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Gujarat Pipavav Port Ltd. IPO review and analysis by Keynote Capitals

Contributed by Keynote Capitals

By Keynote Capitals

Executive Summary

 - Gujarat Pipavav Port Limited (GPPL) is developer and operator of APM Terminals Pipavav, India’s first private sector port, which has multi-cargo and multi-user operations. GPPL has the exclusive right to develop and operate APM Terminals Pipavav and related facilities until September 2028 pursuant to the Concession Agreement with Gujarat Maritime Board (GMB) and the Govt. of Gujarat.
 

- GPPL are principally engaged in providing port handling and marine services for container cargo, bulk cargo, and LPG cargo. In addition, it also operates a Container Freight Station (CFS) and also generates revenue from land-related and infrastructure activities.
 

- GPPL have four berths with a total length of 1,075 meters used for handling bulk and containerised cargo and an LPG berth with a service deck of 65 meters and a length between extreme mooring dolphins of 308 meters.

 - GPPL are in a strategic position to serve the landlocked northern and northwestern regions of India, which have experienced and are expected to continue experiencing significant manufacturing and trade growth.

 - APM Terminals Pipavav is one of a small number of deep draught gateways on the west coast of India. It is strategically located near the entrance of the Gulf of Khambhat on the main maritime trade routes, which helps GPPL to serve imports from and exports to the Middle East, Asia, Africa and other international destinations.

 - The existing road and rail network from APM Terminals Pipavav to inland regions of northern and northwestern India, including Delhi, and the available land for future transportation initiatives provides GPPL with a competitive advantage for attracting larger volumes of cargo.

 - GPPL receive benefits from its relationship with APM Terminals such as access to modern technology, operational know-how, best industry practices, increased bargaining power and competitive rates for purchase of port equipment, and access to experienced personnel resources from APM Terminals.
 

- APM Terminals Pipavav has a well-developed port infrastructure with 4,550 meter channel length at the port, enables day and night marine operations throughout the year due to favourable oceanographic conditions

Company Background

Gujarat Pipavav Port Limited (GPPL) was incorporated as public limited company in August 1992 as ‘Gujarat Pipavav Port Limited’. At the time of incorporation, GPPL was a joint venture between Gujarat Maritime Board (GMB) and Seaking Engineers Limited, now known as SKIL Infrastructure Limited (SKIL). In June 1998, GMB divested its stake in favour of SKIL.

GPPL is promoted by APM Terminals, one of the largest container terminal operators in the world. Since acquisition of management control by APM Terminals in March 2005, GPPL has expanded facilities to handle up to 0.6mn TEUs of container cargo as well as approximately 5mn tonnes of bulk cargo per year, which varies depending on the type of cargo handled. Presently, APM Terminals owns a 57.9% equity interest in GPPL

Promoters and Management

The promoters of the company are APM Terminals B.V., APM Terminals Mauritius Holding Limited and APM Terminals Mauritius Limited.

APM Terminals is one of the largest container terminal operators in the world with a global network of 50 terminals in 34 countries and five continents. In the year ended December 31, 2009, APM Terminals handled 31.0 million TEUs and had revenues of over $3bn.

Management comprises of qualified and experienced professionals such as Mr. Prakash Tulsiani, Managing Director, Mr. Hariharan Iyer, CFO, Mr. Ashley Dinning, Chief Commercial Officer, Mr. Ravi Gaitonde, Chief Operating Officer and Mr. Dinesh Lokapure, Bulk Business Unit Head.

Industry Overview

The ports and shipping industry in India have been in greater demand due to the growth in imports and exports on account of India’s economic expansion. India has an extensive coastline of 7,517kms (excluding the Andaman and Nicobar Islands). Indian ports handled approximately 95% of the total volume of the country’s trade and about 70% in terms of value.

Major Ports and non-Major Ports

Indian ports are divided primarily into the Major Ports and the non-Major Ports. The classification of a Major Port compared to a non-Major Port is not based on the capacity or cargo traffic but on control and governance. According to the Department of Shipping, as of March 31, 2008, there were 12 Major Ports and 187 non-Major Ports (state ports or private ports) spread across nine coastal states. Major port trusts are regulated by the Central Government, which currently manages 11 out of the 12 major ports

Traffic at Indian Ports witnessed strong growth in the recent past

The total cargo traffic carried by both major and non-major ports in fiscal 2010 was 827mn tonnes, of which 68% ie, 561mn tones passed through major ports and the remaining 266mn tonnes passed through non-major ports. Over the last decade, cargo traffic at major ports has grown at a CAGR of 7.5% whereas at non-major ports, the same has grown at a CAGR of 15.6%. As a result, the share of non-major ports in total volume has increased from 18.7% in fiscal 2000 to 32.0% in fiscal 2010. The rise in traffic can be attributed to the faster growth in capacity, lower congestion and higher efficiency at non-major ports. Traffic handled at Indian ports in the last five years has been shown in the chart below:

The traffic at ports in India is expected to increase to 954mn tonnes by fiscal 2012 and 1,167mn tonnes by fiscal 2014 driven by significant growth in iron ore, coal and container traffic. The growth in non major ports will be higher than major ports due to the higher rate of investments and capacity expansions at non major ports coupled with congestion, capacity constraints and other operational issues at the major ports.

