of the principal gateways on the west coast of India. It is 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, Asia, Africa and other international destinations. The landlocked north and northwestern region of India, currently generates 30.0% of the container throughput 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.

Shareholding Pattern (%)
Pre Issue Promoter Public & Others Source: RHP 57.9 42.1 Post Issue 42.0 58.0

Strong and well renowned promoter

Issue Structure (In No Shares)
Issue size (@ `48) of which employee reservation Net issue Of which offer for sale (move down) Face value Fresh issue Break-up of net issue to public: QIB's portion (minimum) 68.3mn 11.4mn 34.1mn 115.9mn 2.1mn 113.8mn 11.7mn `10 each 104.2

The company’s promoter, APM Terminals, is the one of the largest container terminal 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 over US$3bn. GPPL receives various benefits from its relationship with APM Terminals such as access to modern technology, operational know-how, increased bargaining power and competitive rates for purchase of port equipment, and access to experienced personnel resources from APM Terminals. Maersk Line and Safmarine Container Lines, part of the APMM Group, are also among the largest customers of the company and operate regular cargo shipping service from its Port to international destinations, including the Middle East, Europe and the United States.

Flexibility in determining tariffs

Non-institutional portion (minimum) Retail Portion (minimum) Source: RHP

The company is not covered within the regulatory purview of the Tariff Authority of Major Ports, and is entitled to determine the tariffs at the Port, subject to the 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
Shreyans Mehta 022-42333544 shreyans.m@adityabirla.com


Strong and well developed infrastructure

Port Pipavav currently allows vessels with up to 14.5 metre draught at chart datum and deploys three tugs for providing pilotage and towage services. The company has 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.


Aditya Birla Money Limited
Floor, Sheil Estate, Dani Corporate Park, 158 CST Road, Kalina, Santacruz (East), Mumbai 400 098 | Tel: +91 22 42333400

Page No. 1

11 31.076 acres of land which it can utilize for expanding its port operations.10 2009-10 Port Kolkata Haldia Paradip Vizag Ennore Chennai Tuticorin Cochin New Mangalore Mormugao Mumbai JNPT Kandla Port Blair Total Source: Ministry of Shipping   2010-11 Target 14.51 25. Ministry of Shipping       2nd Aditya Birla Money Limited Floor.01 12.53 48.43 35.85 54.50 48.01 65.34 13.03 33.74 8.46 67.) 10. They play a vital role in facilitating international trade and commerce by providing an interface between the ocean transport and land-based transport.22 41.13 19.55 Source: Annual Report 09-10. Ports are the gateways to India's International trade especially the sea transportation.26 31.IPO Note | Gujarat Pipvav Port Ltd | Object of the Issue 23 August 2010 Aditya Birla Money      Prepayment of loans of the company (` 3000 mn) Investment in capital expenditure.54 60. Mumbai 400 098 | Tel: +91 22 42333400 Page No.53 million tonnes during the financial year 2008-09 and 411. The Shipping ministry is estimating a traffic of 600. Indian Shipping Industry has.47 58.03 67.5 10. The Major Ports handled a total traffic of 530.82 31.01 18. Strategic relationships through long-term contractual agreements will enhance the company’s business prospects by bringing stable and increased cargo traffic in the future.7 61.63 12.63 24. (` 1112.58 55.78 Target 13.26 Actuals 13.98 Actual 2009 (April-Dec.46 44.52 391.A 560.2 65. Santacruz (East).45 64 22.83 17. 158 CST Road.77 27.86 32.34 45 53.64 16. With ample land availability.71 56. The company has developed 485 acres of land and has a balance of 1.75 79.71 26. Sheil Estate.36 59.61 41.74 50 58 62 85 2.4 mn) Balance for general corporate purposes.41 (mn tonnes) Actual 2008 (April-Dec.95 million tonnes up to December 2009 in the financial year 2009-10.06 23.05 33.  Company’s strategy going forward   Develop land to aid the growth of its Port operations Under the Concession Agreement.52 N. In order to utilize available waterfront and land area company also plans to develop and sub-lease land to third parties.74 50.1 38. played a crucial role in the transport sector of India’s economy.) 9.1 34. Dani Corporate Park.) 8.31 45. Kalina.88 78 N.26 44.73 49.74 8.30 9.96 40.79 17. 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.13 411.85 29.8 mn tones during the year 2010-11   Traffic handled at major ports Port Kolkata Haldia Paradip Visakhapatnam Chennai Tuticorin Cochin New Mangalore Mormugao Jawaharlal Nehru Mumbai Kandla Ennore All Major Ports 39. Approximately 95% of the country’s trade by volume and 70% by value is moved through Maritime Transport.561 acres of land.25 57.42 11.95 38. India has 12 Major ports and about 200 minor ports.66 16.41 42. 2 .59 40.06 27.80 Target 2009 (April-Dec.5 63 70 13.25 430. over the years.44 40.24 50.A 581. GPPL has the right to develop approximately 1. the company can significantly increase its capacity through marginal investments and capitalize on the opportunities.5 600. which handle over 90% of foreign trade. Key Industry growth drivers   Ports are an important form of infrastructure in Indian economy.06 47.

