Stock Review: Mundra port & SEZ

Positive news flow related to the development of an Australian port terminal and better-than-expected results have helped the Mundra Port & Special Economic Zone (MPSEZ) scrip climb seven per cent over the last one week to Rs 772. The Adani group, the promoter of MPSEZ, has also been in news after it snapped up a coal mine in Australia for $455 million plus a royalty payment based on production. The mined coal is likely to be shipped through the port terminal to be developed by MPSEZ.

Robust performance

MPSEZ reported 35 per cent yo-y growth in revenues for the June quarter on the back of a 27 per cent jump in cargo volumes to 12.6 million tonnes. Cargo-handling realisations grew 11 per cent y-o-y to Rs 320 atonne due to higher volumes from the new container terminal, CT-2. Lower cargo handling costs helped earnings before interest, tax, depreciation and amortisation (Ebitda) grow 31 per cent to Rs 290 crore. Adjusted for a forex loss of Rs 4.6 crore net interest charges fell 12 per cent to Rs 20 crore. High margins helped net profit register growth of 24 per cent to Rs 211 crore.

Operational gains

The company has scaled up operations in all three segments —dry bulk, liquid and container terminals. Higher cargo volumes in bulk (up 36 per cent due to rise in coal, iron and steel trade) and container cargo (up 28 per cent) have helped it post the jump in overall volumes.

Crude volumes, says an IDFC Securities report, recovered during the June quarter and grew 6.4 per cent to 2.2 million tonnes. Crude volumes had been impacted since the second half of FY10 due to lower offtake from Indian Oil Corporation. The oil major's depot near Jaipur was gutted in the December quarter last year.

Gaining share

The jump in cargo volumes implies that MPSEZ's share of the cargo pie in the country increased to 8.3 per cent from 6.7 per cent in the year-ago quarter. Its share of container volumes has increased by a percentage point to 12.8 per cent. The MPSEZ port is the eighth largest in the country in the cargo segment and the third largest in the container business.

Investment rationale

Given the growth in cargo volumes vis-a-vis other ports in the country, IDFC expects MPSEZ to be the leader in the ports business over the next five years. Further, the company has a strong balance sheet with leverage at less than 0.5 times and strong cash flows (Rs 1,000 crore annually) from the port business. This will help part-fund its expansions in Dahej, Mormugao and Hazira ports. IDFC believes leasing of the SEZ at Rs 70 lakh per acre has led to higher valuations than envisaged earlier. The recent jump in prices implies there is little upside for the stock in the near term.