Ipo Note Gppl 230810

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IPO Note | Gujarat Pipvav Port Ltd | 23 August 2010

Page No. 1

Aditya Birla MoneyAditya Birla Money

Aditya Birla Money Limited

2nd Floor, Sheil Estate, Dani Corporate Park, 158 CST Road, Kalina, Santacruz (East), Mumbai 400 098 | Tel: +91 22 42333400

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 TEUs 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.

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 isstrategically 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.

Strong and well renowned promoter

The companys promoter, APM Terminals, is the one of the largest container terminaloperator 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 TEUs 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

The company is not covered within the regulatory purview of the Tariff Authority ofMajor Ports, and is entitled to determine the tariffs at the Port, subject to the

provisions of the Indian Ports Act, 1908, as amended. Companys ability to determine

tariff rates helps the company to compete effectively and dictate the terms and

conditions.

Strong and well developed infrastructure

Port Pipavav currently allows vessels with up to 14.5 metre draught at chart datumand 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 companys containeryard is equipped with 18 RTGs which are expected to achieve fuel savings of ~45%

as compared to regular RTGs.

Issue Opens Aug 23, 2010

Issue Closes (Institutions) Aug 25, 2010

Issue Closes (Retail) Aug 26, 2010

Equity Offerings (In mn) 104.2

Face Value 10.0

Price Band `42 - `48

Issue Size (in bn) `5.0

Minimum Application Lot 130

Max Application money(Retail) `99,840

Issue Type 100% Book Building

Listing NSE & BSE

BRLMsKotak Mah Cap

Co,IDFC Cap Ltd

Source: RHP

Pre Issue Post Issue

Promoter 57.9 42.0

Public & Others 42.1 58.0

Source: RHP

Issue size (@ `48) 115.9mn

of which employee reservation 2.1mn

Net issue 113.8mn

Of which offer for sale (move down) 11.7mn

Face value `10 each

Fresh issue 104.2

Break-up of net issue to public:

QIB's portion (minimum) 68.3mn

Non-institutional portion (minimum) 11.4mn

Retail Portion (minimum) 34.1mn

Source: RHP

Shreyans Mehta

022-42333544

[email protected]

SUBSCRIBELong term Investors

AVOIDShort to medium term Investors

Issue Structure (In No Shares)

Shareholding Pattern (%)

Issue Details

Analyst Details

Key Strengths

Gujarat Pipavav Port Ltd (GPPL) Engineering Indias Success

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Page No. 2




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

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 companys businessprospects by bringing stable and increased cargo traffic in the future.

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 Indias economy. Approximately 95% of the countrys

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

PortTarget 2009(April-Dec.)

Actual 2009(April-Dec.)

Actual 2008(April-Dec.)

Kolkata 10.03 9.63 8.26

Haldia 33.44 24.61 31.86

Paradip 40.24 41.73 32.50

Visakhapatnam 50.06 49.31 48.22

Chennai 47.64 45.83 41.66

Tuticorin 16.34 17.63 16.42

Cochin 13.85 12.06 11.77

New Mangalore 29.82 27.11 27.71

Mormugao 31.74 31.26 26.46

Jawaharlal 50.41 44.55 44.10

Nehru

Mumbai 39.47 40.36 38.58

Kandla 58.30 59.74 55.74

Ennore 9.25 8.13 8.52

All Major Ports 430.59 411.95 391.80

Source: Annual Report 09-10; Ministry of Shipping

2009-10 2010-11

Port Target Actuals Target

Kolkata 13.41 13.05 14.1

Haldia 42.71 33.25 34.5

Paradip 56.03 57.01 63

Vizag 67.01 65.5 70

Ennore 12.45 10.7 13.2

Chennai 64 61.06 65.51

Tuticorin 22.01 23.79 25.13

Cochin 18.96 17.43 19.1

New Mangalore 40.34 35.53 38.74

Mormugao 45 48.85 50

Mumbai 53.46 54.54 58

JNPT 67.88 60.75 62

Kandla 78 79.52 85

Port Blair N.A N.A 2.5

Total 581.26 560.98 600.78Source: Ministry of Shipping

Traffic handled at major ports (mn tonnes)

Key Industry growth drivers

Companys strategy going forward

Object of the Issue

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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. 1

stprivate 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 forIndia.

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

Non-major Ports in India

0%

20%

40%

60%

80%

100%

POL

IronOre

Building

Materials

Coal

Fertilizer

&FRM

Others

Total

2002-2003 2008-2009

Precentage Share of Commodities

in Gujarat (2009-10)

POL

60%

Others

14%Fertilizer &

FRM

4%Coal

11%

Building

Materials

7%

Iron Ore

4%

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

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Exports (Gujarat)

Major Commodities Export to

Petroleum and Chemical UAE, Europe, Singapore, Indonesia

Minerals UAE, China, Georgia, Japan

Food Grains & Agri

ProductsUSA, UAE, China, Japan, Indonesia

General Cargo Europe, Sri Lanka, UAE

Import Export Traffic (In LT)

0

500

10001500

2000

2500

Import Export Total

2008-09 2009-10

Source: www.gujaratindia.com

Imports (Gujarat)Major Commodities Import From

LNG and LPG UAE, Qatar, Panama

CoalSouth Africa, Indonesia, Australia,

China

Crude Oil & Petroleum

ProductsUAE, Brazil, Maxico

General Cargo USA, Europe, Gulf

Container Traffic Handled by Private

Post in Gujrat (MMT)

0

5

10

15

20

2005-06 2006-07 2007-08 2008-09 2009-10

GPPL-Pipapav GAPL-Mundra

Source: www.gujaratindia.com

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 MOUs worth `206.5bn for private port expansion while Bharat Oman and Cairn

Energy have signed MOUs 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.

Destination Gujarat

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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. Companys 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 companys bottomline directly

The company has entered into a Traffic Guarantee Agreement with the Ministry of Railways/Western Railways and Pipavav RailwayCorporation 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 companys financials.

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

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 thebusiness 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.

Major Equity Issuances since 2000

Outlook and Valuations

Key Risks

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In ` million CY06 CY07 CY08 CY09Net 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

In ` million CY06 CY07 CY08 CY09Equity 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 1,782Inventories 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

Balance Sheet

Income Statement

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Page No. 7




Research Team

Vivek Mahajan

Head of Research

022-42333522

[email protected]

Fundamental Team

Avinash Nahata Head of Fundamental Desk 022-42333459 [email protected]

Akhil Jain Metals & Mining 022-42333540 [email protected]

Sunny Agrawal FMCG/Cement 022-42333458 [email protected]

Sumit Jatia Banking & Finance 022-42333460 [email protected]

Shreyans Mehta Construction/Real Estate 022-42333544 [email protected]

Dinesh Kumar Information Technology/Auto 022-42333531 [email protected]

Pradeep Parkar Database/Production 022-42333597 [email protected]

Quantitative Team

Rizwan Khan Technical and Derivative Strategist 022-42333454 [email protected]

Devarajan.S Derivatives Analyst 022-42333534 [email protected]

Rahul Tendolkar Derivatives Analyst 022-42333532 [email protected]

Kunal Bothra Technical Analyst 022-42333537 [email protected]

Advisory Support

Lalitha.MR Advisory Desk Retail 044-39181903 [email protected]

Indranil Dutta Advisory Desk HNI 022-42333494 [email protected]

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Ipo Note Gppl 230810