Gujarat Pipavav Port's Q4FY19 results (Neutral) - Strong cargo growth but profit lags

Q4FY19 result highlights

• GPPL reported a volume of 3.72mt in Q4FY19 (est of 3.6mt), a growth of 14.6% led by 6.8% increase in container volume to 219k TEU, 97% growth in bulk volume to  0.5mt and 0.24mt of liquid cargo. FY19 reported volume came in at 14.8mt, a growth of 20% yoy led by 28% growth in container to 903k TEU, 9% growth in bulk cargo to 2mt.
• The increase in cargo growth was not commensurate with revenue and EBITDA growth due to lower realizations and adverse cargo mix. Revenue grew 8.9%yoy to Rs1.80bn (estimate of Rs1.65bn), EBITDA grew 7.0%yoy to Rs995m (estimate of Rs914bn) and EBITDA margin contracted 95bp yoy to 55.2% (estimate of 55.5%). EBITDA for FY19 was Rs3.9bn, a growth of 3.5% despite 20% strong growth in cargo.
• As a result, GPPL’s Q4FY19 PAT at Rs509m (up 4.8%yoy) was above our estimate of Rs479m, due to higher volume than our estimates.
• Container cargo growth was robust at 28%yoy to 903K TEUs in FY19 led by strong growth of 12% yoy in EXIM cargo.  Bulk cargo volume grew  by 9%  yoy due to higher fertilizer cargo. Liquid cargo volumes declined significantly by 38% yoy to 639kt. Total cargo grew 20.6%yoy to 3.9mt led by strong container cargo volumes. The management will continue to pursue growth opportunities in the transhipment segment.
• Average realization declined by 5% yoy to Rs485/MT in Q4FY19 and by 10% yoy to Rs473/mt due to adverse cargo mix. Adverse mix was led by higher share of transhipment in container volumes.    

Key positives: Strong container cargo volumes.

Key negatives: Lower realizations.

Impact on financials: Maintain earnings estimates for FY20E and FY21E

Valuations & view

GPPL has shown a strong recovery in container cargo volumes in FY19. However, the adverse cargo mix has led to lower average realization which would likely impact the company’s long term profitability. Also, bulk and liquid volumes continue to remain weak and impact the overall earnings. The stock meanwhile trades at 17.3x/14.3x FY20E/FY21E earnings and at EV/EBITDA of 8.2x/7.6x on FY20E/FY21E, respectively. We maintain our Neutral rating on the stock with a DCF based price target of Rs95.