"Gujarat Pipavav Port (GPPL) has entered into an arrangement with NYK Auto Logistics (India) Pvt Ltd (NYK) where NYK has sub-leased land for developing a dedicated common user integrated roll-in roll-out (RO-RO) yard at Pipavav Port. The RO-RO yard has annual designed capacity to handle 250,000 vehicles and is expected to be operational in the first quarter of CY15. This is another effort on part of GPPL to diversify its cargo base, thereby insulating itself from a downturn in any particular segment. Earlier this year, GPPL commenced its new business line of handling liquid cargo (handled nearly 96,695 MT in Q3CY14).
This is further expected to ramp up as new capacity gets added and the existing stabilises. The container volume for GPPL has shown strong growth of ~25% YoY due to addition of new services over the years and upgradation of existing clients; also, going ahead we anticipate container volume to post CAGR of ~17% over CY13-16E. However, any new line of business is expected to smoothen out the volatility of revenue growth." "With the addition of a couple of new business lines and improved revenue visibility, GPPL is expected to post a revenue CAGR of nearly 20% over CY11-15 whereas EBITDA CAGR is anticipated at ~27% over the same period. As nearly 70% of GPPL’s cost is fixed, the new business is expected to further improve the operating leverage, thereby aiding the EBITDA margin.
Further, GPPL’s debt free structure and ECB funding for new capex is expected to bring down the interest cost. A diversified cargo portfolio and presence in high growth segments like tank farms and auto export provide confidence on the earnings growth of GPPL.
Consequently, we revise our estimates upwards and have a BUY recommendation on the stock with a DCF based target price of Rs 221", says ICICIdirect.com research report.
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