Analysts remain upbeat on the back of good results
Mundra Port & Special Economic Zone (MPSEZ) on Monday announced better than expected performance for the quarter and year ended March. For the quarter, it reported a 74 per cent jump in net profit to Rs 335 crore on a 44 per cent rise in revenues of Rs 605 crore. While part of this growth was due to a change in accounting policy, even if one were to adjust for this change, the performance was strong with revenue and profits growing 23 per cent and 30 per cent, respectively. More important, the growth was led by a 35 per cent rise in volumes at 14.07 million tonnes.
MPSEZ’s stock, which had fallen 11 per cent after the company’s announcement on May 3 that it was declared the successful bidder for a long-term lease of Australia-based Abbot Point X50 Coal Terminal, has risen five per cent following the results, to Rs 135.45. Backed by volume growth, opportunities in the industry and benefits of inorganic growth, analysts expect the company to report strong growth in net profits over the next two years. Most of them have a buy rating on the stock, which they value at Rs 160-170 a share on the basis of sum of part valuations.
| STRONG PROSPECTS | |||||
| In Rs crore | Q4FY11 | % chg | FY11 | FY12E | FY13E |
| Net | 605 | 43.9 | 2,000 | 2,853 | 4,423 |
| Ebitda | 437 | 73.3 | 1,299 | 1,826 | 3,010 |
| Interest | 28 | - | |||
-
E: Estimates. Source: Edelweiss Securities
| SUM-OF-PART VALUATIONS | ||
| Stake (%) | Per share | |
| Mundra Port | 100 | 141.00 |
| SEZ | 100 | 8.90 |
| Dahej Port | 74 | 4.60 |
| Mormugao port | 100 | 1.00 |
| Hazira Port | 100 | 3.30 |
| Adani Logistics | 3.10 | |
| Total | 161.90 | |
| Source: Kotak Institutional Research | ||
VOLUME BOOSTERS
MPSEZ, which handled cargo of around 52 million tonnes in 2010-11, is expected to see a surge in volumes over the next two years. This will be aided by its new 60-million tonne capacity, commissioned in the month of October 2010, making MPSEZ one of India’s largest port operators, with cargo handling capacity of 130 million tonnes per annum.
The increase in volumes will come from, apart from regular business growth, the commissioning of Tata Power's 1,600-Mw Mundra power project in 2011-12 and the increase in coal volumes required for the Adani Power project. Also, on the back of commissioning of the Bhatinda Refinery and expansion of IOC's Panipat refinery, the volumes in the crude oil segment should also improve. The capacity utilisation is thus expected to increase and analysts are expecting MPSEZ’s volumes to double to over 100 million tonnes by 2012-13 and, consequently, lead to strong growth in revenue and net profits, with higher operating margins.
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INORGANIC GROWTH
Apart from robust domestic volumes, MPSEZ’s global volumes should also rise sharply, given that it has bagged the contract to operate Australia’s Abbot Point Coal Terminal (on a 99-year lease) for $2 billion. However, analysts have not yet accounted the benefits from this deal in their estimates for MPSEZ.
The Australian port is currently handling cargo worth 21 million tonnes, which it is already in the process of enhancing to 50 million tonnes (expected in the next few months). At the enhanced capacity, the Australian port can generate revenues of about Rs 1,400-1,500 crore (compared to 2010-11 revenue of Rs 530 crore) and operating margins of 75 per cent.
Meantime, the Australian port company is expected to generate $150 million (Rs 675 crore) in revenue and $70 million (Rs 300 crore) in Ebitda (earnings before interest, taxes, depreciation and amortisation) in 2011-12. This means an addition of about 24 per cent to MPSEZ’s estimated revenues and around 17 per cent to its operating profits in 2011-12.
AWAITING CLARITY
While the gains to MPSEZ’s income statement are visible, the Street is awaiting final details of the deal’s funding. However, by initial estimates, of the $2-billion acquisition cost, MPSEZ is likely to raise short-term debt of about $1,500 million in the books of the Australian company and the remaining $500 million on its own books (Mundra Port). Raising funds through the debt route alone, however, will mean that MPSEZ’s consolidated debt will shoot to around Rs 11,500 crore or 2.7 times its 2010-11 net worth of Rs 4,300 crore in the near term.
In the medium term though, its debt-equity ratio should come down to manageable levels, given MPSEZ’s estimated cash flow of about Rs 1,000 crore in 2011-12.
Additionally, the company could raise some funds through sale of equity (about Rs 1,500 crore) in the next few months. With these two moves, its net worth is expected to rise to nearly Rs 7,000 crore.