TIA 20-20 Ideas Summit 2024 Abhijit Chokshi abhijit@stockifi.in SEBI RA DISCLAIMER Disclosures: •Research Analyst has served as an officer, director or employee of subject company(ies): No •We or our associates have received compensation from the subject company(ies) in the past 12 months: No •We or our associates have managed or co-managed public offering of securities for the subject company(ies) in the past12 months: No •We or our associates may have received compensation for investment banking or merchant banking or brokerage services from the subject company(ies) in the past 12 months -No •We or our associates may have received compensation or other benefits from the subject company(ies) or third party in connection with the research report --No •We or associates or Research Analyst or his/her relative's financial interest in the subject company(ies)- No •Nature of financial interest in subject company, if any -Nil •We, our associates or Research Analyst have actual/beneficial ownership of 1% or more securities of the subject company (ies) at the end of the month immediately preceding the date of publication of Research Report - No •Subject company (ies) may have been client during twelve months preceding the date of distribution of the research report-No. •We or our Associates or Research Analyst are engaged in market making of subject company - No •By referring to any particular sector, STOCKIFI does not provide any promise or assurance of favourable view for a particular industry or sector or business group in any manner. 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ABOUT US WHAT DO WE LOOK FOR BEFORE RESEARCHING A POTENTIAL MULTI-BAGGER INDUSTRY OUTLOOK India has one of the biggest coastlines in the world spanning 7517 kilometers 95% of trade (by volume) and 68% (by value) is done through maritime transport 28 Major Ports 200+ Non-Major Ports STOCK PICK GPPL: CHEAPEST VALUED DEBT FREE PORT OPERATOR Strategic Hub: India's First private sector port on the SW coast of Gujarat, pivotal for global trade, strategically placed on an International Maritime Trade route that connects India with the US, Europe, Africa, and the Middle East Strong Parentage: Backed by APM Terminals, leveraging world-class technology and network for unparalleled operational excellence. Capacity and Growth: Boasts capacities of 1.35 million TEUs and 4-5 million MT of bulk cargo, set to expand with a new Liquid Berth, showcasing readiness for diverse logistic demands. Efficient Operations: Holds Authorized Economic Operator (AEO) status, ensuring faster and more efficient customs processing, reducing inspection times, and facilitating smoother trade flows. Financial Strength: Exhibits strong financial health with zero debt, stable operating margins over 55% CURRENT BUSINESS APM TERMINALS APM Terminals is the Lead Promoter and holds 44.01% of GPPL (accounting for 23% of the revenues) APM Terminals operates one of the world’s most comprehensive port networks. It is uniquely positioned to help customers achieve better supply chain efficiency. APM Terminals has a team of over 20,000 industry professionals It operates a network of 65 terminals globally. BUSINESS OVERVIEW ➢ India’s first private sector port with comprehensive maritime services. ➢ Strategic location on international trade routes enhancing global connectivity. ➢ Diverse cargo handling capabilities including containers, dry bulk, liquid, and RORO. ➢ Robust infrastructural Capex, including a new container service and coastal movement of liquid cargo. ➢ The Company holds ~40% share in Pipavav Railway Corporation Limited (PRCL) to ensure rail connectivity to Pipavav Port. KEY VERTICALS & GROWTH DRIVERS Container Segment Leading contributor with growth in TEU volumes. Liquid Cargo Expansion in VLGC operations and liquid berth construction. RoRo Increase in vehicle exports. Dry Bulk Handling of commodities like coal and fertilizers, albeit with some volume decline. KEY VERTICALS & GROWTH DRIVERS DFC TRANSFORMING INDIA'S FREIGHT TRANSPORT DFC - TRANSFORMING INDIA'S FREIGHT TRANSPORT ➢ The DFC is designed to carry 70% of India’s goods trains, aimed at decongesting the existing network. ➢ Increases train speed from an average of 24.7 kph to 65 kph, a 163% enhancement in velocity. ➢ APM Terminals Pipavav (GPPL) benefits uniquely as the first Indian port to connect to the DFC at two points. ➢ Supporting double-stack containers, it is expected to handle a substantial volume of India’s freight traffic, improving overall efficiency (Volume & Speed). ➢ The DFC is part of a broader initiative to modernize and expand India's railway infrastructure for freight. GPPL + DFC = STRATEGIC SYNERGY ➢ GPPL's dual connectivity to the DFC underscores its pivotal role in India's freight logistics landscape. ➢ The port's strategic location and DFC connectivity are expected to cut transit times to the hinterland by about 50%. ➢ Enhanced efficiency with the DFC's high-rise overhead electrified rail yard contributes to GPPL's operational excellence. ➢ The synergy between GPPL's infrastructural capabilities and the DFC is set to drive down operational costs significantly. ➢ DFC has the potential to lower logistics costs substantially (sea transport costs INR 0.75 per Km compared to INR 1.50 per Km for rail transport and INR 2.30 per Km for road transport) GPPL - MOATS Strategic geographic location Its capital as well as time intensive to set up such an asset Authorized Economic Operator (AEO) Status by WCO - High operational efficiency Rising volumes from non-major ports Excellent rail connectivity with DFC FINANCIAL SNAPSHOT FINANCIAL SNAPSHOT – BALANCE SHEET Healthy Net Block: The Net Block (tangible assets) remains substantial over the years, reflecting ongoing investment in the infrastructure. Increasing Fixed Asset Turnover: The ratio has improved over the years, indicating better utilization of fixed assets to generate revenue. GPPL is a debt-free company and has cash and cash equivalents of almost INR 1000 cr, which accounts for 30% of its total assets. GPPL, along with Evergreen Marine (Taiwan), are the only two listed port companies with a negative net debt status. FINANCIAL SNAPSHOT – P&L FINANCIAL SNAPSHOT – KEY RATIOS & NOTES Further, there is substantial scope for operating leverage to play given that its capacity utilization still hovers at 60% of its current capacity Improving Return on Capital Employed (ROCE): ROCE has increased to 19% in Mar 2023, which indicates the company is using its capital effectively to generate profits. Notable increase in net profit by 51% in FY 2022-23, driven by growth across all business segments. Highest ever dividend payout reflecting strong financial stewardship. Solid operational income growth with disciplined capital management. ADDITIONAL VALUE PROPOSITION ADDITIONAL VALUE PROPOSITION Expansion into green energy with a commitment to achieving net-zero greenhouse gas emissions by 2040. GPPL has announced a tariff hike of around 3-7% last month Capital investments in new liquid berth to meet increasing demand. Growth in container volume with the addition of new service routes and customers. Investing in infrastructure to meet the rising demand for liquid cargo. Exploiting the shift in global supply chains to enhance cargo volumes. KEY RISKS KEY RISKS Potential fluctuations in global trade volumes Regulatory changes Environmental risks Competition from other ports VALUATIONS VALUATIONS At the current valuation of 18X FY25 P/E, the stock is significantly undervalued. The parentage of AP Moller Maersk (global leader in container shipping), a strong growth outlook for India’s EXIM trade, leverage of the dedicated freight corridor (DFC) and Make in India (Aatmanirbhar Bharat), virtually debt-free status make GPPL an attractive proposition for a long-term growth story with a significant margin of safety. At the CMP of INR 175, 18X FY25 PE, which is significantly lower than peers – 31X PE of Adani Ports SEZ GPPL is a safe quality compounder, given its strong growth outlook, debt-free status, and strong parentage. Heads We Win & Tails WE Don’t Lose Much
