STOCK TICKER IN NSE and BSE: GPPL
MARKET CAPITALIZATION: ₹ 49.200 mln / ₹4.920 Crore / ₹492.000 Lahk
In 1991, SKIL and the Government of Gujarat to promote and develop the Port of Pipavav into a modern all weather deep water direct berthing seaport on the coast of Gujarat. Located between Mumbai and Kandla the Port Of Pipavav is the first seaport in the country to be developed in joint sector with private initiative, capital and management.
The project was setup through a Special Purpose Vehicle (SPV) company, namely Gujarat Pipavav Port Limited (GPPL). In 2005 SKIL divested its stake in and ceded the control of GPPL in favour of Maersk / AP Moller Group, Denmark.
The Gujarat Pipavav Port is located in Gujarat, just 152 nautical miles (10 hours steaming time) from Nhava Sheva in Mumbai. It has access to the main shipping lines and immediate access to a rich hinterland and key markets in northwest India.
In comparison to other ports on India's west coast, Pipavav port has considerable advantages being an all-weather port and having one of the deepest drafts among the west coast ports that enables it to receive larger ships. Moreover, the port's relative proximity (compared to Mumbai and JN Port) to Northern India's hinterland as well as the port's efficiency made it highly cost-effective for cargo movements between the ports. The port is naturally protected by islands which shelter and protect it from the south-westerly waves and monsoon swells, permitting easy and safe navigation of ships. The wave height in the harbour does not generally exceed 0.5 metres at the berth, and the water currents are between two and a half and three knots during peak tidal condition. These favourable oceanographic conditions enable day and night navigation of ships throughout the year.
Gujarat has India‟s longest coastline of 1,600 kms and is the maritime gateway to the Middle East, Africa and Europe. Gujarat has 41 ports, which includes one Major Port and 40 non-Major Ports. Gujarat ports handle about 16 million tones of cargo, which account for 70% of the total cargo handled by all minor ports of India.
Gujarat is one of the leading industrially developed states in India and contributes about a quarter of India’s goods exports. Gujarat is a leader in industrial sectors such as chemicals, petrochemicals, dairy, drugs and pharmaceuticals, cement and ceramics, gems and jewellery, textiles and engineering. The industrial sector comprises of over 800 large industries and 453,339 micro, small and medium enterprises.
Dedicated Freight Corridor (DFC)
The Dedicated Freight Corridor (DFC) is a new rail track exclusively for freight traffic movement. The Western DFC covers a distance of 1504 kms from JNPT to Dadri. It runs through 5 states connecting existing and emerging ports in Maharashtra and Gujarat with the Northern hinterland. The Eastern DFC covers a distance of 1856 kms runs from Ludhiana in Punjab to Dankuni in West Bengal. APM Terminals Pipavav has already made the necessary investments to also connect to the DFC once operational in December 2021.
Jakob Friis Sorensen, managing director at Gujarat Pipavav Port, said“ we can run electric trains now from Pipavav to the northern market in Delhi in around 24 hours, which is fantastic”. “We have plenty of room to grow organically. And again, I have to mention that we will be the pioneers in the DFC and that is something we are putting a lot of energy into, because it would really be a game changer for Indian import and export supply chain,” he said.
ICD (Inland Container Depots) Rail Connectivity
APM Terminals Pipavav receives container trains from all the major ICDs in northwest India. In November 2003, the port received its first train from ICD Tughlakabad. From February 2004 regular train services were established between the port and the various ICDs in northwest India. Rail connectivity and frequency have continuously grown making the port one of the best connected ports in the state.
Just beyond APM Terminals Pipavav's immediate hinterland are the northwest markets of Rajasthan, Delhi and Punjab. Together, these areas generate approximately 60% of India's cargo. Cargo-intensive markets in Rajasthan include Jodhpur, Bhilwara, Udaipur, Jaipur, Kota and Bhiwadi. In Punjab, Amritsar, Jalandhar, Ludhiana, Mandi Gobindgarh and Chandigarh produce a large volume of cargo.
