Event update: Gujarat Pipavav Port (Neutral) - FI3 service to resume; offers respite
Event: The CIMEX 2N (FI3) service operated by consortium of CMA-CGM, Maersk and OOCL will now call at Pipavav instead of Mundra.
Details:
The CIMEX 2N (FI3) is a Far East to India service that operates between Tianjin (China) and India. Currently, FI3 makes two calls in India (at JNPT and Mundra) of the 12 calls it makes en route (weekly calls). Starting December 2017, FI3 will call Pipavav (1st call on 13 Jan 2018) instead of Mundra. FI3 will continue to call at JNPT (also at the Gateway Terminal operated by the Maersk Group).
The FI3 service had moved out of Pipavav to Mundra since Sept 2015 due to scheduling conflict at Pipavav. At that time the service contributed ~70k TEUs pa to Gujarat Pipavav Port Ltd’s (GPPL) container cargo (~9% of FY15 volume).
FI3 service will continue to operate with 7 vessels and now the composition will be all Maersk vessels versus 4 Maersk and 3 CMA-CGM vessels earlier. We believe this is in line with Maersk’s global restructuring plan announced in Sept 2016, when it mentioned that it would look at the shipping and terminals businesses as a single unit and derive maximum synergies between them.
Meanwhile, the CIMEX 2K service (Far East to Pakistan) will recommence its weekly call at Mundra (the only port of call in India). CIMEX 2K had discontinued its Mundra call since April 2017. This service operates 6 vessels, all owned by CMA-CGM Group. We see this as CMA-CGM’s push to maintain its volume throughput at Mundra (where it has a 50% JV with Adani Ports & SEZ for the 4th container terminal).
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The return of FI3 service at GPPL is materially positive for GPPL, as it provides respite to the company from sustained loss of market share in the containers business. We estimate it will add ~100k TEUs pa to GPPL’s base volume and estimate volumes of 821k TEUs for FY19 (+20.8% over revised FY18 estimate of 680k TEUs) from 670k/748k TEUs in FY18E/FY19E currently. Notwithstanding this, the stock already builds-in even further recovery beyond FY19 (+15% CAGR over FY19-25), which may not happen due to upcoming capacity expansions at Mundra and JNPT. The stock trades at 26.9x FY19E earnings and 13.8x EV/EBITDA. Maintain Neutral with revised target price of Rs140.
Gujarat Pipavav Port Limited is an India-based company engaged in the business of port development and operations at Pipavav Port. The Company's Port Pipavav is located approximately 150 nautical miles from Nhava Sheva in Mumbai. The Company offers cargo handling facilities for container, bulk, break bulk and liquid cargo. It handles a range of bulk and break bulk cargo, such as coal, cement, clinker, fertilizers, steel, iron ore, agri-products, salt and soda ash. In addition, Port Pipavav handles all maritime services in-house, without any third-party operators. The Company offers maritime services, such as maritime personnel, including harbor master, pilots, control room operators, mooring crew and motor launch crew; towage, including one launch and tugboats, and port control facilities, including radar, very high frequency (VHF), Navigational Telex (NAVTEX), automatic weather station and automatic information system (AIS).
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