We maintain our reduce rating on Gujarat Pipavav Port (GPPV) and value the company on a DCF methodology to arrive at our revised target price of Rs 74 (from R67 earlier). The increase is on account of Rs 5 per share led by higher earnings estimates (primarily due to higher realisation/margin estimates). Increase of Rs 2 per share as we roll forward our target price to June 2015 from March 2015 earlier. Our target price includes Rs 3.8 per share for its 38% equity stake in PRCL. In our valuation, we assume the company will operate port and related facilities until September 2028.
As the company does not have any right of first refusal (ROFR) on the port when it comes up for lease renewal, we have not built in any valuation upside from the renewal of the port back to GPPV. We use an average of book value and depreciated replacement value of the existing assets at the exit in 2028 to arrive at the terminal value. But if we consider depreciated replacement value of the existing assets at the exit in 2028, our target price would increase by around 6% to ~R78.5 per share.
The company had a good quarter with the Q1CY14 results beating consensus estimates led by better margins and realisations, which was partly also due to one-off reversal of discounts provided earlier in the year. Volumes were slightly below expectations led by muted bulk cargo volumes even as container cargo grew 16% y-y. The company has also started paying the full MAT tax rate beginning this quarter.
– Nomura
