Gujarat Pipavav Port Ltd (GPPL) reported a poor set of numbers for 2QFY2016,
with its top-line declining by 10.6% yoy/18.8% qoq to Rs140cr. The top-line degrowth
on yoy basis was owing to (1) 24% decrease in Container volumes (to
145,000 TEUs), and (2) 39% decrease in Bulk business (to 628,000MT).
EBITDA for the quarter stood at Rs68cr, down 18.3% yoy/22.0% qoq. Reported
EBITDA margins came in at 48.2% as against 52.8% in corresponding year ago
quarter and 50.2% in the sequential quarter. Fall in EBITDA margin was due to
revenue de-growth coupled with yoy increase in employee expenses.
PAT for the quarter amounted to Rs53cr, down 42.4% yoy and 33.9% qoq. On
adjusting for reversal of asset impairment provision and deferred tax charges, the
Adj. PAT stood at `61cr. Adj. PAT margins came in at 43.4% (vs 58.7% in the
corresponding year-ago quarter and 46.5% in the previous quarter).
Outlook and Valuation: At the current market price of Rs161, GPPL is trading at
FY2016E and FY2017E P/E multiple of 25.2x and 27.4x, respectively. We have
valued the Ports business using free cash flow to equity holders (FCFE) to arrive at
FY2017E based business value of Rs154. We have assigned 10x P/E multiple to our
FY2017E earnings estimate of Pipavav Rail Corporation Ltd (PRCL) to arrive at
business value of Rs7 (adj. for 38.8% stake). On using the sum-of-the-parts (SOTP)
based valuation methodology we arrive at a FY2017E based price target of Rs162.
Given the limited upside potential in the stock from the current levels, we maintain our
Neutral rating on the stock.

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