Mundra Port: Strong waves

No Indian player strictly matches the company's profile

The investor appetite for stocks in the infrastructure sector remains strong. And if it is a listing in a new infrastructure space, so much the better. The stock of Mundra Port and Special Economic Zone is a case in point.

The company entered the capital markets earlier this month with an IPO at an issue price of Rs 440 a share. The shares listed at Rs 770 on Tuesday, touched an intra-day high of Rs 1150 on the BSE before closing at the Rs 960 levels. The company had raised over Rs 1700 crore by selling 10.05 per cent stake through the primary offering.

Mundra Port, India's largest privately owned cargo terminal, handled 6.3 million tonnes of container cargo and 13.53 million tonnes of bulk cargo in FY07. Mundra port has emerged as one of the important ports on the west coast and has a large base of industrial customers in Gujarat.

It also has the deepest draft in western India, enabling large ships to berth. In FY08, the company management expects to handle a total cargo of 30 million tonnes, which will be a 50 per cent increase over the previous year. In addition, the company is developing a 6,568-acre SEZ close to its port facilities.

The company plans to invest nearly Rs 3,200 crore, which includes the IPO proceeds, in its various projects. It will set up a coal terminal near the upcoming power projects and a cargo port terminal at Dahej. It will also invest Rs 700 crore in basic infrastructure and facilities for the proposed SEZ at Mundra.

As there is no Indian player which strictly matches the profile of Mundra Port & Special Economic Zone, relative valuations with peers are not available. It is also in high-growth businesses, where earnings could catapult over the next two to three years once the projects are in place.

But a market capitalisation of Rs 38,500 crore seems steep. The company will trade at a market capitalisation to sales of 33 times if it doubles sales in FY08. L&T trades at less than 5 times estimated FY08 revenues, while DLF trades at about 13 times.

Siemens: Muted times

Siemens reported average numbers for the quarter ended September 2007. Although the standalone revenues increased 46 per cent, the growth was below analysts' expectations of over 50 per cent. The operating profit increased by 73 per cent y-o-y to Rs 216.7 crore in the September 2007 quarter.

The improvement in operating profit margin by 150 basis points to 9.9 per cent is not good enough for the company to command a lofty P/E multiple of 48 times FY07 (year ended September) consolidated earnings per share, which includes extraordinary income from several sources.

Consolidated operating revenues grew 55 per cent in FY07 to Rs 9417 crore and the operating profit was up 50 per cent. However, operating profit margin declined 35 per cent as several businesses saw a lower margin.

In the software business, segment profit declined by 20 per cent y-o-y in FY07 due to the ongoing restructuring exercise. In its consolidated segment, the power revenues have more than doubled and the segment margin (before interest and tax) improved by 280 basis points.

But some of the margin improvement can be attributed to the Rs 128.5 crore forex gains made by the company. Revenue growth in two other large segments, automation and drives, and industrial solutions has been 36 per cent and 79 per cent respectively in FY07.

However, there was a decline in the segment margins across most of its businesses. The 77 per cent increase in consolidated net profit was mainly on account of one-time incomes such as forex gains, profit on the sale of assets and investment, and profit on transfer of information and communication businesses.

The order book stood at Rs 9,407 crore as on September 2007 compared with Rs 7,526 crore last year, but lower than Rs 10,816 crore in June 2007.

The company is planning to double its revenues over the next three years by focusing on mega power projects globally and in the domestic market. While the business outlook is positive, the pace of stock price appreciation may slow down till such time that the company improves its margins.

With contributions from Amriteshwar Mathur and Jitendra Kumar Gupta