Basic analysis of Gujarat Pipavav Port

Basic Analysis of Gujarat Pipavav Port: Ports are vital to global trade as they serve as busy crossroads where goods are exchanged, connecting countries and stimulating economies. These maritime gateways play an important role in international business by facilitating the flow of products around the world.

One of the companies operating in this sector is Gujarat Pipavav Port. In this article, we will conduct a fundamental analysis of Gujarat’s Pipavav Port to see how well it is performing and where it is headed in the future.

Basic analysis of Gujarat Pipavav Port

Let’s start our basic analysis of Gujarat Pipavav Port by learning about the company’s operations and products. Next, let’s look at equity finances. The article concludes with highlights and a summary of future plans.

Industry Overview

As China’s economic opening and inflation impacted Western economies, port congestion issues improved and global supply chains stabilized. The availability of containers went from undersupply to oversupply. Although ocean freight rates have declined compared to the past two years, they still remain high compared to the pre-COVID-19 era for shipping companies.

According to World Trade Organization (WTO) estimates, global trade in 2023 is expected to be 1.7%, lower than the 12-year average of 2.7%. This decline is mainly due to high inflation, monetary tightening and financial uncertainty. However, it is expected to rapidly increase to 3.2% in 2024.

In 2023, container traffic on India’s west coast recorded 14.56 million TEU, a 4% increase from 13.95 million TEU in the previous year. This increase is mainly due to domestic imports. However, there was an impact on export volumes to Western countries.

Additionally, India’s 7,516.6 km long coastline, dotted with over 200 ports, provides a competitive advantage to the Indian sector.

Company Overview

Gujarat Pipavav Port Limited, also known as APM Terminals, was established in 1992 to construct, operate and maintain an all-weather port at Pipavav in Amreli district, Gujarat.

It is the first private port in Korea. This all-weather port is strategically located 140 km from Bhavnagar and 152 nautical miles northwest of Mumbai, making it an important node on international maritime trade routes connecting India with other destinations across the world.

The port has a container handling capacity of 1.35 million TEU and a bulk cargo capacity of 4 to 5 million metric tons depending on cargo composition. It can also handle approximately 2 million metric tons of liquid cargo.

Specifically, the board approved the construction of a new liquids dock, which, once completed, will increase liquid cargo capacity to 5.2 million metric tons. In addition to container and dry bulk berths, we also support handling of Roll-On/Roll-Off (RORO) vessels.

APM Terminals, the company’s main promoter, owns 44.01% of the company and operates a large global network of 65 terminals. This extensive presence helps the company support the growth of its transportation and land customers’ operations, improve supply chain efficiency, and ensure flexibility and reliability.

Gujarat Pipavav Port – Finance

Now let us do a basic analysis of Gujarat Pipavav Port using the annual report published by the company.

Increased sales and net profit

A look at the company’s profit and loss account indicates that the company’s total revenue has remained somewhat constant till FY22. In the most recent financial year, the company’s revenue grew to ₹967.95 crores, registering a CAGR growth of 6.68% from FY19 to FY23.

The increase in sales is interpreted to be largely due to the stabilization of shipping companies’ operation schedules and the addition of new services after COVID-19.

On the other hand, the company’s net profit declined during FY21 and FY22. However, it showed a good recovery in FY23 with a net profit of ₹236.68 Crores. This resulted in the company registering a CAGR of 7.25% for its revenue from FY19 to FY23.

The table below shows the total revenue and net profit of Gujarat Pipavav Port for five financial years.

Now let’s analyze the company’s margins to understand why its profits have suddenly increased.

Margin analysis

Sales increased in 2023, but operating profit ratio decreased slightly compared to 2022. During the most recent fiscal year, the company reported an operating margin of 54.76%.

The decline in operating profit margin is interpreted to be due to an increase in the company’s operating expenses.

On the other hand, the company’s net profit margin increased in FY23. During its most recent fiscal year, the company reported a net profit margin of 31.89%.

The increase in operating margin can be attributed to the company’s transition to a lower tax regime.

The table below shows the operating profit margin and net profit margin of Gujarat Pipavav Port for five financial years.

Rate of Return: RoCE and RoE

If we look at the company’s return on equity (ROE), we can see that ROE and RoCE indicate below-average company performance.

These ratios improved in FY23 but are still slightly below average. During FY23, the company reported ROE and RoCE at 14.07% and 18.5%, respectively.

These ratios mean that the company is not generating good returns for its shareholders and the company’s resource utilization is low.

The table below shows the ROE and RoCE of Gujarat Pipavav Port over five fiscal years.

Debt and interest coverage ratio

The leverage aspect represents the positive aspects of the company.

Since the company has no debt, the debt ratio does not apply to the company. This means that the company is using its own funds to run its business.

Additionally, since the company has no interest to pay, the interest coverage ratio is not applied. This means the company can earn more profits.

Future plans for Gujarat Pipavav Port

So far, we have looked at data from previous fiscal years for a fundamental analysis of Gujarat Pipavav Port. In this section, we will look at actions taken by the company that may benefit the company in the future.

1. The company commissioned an additional warehouse of f 10,000 square metres. For fertilizer storage in FY23.
2. The company has commissioned two additional wagon loading machines on the railway line. This increases rake loading capacity and allows faster evacuation of fertilizer cargo.
3. The company has upgraded its existing liquids berth with the aim of handling partially loaded very large gas carriers (VLGCs).
4. The company is investing in port infrastructure and waterfront development to meet trade demands. They plan to build a new floating marina at an estimated cost of US$90 million, pending regulatory approval. The expansion will increase Pipavav’s liquid cargo capacity from 2 million MT to 5.2 million MT.
5. Pipavav’s automotive exports continued to improve with the addition of new customer automotive companies. Therefore, companies and business partners are exploring new opportunities in RoRo.
6. To improve the local ecosystem around the port, the company signed a long-term lease for a warehouse in the nearby Multi Modal Logistics Park. The facility will provide warehousing solutions to local freight customers in the immediate hinterland.

key indicators

Primary analysis of Gujarat Pipavav port is almost complete. Let’s take a quick look at some important stock indicators.

Finishing

Concluding the fundamental analysis of Gujarat Pipavav Port, we can conclude that the company is well positioned to capture the growth of the sector through its action plan.

Since the company already maintains high margins, adding revenue growth over the next few years could provide the potential for favorable growth going forward.

What do you think about the company? Let us know in the comments below.

Written by Aaron Barth

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