Tariff hikes, gas volume uptick positive for Gujarat Pipavav Port

Though weak volumes may weigh on Gujarat Pipavav Port’s near-term revenues, the Street is expecting the recent price hikes, expansion plan, and commissioning of the Western Dedicated Freight Corridor (WDFC) to boost medium-term prospects. The firm, owned by Danish integrated container logistics major AP Moller-Maersk Group, recently announced a tariff hike, which adjusted for discounts and rebates, would work out 6-7 per cent higher on a blended basis for container cargo.
 

Analysts at Centrum Research say these tariff hikes are more comprehensive than the previous increases and despite the increase in headline container tariffs at the port, they would still remain at a 15-20 per cent discount to that of Mundra. They believe the higher tariffs, which are effective from October 1, will increase incremental operating profit by Rs 18 crore in the second half of the year and by Rs 35 crore in FY22.
 

In addition to the expansion in margins, the move signifies the management’s confidence over volume growth potential. Analysts at Nomura Research believe the firm has a strong rail evacuation infrastructure, which was facing issues of network congestion in the key north and west India trade routes.

 

With WDFC likely to link Gujarat ports in Q4FY21, competency in rail evacuation is now advantage and this factor has enabled Pipavav Port to finally take price hikes. What could aid volume growth is the commencement by Aegis Logistics of liquified petroleum gas transport by rail in Q4FY21. The crane collapse at JNPT in the near term and market share gains from the WDFC could support volume growth.
 

What may be a major catalyst for the stock is the extension of the concession agreement beyond September 2028. The company recently approved a Rs 700-crore plan to upgrade the existing facilities which would enable it to handle bigger ships and expand container capacity by about 19 per cent. However, the growth capex depends on the clarity of the extension in the concession period by the Gujarat Maritime Board.
 

While these are triggers, analysts say the company will face near-term volume hurdles. The company reported a 16 per cent YoY dip in container volumes in the first quarter and volumes were down 6 per cent on a sequential basis in August. With volumes much lower than the pre-Covid period, analysts expect volumes for FY21 to fall 10-15 per cent.
 

Investors should await consistent volume growth trends before taking exposure to the stock.