gujaratindia.com Source: www.com 2008-2009 Iron Ore 4% Source: www. as compared to 10% CAGR for India.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. 3 . Ports in Gujarat accounts for a ~35% of the total traffic handle by all ports in India.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 100% 80% 60% 40% 20% 0% Gujarat's Percentage Share of Cargo Handled by all Non-major Ports in India Precentage Share of Commodities in Gujarat (2009-10) Others 14% Fertilizer & FRM 4% Coal 11% Building Materials 7% POL 60% Building Materials Fertilizer & FRM POL Iron Ore Others Total Coal 2002-2003 Source: www. 1st Indian state to have an LNG terminal (2/3 in India are in Gujarat) 1st Indian state to have a Chemical terminal. Dani Corporate Park.gujaratindia. Santacruz (East).com Total traffic for Non-Major ports grew at over 16% CAGR during 2004-2010 to cross 206mt in 2009-10. Mumbai 400 098 | Tel: +91 22 42333400 Page No.gujaratindia. Sheil Estate.     Non.com     2nd Aditya Birla Money Limited Floor. Kalina.gujaratindia. 158 CST Road. 1st private port “Pipavav”   Source: www.

Santacruz (East). Gulf GPPL-Pipapav Source: www. Indonesia Europe. which will further boost the traffic growth in Gujarat and benefit port companies operating in and around the coast of Gujarat.gujaratindia. Japan USA. 158 CST Road.com Export to Import Export Traffic (In LT) UAE. Europe.IPO Note | Gujarat Pipvav Port Ltd | 23 August 2010 Aditya Birla Money Exports (Gujarat) Major Commodities Petroleum and Chemical Minerals Food Grains & Agri Products General Cargo Source: www. China. Kalina. Maxico 0 2005-06 2006-07 2007-08 2008-09 GAPL-Mundra 2009-10 USA. Indonesia. Japan. Australia. Singapore.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. Panama 20 Container Traffic Handled by Private Post in Gujrat (MMT) 15 10 5 Coal Crude Oil & Petroleum Products General Cargo South Africa. Indonesia UAE. China.gujaratindia. Europe. Sheil Estate. UAE 2500 2000 1500 1000 500 0 Import Export 2008-09 2009-10 Total Imports (Gujarat) Major Commodities LNG and LPG Import From UAE. Brazil.     2nd Aditya Birla Money Limited Floor. Mumbai 400 098 | Tel: +91 22 42333400 Page No. Sri Lanka. China UAE. The Government of Gujarat has signed 5 MOU’s worth `206. Qatar.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. 4 . Dani Corporate Park. Georgia. UAE.