During fiscal 2010 at Indian ports, petroleum products remained the largest principal commodity of the cargo being 37.0% of total cargo traffic followed by iron ore at 17.0% and coal at 12.0%. Container traffic share was 14.0% in fiscal 2010 as compared to 10.6% in fiscal 2005.

Non-Major Ports

According to the Department of Shipping, as of March 31, 2008, there were 187 non- Major Ports (state ports or private ports) in India spread across nine coastal states. Out of 187 non-major ports only 50 non-major ports are currently operational. The total cargo traffic at non-major ports in fiscal 2010 was 266mn tonnes and it has grown at a CAGR of 14.2% over the last five years. The share of non-major ports in total volume was 32% in fiscal 2010. Traffic at non-Major ports in Gujarat accounts for 77% of the total traffic handled at non-major ports in fiscal 2010.

During fiscal 2010 at the non-major ports in India, petroleum products remained the largest principal commodity of the cargo being ~50% of total cargo traffic followed by dry bulk at 29.5% and other dry bulk at 16.4%. Container traffic share was 4.9% in fiscal 2010 as compared to 0.1% in 2005.

Ports in Gujarat

Gujarat has India's longest coastline of 1,600kms and is the maritime gateway to the Middle East, Africa and Europe. Gujarat has 41 ports, which includes one major port and 40 non-major ports. The non-major ports in Gujarat handled approximately 77% of the total traffic handled at non-major ports in India in fiscal 2009.

Petroleum oil lubricants (POL) are the single largest commodity handled at Gujarat ports and accounted for 57% of the total cargo handled at Gujarat ports in fiscal 2008. Dry bulk cargo accounted for 34% of Gujarat cargo traffic in the same year. According to the Govt. of Gujarat, Gujarat expects a substantial investment in the power sector by 2012 and it further expects that 11,164 MW power generation capacity will be added by 2012. The cargo requirements of these upcoming power plants are expected to benefit the ports located in close proximity.

Business Operations

Gujarat Pipavav Port Limited (GPPL) is developer and operator of APM Terminals Pipavav, India’s first private sector port, which has multi-cargo and multi-user operations. GPPL has the exclusive right to develop and operate APM Terminals Pipavav and related facilities until September 2028 pursuant to the Concession Agreement with Gujarat Maritime Board (GMB) and the Govt. of Gujarat.

APM Terminals Pipavav is one of the principal gateways on the west coast of India and is located in the Saurashtra region of the state of Gujarat. APM Terminals Pipavav is an all weather port and is protected by two islands, which act as a natural breakwater maximizing port safety.

GPPL commissioned the first jetty and commenced cargo handling operations at APM Terminals Pipavav in November 1996, commenced container handling activities in April 1998 and obtained the exclusive right to develop and operate APM Terminals Pipavav and related facilities under the Concession Agreement on September 30, 1998.

APM Terminals Pipavav currently accepts vessels with up to 14.5 meter draught at chart datum and deploys three tugs for providing pilotage and towage services. GPPL have four berths with a total length of 1,075 meters used for handling bulk and containerised cargo and an LPG berth with a service deck of 65 meters and a length between extreme mooring dolphins of 308 meters. The 4,550 meter channel length at the port allows day and night marine operations throughout the year. GPPL has also created extensive support infrastructure to handle container, bulk and LPG cargo, such as container yards, yard handling equipment, quay cranes, rubber-tyred gantry cranes, paved rail sidings, warehouses, open stackyards and a port users’ building to accommodate the offices of custom house agents, stevedores’ agents and shipping lines.

Services

GPPL are principally engaged in providing port handling and marine services for container cargo, bulk cargo, and LPG cargo. In addition, it also operates a Container Freight Station (CFS) and also generates revenue from land-related and infrastructure activities. GPPL provide pilotage services to vessels calling on the captive jetty built by Ultratech Cement within its Port limits.

