Mundra Port: Well placed to gain from trade growth

Enhanced capacities and strong volumes will help the company report robust revenues and earnings growth over the next two years.

The revival in India’s external trade along with the benefits related to higher capacities have helped Mundra Port and SEZ (MPSEZ) report a good set of numbers for the quarter ended December 2010. Post results, analysts remain upbeat about the prospects of the company given that there will be continued improvement in volumes and realisations. On the back of this, they expect its earnings to witness a strong growth of about 45 per cent annually over the next two years. Brokerages have put a buy rating on the stock, which on a sum-of-parts basis is valued at Rs 160-175 a share. The scrip is trading at Rs 128 a share and discounts its FY12 estimated earnings by 20 times and the FY13 earnings by 13 times.

Strong quarterly numbers
During the quarter, the company reported 40 per cent growth in net profit to Rs 228.4 crore on the back of a 33.5 per cent growth in revenue at Rs 451 crore. This was possible on the back of volumes that grew a strong 26.2 per cent to 12.41 million tonnes coupled with the improvement in per-tonne realisations. Higher overall volumes were due to growth in coal and container volumes, which grew 44-45 per cent on a y-o-y basis. Analysts believe the company was helped by a favourable cargo mix compared with the corresponding quarter last year with cargo realisations growing by 8.2 per cent to Rs 331 a tonne. Reported revenues from the SEZ business at Rs 8 crore were below estimates.
 

IN LINE WITH EXPECTATIONS
In Rs crore	Q3FY11	% chg
Sales	451.0	33.5
Operating exp.	109.0	55.0
Ebitda	309.7	34.3
Ebitda (%)	68.7	40 bps

Net interest13.3136.2 Net profit228.440.0 % chg is y-o-y                                             Source: Company

Good times ahead
The company is well placed to take the advantage of India’s growing foreign trade given that its ports have a location advantage and superior logistics. This has worked in its favour -- given the lack of port capacity in India -- and helped the company improve its market share in India’s total port traffic from 2 per cent in FY2004-05 to 5 per cent now. The company is expected to become India’s largest cargo handler over the next five years with a market share of about 10 per cent.

For FY11, the net profit is expected to grow 28 per cent to Rs 860 crore, which is possible given that for the nine months the company has already clocked Rs 651 crore, 28 per cent higher compared to the corresponding period last year. The next two years will witness strong growth in revenue and earnings as the company recently commissioned a 60 million tonne integrated coal terminal in December 2010, which takes its total handling capacity to 115 million tonnes annually.

A new pipeline
The new capacity will enable the company to meet the import requirements of coal for Adani Power and Tata Power. The two companies are setting up ultra mega power projects with a combined capacity of 8,620 Mw requiring over 30 million tonnes of coal annually. Initially it is expected 10 million tonnes of coal will be imported in FY2011-12, which will be ramped up further in FY2012-2013.

With the present set-up, it is expected the company will do volumes of 50 million tonnes in FY2010-11. However, with the new capacity there will be large additions and a major impact will be seen in the financial year ending March 2012 and March 2013. Besides, with the commissioning of the Bhatinda Refinery and expansion of IOC’s Panipat refinery, the volumes in the crude oil segment are expected to move up. Taking these factors into account, the revenues could grow about 38-40 per cent annually in the next two years and lead to a similar growth in earnings.