Shipping Lines in Gujaray Pipavav Port
APM Terminals Pipavav currently has a capacity to handle up to 1.35 million TEUs of containers, 4 - 5 million tonnes of dry bulk cargo, 2 million tonnes of liquid cargo and about 250,000 cars per year. Additional marine side and land side areas available at port for future development.1
APM Terminals Pipavav has a capacity to handle 1.35mil TEU. The port is well equipped with modern and efficient container handling equipment such as Post Panamx Quay Cranes, Rubber Tyre Gantry Cranes, Rail Mounted Gantry Cranes and associated support infrastructure.
APM Terminals Pipapav along with NYK Auto Logistics, offers the best logistic support to auto manufacturers for the export of their vehicles in western India and for coastal shipping
APM Terminals has a capacity to handle 4 MMT of bulk cargos. The port handles a variety of bulk and break-bulk cargo such as coal, cement, clinker, fertilisers, steel, iron ore, agri-products, salt and soda ash.
APM Terminals Pipavav has a capacity to handle 2 MMT of Liquid cargoes per annum. The port has a dedicated liquid bulk jetty and is equipped to handle petroleum products, chemicals, vegetable oils, bitumen and LPG cargo etc. The port has dedicated berth alongside draft of 12m, railway sidings for liquid cargos, pipeline connection to railway sidings from the tankages.
The Port has approximately 450,000 KL of operational tankage capacity for all classes of cargo (LPG, POL, Chemicals, Veg oil, Bitumen) The tankages are operated by Tankage Terminals Operators. The Port has strategic tie ups with three companies namely Aegis Logistics, Gulf Petrochem and IMC Ltd. for import and export of liquid/gas commodities.
The port is well equipped with modern infrastructure like mechanized bagging units and wagon loading systems to handle fertilizer rakes in motion weigh bridge, Neem coating plant at berth for neem coating of urea cargo which is mandatory in India.
Promoter
GPPL's main shareholder is APM Terminals with 44% of the shares. APM Terminals is the independent terminal operating division of the Maersk Group, parent company of the world's largest container line by capacity, Maersk Line. APM Terminals has 72 facilities in 69 countries worldwide and more than 20,000 employees. Its headquarters is located in the Hague, Netherlands. The remaining 56% floats on the Indian stock exchanges.
Operations
The last 7 years of cargo turnover of the port of Gujarat Pipavav.
After 2015, the bulk cargo amount stagnated and increased slightly in FY2021. Container and liquid handled are showing no growth either. Car transport shows constant drops. Port capacity and traffic in Gujarat until 2019, contrary to Gujarat Pipavav Port, shows growth.
Looking only at the years 2020 and 2021 ending in March, the underutilization of the port's capacity is clear.
Finnancials
In line with the quantities transported, the revenue did not show growth. This underutilization of capacity led to a drastic reduction in Capex, an increase in the cash from operations after-capex margin and the payout ratio. At the current market price, the GPPL dividend is yielding 4.5%. It is noteworthy that the last 5 years GPPL had positive operating cash flows. It is a company that never loses money, despite the fact that it did not show growth in cargo turnover in recent years.
Operating expenses primarily include equipment hire charges, stevedoring charges, power and fuel and waterfront royalty payments to Gujarat Maritime Board under the terms of the Concession Agreement.
CAPEX and Concession
GPPL entered into a Concession Agreement with Gujarat Maritime Board and the Government of Gujarat on September 30, 1998, pursuant to which GPPL have been granted the right to develop and operate APM Terminals Pipavav for a period of 30 years. The Concession Agreement requires GPPL to pay Gujarat Maritime Board a royalty calculated based on the tonnage of cargo handled at the leased land and waterfront.
The royalty fees increase by 20% every three years. Pursuant to the terms of the Concession Agreement, GPPL is required to obtain GMB‟s approval for any expansion at the Port which is outside the scope of the approved layout plan or the approved detailed project report.