GPPL would be discounted at 2. 5 . Mauritius LLC IDFC Infrastructure Fund Rights issue.437.9:1 as on March 31.000 10. At the offer price of `48.000 59. Kalina.97.0 80.000.P Moller-Maersk group. 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.981 62. If the trend continues it could have an adverse effect on company’s financials.APM Terminals Mauritius Ltd Equity Shares 40. The March 2010 numbers cannot be extrapolated for the full year as this is a weak quarter due to lower trades from chemical segment.000 58.     2nd Aditya Birla Money Limited Floor. Santacruz (East).96. The only comparable within the listing space is Mundra port which is almost 7x the size and is currently valued on earnings. 158 CST Road. the company has guaranteed to provide rail freight traffic of one mn tonnes in the first year of operations. however its operational profits have grown over the last three years. the company was unable to meet the Minimum Guaranteed Quantity and as per the terms of the Traffic Guarantee Agreement a total compensation of `1.0 50.5x P/BV post IPO. Sheil Estate. Mumbai 400 098 | Tel: +91 22 42333400 Page No. GPPL has been reporting losses at the net level due to higher depreciation and higher financing cost. 2010 while average cost of debt is ~13%.3-0. EBITDA margin has moved from 7% to 20% levels. The management expects to bring down the debt –to.021 Issue Price (`) 80.25.560 3. Major Equity Issuances since 2000 Date of Allotment Aug 4. 2010 mainly because of high leverage and higher interest cost.64. 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.2000 June 29.IPO Note | Gujarat Pipvav Port Ltd | Key Risks Stretched balance sheet 23 August 2010 Aditya Birla Money    The company has incurred net losses since fiscal year ended March 31.2007 Dec 13.3 mn was payable to PRCL. 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. 2001 Sep 12. We expect with pick up in volumes this railway guarantee shortfall (~3 Lakh tonne) would perish. we do not expect significant listing gains and therefore advise only very long term investors to subscribe to the issue.0 47. 2005 till quarter ending March 31.0 80. strategic location are some of the key positives for the company.2 Outlook and Valuations   The strong parentage of A.APM Terminals Mauritius Ltd Preferential allotment . Company’s debt to equity stood at 3.30.0 40.0 70.00. 2010. 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 31.2001 Oct 19.2005 Oct 1. The funds from the IPO would be used to reduce debt which would provide some cushion on the interest servicing front.2001 April 27.equity to 1:1 by year end and save `0.75. Looking from a tactical perspective. Valuations appear a bit stretched but then a quality paper would warrant some premium. The infrastructure set-up has already been done for GPPL and the business is seeing good traction now. Dani Corporate Park.2009 Source: RHP Name of Allotee UTI APM Terminal Holdings Ltd UTI India Infrastructure Unit Scheme 1999 New York Life Intl India Fund.063 2.11.4bn in interest.

516 12 CY08 1.034 3.970 12.098 45 34 2.191 31 1.703 CY08 3.080 4. 158 CST Road.8) 55 (1.148 487 138 106 417 202 1.415 11. 6 .858 6.176) 0 0 (1.176) 1.546 609 136 202 598 127 16 7.735 6.742) 877 5. Dani Corporate Park.079 10.455 1.455 348 3.735 CY07 3.168 10.9 241 75 35 467 (432) 84 (516) 0 0 (516) 7.350 CY07 1.535 6.1 458 54 36 1.580 830 2.759 482 857 10.6 370 311 69 741 (672) 0 (672) 0 0 (672) CY09 2.032 780 3.407 597 106 138 565 109 (46) 14.870 328 219 11.157 (1.2 272 134 (29) 390 (419) 39 (457) 0 0 (457) Balance Sheet In ` million Equity capital Reserves Net worth Total borrowings Total liabilities Net Block Capital WIP Investments Current assets Inventories Debtors Cash Other Current Assets Loans & Advances Current liabilities Provisions Net current assets Total assets Source: RHP CY06 2. Mumbai 400 098 | Tel: +91 22 42333400 Page No.700 103 494 1. Santacruz (East).418 47 73 1.218 CY09 3.IPO Note | Gujarat Pipvav Port Ltd | Income Statement In ` million Net sales YoY (%) Total expenses Operating expenses Repairs and maintenance Staff cost Admin & Other expenses EBIDTA YoY (%) EBIDTA (%) Depreciation Non-operating income EBIT Interest PBT (-) Tax PAT Share of Associates MI PAT (after MI) Source: RHP 23 August 2010 Aditya Birla Money CY06 1.110 733 780 941 27 97 481 20 316 1.703 6.751 948 158 240 405 441 246 20.589 1.712 156 830 1.376 454 (889) 6.545 103 370 1.183 326 272 13. Kalina.673 10 1.891 13.803 7.218 8.619 (1.970     2nd Aditya Birla Money Limited Floor. Sheil Estate.149 (70) 3.782 52 217 798 33 682 1.120.

