Stock Review: MUNDRA Port & Special Economic Zone (MPSEZ)

 

 

Mundra Port is likely to benefit from a pick up in the country's external trade over the past few quarters

 

MUNDRA Port & Special Economic Zone (MPSEZ), a part of Adani Enterprises, has benefited from a strong growth in volumes of cargo traffic handled at its facilities located in Gujarat over the past few years. A shorter lead distance between its port and clients in northern India and a pick up in the country's external trade over the past few quarters are the major reasons behind this. Lead distance refers to the distance in kilo metres between the port and end user facilities.

INFRASTRUCTURE :

The company handled 40.3 million tonne of cargo at the end of March 2010, a rise of 18.3% on a CAGR basis compared to two years earlier. At the company's facilities, key product categories handled include coal, crude oil, fertilisers and chemicals. The company's market share at the end of the second quarter was estimated at 8.5 %, about two hundred basis points higher than a year earlier.

   Mundra's operations are expected to get a further fill-up with the company's subsidiary Adani Petronet (Dahej) Port that commenced its first phase of operations of 20 million tonne dry bulk cargo port during the second quarter. This would enable the company to handle increased volume of coal and allied products, which is a crucial input for several large power plants being set up in the western region.

   Indian ports are primarily divided into major ports and non-major ports, and industry sources say that this classification is not based on capacity or cargo traffic, but on control and governance. Major ports in the country are governmentcontrolled ports, such as Kandla in Gujarat, which handled 79.5 million tonne of total cargo at the end of March 2010. Also, JNPT near Navi Mumbai handled 60.7 million tonne during this period.

FINANCIALS:

Mundra Port handled 12.6 million tonne of cargo during the second quarter, a rise of 24.8% compared to a year earlier. For instance, the company increased volume of coal and fertiliser handled during this quarter. This could be due to the traffic diversion from the country's key port JNPT, near Navi Mumbai after the oil spill in early August. Also, the company benefited from expanded capacity. This growth in traffic during the second quarter was considerably faster than that reported for its year ended March 2010. Despite a 26.3% growth in net sales, operating margin slipped by 540 basis points compared to a year earlier to 66.2% during the second quarter due to higher costs.

   The company had invested 3,411 crore in the past two years, while its operational cash flow during this period was 2,316 crore. As a result, its secured loans amounted to 2,632 crore at the end of March 2010, a rise of 39.7% from two years earlier.

VALUATIONS:

Mundra Port CMP trades at nearly 1.7 times its trailing book. Also, on a P/E basis, it trades at 39 times on a trailing four-quarter basis, given its strong position in western region. Its peer Gujarat Pipavav Port trades at nearly 6.1 times its book value for the year ended December 2009.