Stock Review: MUNDRA PORT & SEZ

The June quarter result of Mundra Port and Special Economic Zone (MPSEZ), India's leading private multi-port operator, was in line with expectations on the back of a healthy growth in volumes despite a slowdown in the world economy.

MPSEZ reported a 20% rise in net profit and 27% in revenues in June 2011 compared to the same period in FY11. The company's cargo volume grew 19% to 15.08 metric million tonnes (MMT), which was lower than a 28% y-o-y growth in FY11. The growth fell on account of lower volumes in liquid and crude cargo. Crude and liquid cargo together account 32% of the total volume. The container volumes during the same period were up 23% to 3.43 lakh 20-ft equivalent units (TEU). By taking account of volumes in this quarter, MPSEZ becomes the fifth largest commercial port in India.

The company benefited from the closure of JNPT for six weeks due to equipment repairs in the June '11 quarter.

The traffic from northern hinterland, expected to move to JNPT, was diverted to Mundra and Pipavav ports during this period.

MPSEZ in the same period completed the $2-billion acquisition of Abbott Point Coal Terminal in Australia with a capacity of 50 MMT per annum. It was funded entirely from borrowed funds at interest rate of threemonth Libor + 305 basis points. EBIDTA margins saw a major drop of 1000 basis points due to increase in operating and employee expenses. Tax burden increased from this financial year since SEZ developers are now liable to pay MAT.

With capacity utilisation at most of the major ports being 100% and expansion going at a very slow pace, ports like Mundra and Pipavav are likely to benefit from the incremental growth in external trade. However, in the near future, global slowdown is likely to affect volumes.

The stock is currently trading at a price-to-earnings (P/E) multiple of 28.24. Listed peers Gujarat Pipavav Port and Essar Ports, which are much smaller in size compared to MPSEZ, are trading at a P/E of 191.62 and 37.36, respectively.