m@adityabirla.com rahul. Mumbai 400 098 | Tel: +91 22 42333400 Page No. 158 CST Road. Dani Corporate Park.jain@adityabirla.parkar@adityabirla.IPO Note | Gujarat Pipvav Port Ltd | 23 August 2010 Aditya Birla Money Research Team Vivek Mahajan Head of Research 022-42333522 vivek.kumar.com indranil. Santacruz (East).agrawal@adityabirla.k@adityabirla.com akhil.com Advisory Support Lalitha.com dinesh. Sheil Estate.com pradeep. Kalina.dutta@adityabirla.com sumit.r@adityabirla.com Fundamental Team Avinash Nahata Akhil Jain Sunny Agrawal Sumit Jatia Shreyans Mehta Dinesh Kumar Pradeep Parkar Head of Fundamental Desk Metals & Mining FMCG/Cement Banking & Finance Construction/Real Estate Information Technology/Auto Database/Production 022-42333459 022-42333540 022-42333458 022-42333460 022-42333544 022-42333531 022-42333597 avinash.com kunal.tendolkar@adityabirla. 7 .nahata@adityabirla.S Rahul Tendolkar Kunal Bothra Technical and Derivative Strategist Derivatives Analyst Derivatives Analyst Technical Analyst 022-42333454 022-42333534 022-42333532 022-42333537 rizwan.com devarajan.MR Indranil Dutta Advisory Desk – Retail Advisory Desk – HNI 044-39181903 022-42333494 lalitha.mahajan@adityabirla.com Quantitative Team Rizwan Khan Devarajan.s@adityabirla.com     2nd Aditya Birla Money Limited Floor.jatia@adityabirla.khan@adityabirla.com shreyans.com sunny.bothra@adityabirla.

transmitted. The contents in this document are intended for general information purposes only. employees from time to time may have various interests/ positions in any of the securities of the Company(ies) mentioned therein or be engaged in any other transactions involving such securities or otherwise in other securities of the companies / organisation mentioned in the document or may have other potential conflict of interest with respect of any recommendation and / related information and opinions. The investment may not be suited to all the categories of investors. copied. Persons into whose possession this document may come are required to observe these restrictions. 8 . or a solicitation of any type. Aditya Birla Money Limited. tax or investment advice. Mumbai 400 098 | Tel: +91 22 42333400 Page No. Dani Corporate Park. No part of the information must be altered. its directors. registration or other legal requirements. views contained in this document are as per prevailing conditions and are of the date of appearing on this material only and are subject to change. associates. distributed or reproduced in any form to any other person. Santacruz (East). Kalina. tax and financial advice and assessment of their risk profile and financial condition before considering any decision. legal. opinion. The recipients should therefore obtain your own professional. Sheil Estate. Nothing in this document is intended to constitute legal. revision. The information set out herein may be subject to updating.IPO Note | Gujarat Pipvav Port Ltd | 23 August 2010 Aditya Birla Money Disclaimer: This document is not for public distribution and is meant solely for the personal information of the authorised recipient. its associate and group companies. This document is for general information purposes only and does not constitute an investment advice or an offer to sell or solicitation of an offer to buy / sell any security and is not intended for distribution in countries where distribution of such material is subject to any licensing. No reliance may be placed for any purpose whatsoever on the information contained in this document or on its completeness. The information . Analyst holding in the stock: NIL     2nd Aditya Birla Money Limited Floor. This document or information mentioned therefore should not form the basis of and should not be relied upon in connection with making any investment. or an opinion regarding the appropriateness of any investment. 158 CST Road. verification and amendment and such information may change materially. Neither Aditya Birla Money Limited (ABML) nor any person connected with it accepts any liability or loss arising from the use of this document. The views and opinions expressed herein by the author in the document are his own and do not reflect the views of Aditya Birla Money Limited or any of its associate or group companies. Past performance is no guarantee and does not indicate or guide to future performance. completion.

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