Container Cargo Services

GPPL provide container services including the loading, unloading and storage of containers to a number of major container shipping lines. Its container cargo handling volume for the years ended December 31, 2009 and 3-month period ended March 31, 2010 was 321,400 and 105,530 TEUs, respectively. GPPL has one dedicated jetty and one multi-purpose jetty for our container cargo operations. The existing container berth facilities are designed to handle berthing of large container vessels with capacities of up to 6,200 TEUs currently can handle approximately 0.60 million TEUs of container cargo per year. In addition, GPPL berth at the container terminal has three panamax and five post-panamax rail-mounted quay cranes.

Bulk Cargo Services

The majority of the bulk cargo throughput at APM Terminals Pipavav comes from international trade, and in particular, bulk cargo imports into India. Bulk cargo activities include the piloting and berthing of vessels and the loading, unloading and storage of cargo. GPPL’s revenue from bulk cargo includes marine services as well as handling, storage and value-added services. The bulk cargo facilities at APM Terminals Pipavav include two bulk cargo berths and one multi-purpose berth. The bulk cargo berths are equipped with mechanised equipment such as a crane-conveyor system for unloading coal. The equipment in the crane-conveyor system includes a crane with a handling capacity of 1,000 tonnes per hour, a mobile hopper attached to the crane for direct discharge into the import conveyors and an import conveyor system which is approximately 1,200 meters long, with a capacity of 2,000 tonnes per hour.

Strengths

Strategically located

GPPL are in a strategic position to serve the landlocked northern and northwestern regions of India, which have experienced and are expected to continue experiencing significant manufacturing and trade growth. For example, it is closer than JNPT for traffic heading to or coming from northern and northwestern India. These regions currently generate 66.0% of the total container throughput in India propelling significant container volume growth at the ports located on the west coast. Economic growth in these regions as well as the growth in demand for cargo services provides a strong and growing market for GPPL services.

Natural location advantages

APM Terminals Pipavav is one of a small number of deep draught gateways on the west coast of India. It is strategically located near the entrance of the Gulf of Khambhat on the main maritime trade routes, which helps GPPL to serve imports from and exports to the Middle East, Asia, Africa and other international destinations. The wave height in the harbour does not generally exceed 0.5 meters at the berth, and the water currents are between 2.5-3 knots during peak tidal condition. These favourable oceanographic conditions enable day and night navigation of ships throughout the year.

Road and rail connectivity

APM Terminals Pipavav is connected to the Indian Railways network through an approximately 269kms long dedicated broad gauge railway link maintained by PRCL, which is 38.8% owned by GPPL. India’s first double stack container rake service, with a capacity of 180 TEUs started operations between APM Terminals Pipavav and Inland Container Depot at Kanakpura (Jaipur) in March 2006. The port also has a four lane road link of approximately 10km to NH-8E for transporting cargo to and from the Port. The existing road and rail network from APM Terminals Pipavav to inland regions of northern and northwestern India, including Delhi, and the available land for future transportation initiatives provides GPPL with a competitive advantage for attracting larger volumes of cargo.

Relationship with Promoter, APM Terminals and its parent, APMM Group

GPPL receive benefits from its relationship with APM Terminals such as access to modern technology, operational know-how, best industry practices, increased bargaining  power and competitive rates for purchase of port equipment, and access to experienced personnel resources from APM Terminals. From APMM Group, GPPL receive benefits such as developing business with shipping lines and assistance in developing relationships with third parties in the shipping industry.

Well-developed port infrastructure

APM Terminals Pipavav has a well-developed port infrastructure with 4,550 meters channel length at the port, enables day and night marine operations throughout the year due to favourable oceanographic conditions. GPPL has four berths with a total length of 1,075 meters used for handling bulk and containerised cargo and an LPG berth with a service deck of 65 meters and a length between extreme mooring dolphins of 308 meters, which assists in berthing of large vessels.

Experienced management team

GPPL’s management team has an established track record and knowledge in the Indian and international port and shipping industry. Its present management has demonstrated its ability to significantly grow the business despite the challenging environment.

Investment Risks

Failure to meet traffic volume obligations under the Traffic Guarantee Agreement with the Ministry of Railways/Western Railways and PRCL could materially affect GPPL’s business, cash flows and results of operation.

GPPL benefits from its relationship with Promoter, APM Terminals, which is part of the APMM Group. It derived ~25-30% of its operating revenues from the APMM Group. If

GPPL cannot benefit from this relationship in the future, its business and growth prospects may decline.

GPPL face various risks relating to its reliance on concessions and licences from government and quasi-governmental organisations. Further, it may be adversely affected by increases and/or changes in royalties and fees payable by it.