One of the reasons for the low Capital Expenditure is the underutilization of the current infrastructure. Another reason is that the port's concession expires in 2028 and they are waiting for an extension. Tejpreet Singh Chopra, Chairman of GPPJ, said in the annual report: "Company continues to be debt-free and is exploring for the right investment opportunities that could lead to growth of Pipavav Port. But big ticket investments will have to wait for the clarity on the extension of Concession by the Gujarat Maritime Board considering the limited time horizon in the current Concession.”
At the August 2020 Conference Call2, Jakob Sorensen, Managing Director of GPPL, said: “We have received the green light for spending of nearly $100 million in GPPL. But it is on the condition that we get the concession extended. We have had continuous discussions with the GMB and we have had good and constructive dialogue with them. But we are still awaiting for a green light for the concession to be extended, and it will be, I think, very appropriate for us to get this extension now that we have clearly signaled that we are ready to spend the money and expand the minute that we get the confirmation.”
We assume that an eventual renewal of the concession will again be linked to royalties according to the amounts transported, and not to a huge investment requirement.
Balance sheet
Gujarat Pipavav Port has a very healthy balance sheet, with very low debt.
Latest events
On May 17 of this year Cyclone Tauktae hit the Gujarat province. Gujarat Pipavav Port Limited was required to suspend its Port Operations as a precautionary measure. “According to preliminary assessment done by the Gujarat government, the damage suffered by Gujarat Pipavav Port Limited (GPPL) is estimated to be of Rs 150 crore. The losses include two tugs, “Divan” and “Mulji” that capsized.”
The national grid power supply to the Port had been completely disrupted. The Company had informed on 31st May 2021 about commencement of partial operations by hiring a mobile power supply system. At 10 July with the resumption of the grid power supply, the port is fully operational.
We assume that cargoes transported through the port were affected, hence a slight drop in the numbers reported for the April-June 2021 period.
For the quarterly reports there is no cash flow, but we assume a certain decrease.
Jakob Sorensen gave an interview for BloombergQuint where he said that the Cyclone caused 2 weeks of no operations, but that business returned to normal very quickly. The Managing Director talks about many of the topics covered in this research, it is very interesting to listen.
Conclusions:
Gujarat Pipavav Port is a conservative investment, with a fairly high margin of safety and a 4.5% dividend yield. The port has a lot of competition but despite this, it has had several years of positive operating cash flow and a very low level of debt. Due to the lack of investment due to the underutilization of installed capacity, cash has accumulated, there are no debts and they have paid quite high dividends. Therefore there is room for growth, without the need to make investments in the short term. If the impo and expo grow, Gujarat Pipavav Port should grow as well and we see it as a cheap exposure to that potential growth.
The ability to transport different types of goods and the advantage of being able to operate all year round 24 hours a day, constitute a point in favor.
It will be interesting to see the impact of the completion of the DFC and if this increases transport through GPPL, the CEO is very positive about this: "DFC is a game changer in the long run."
It should also be noted that there is a risk in relation to the renewal of the concession that ends in 2028. From our perspective, the concession is going to be renewed, since India is making decisions closer to the privatization of state assets, but it is a real risk that is not yet resolved. 3
https://www.apmterminals.com/en/pipavav
https://www.apmterminals.com/pipavav/-/media/asia-and-pacific/Pipavav/investors/quarterly-results/q2-fy2021-conference-call-transcript.pdf?rev=65458a47de9c481f9350618a85419f16&hash=45965218E81893523865D3B231C8BAFD
https://www.thehindubusinessline.com/economy/logistics/govt-finalises-7-cargo-berths-for-privatisation-at-major-ports/article35024810.ece
I strongly believe in GPPL growth and Govts support to import and export business or port related positive policies but is this..."risk in relation to the renewal of the concession that ends in 2028." is a considerable threat for GPPL if we are a long term investor in GPPL??