Date – 10 Oct 2023
China+1 and the success of the PLI scheme has ensured that India has emerged as a favored destination for global manufacturing. Gujarat Pipavav Ports Ltd (GPPL) with its strategic location is best placed to leverage this accelerating trend. GPPL’s stock price has significantly underperformed not only the surging Indian stock market but also its global peers, making it one of the cheapest valued port operators.
Uncertainty over the renewal of its port license (expiring in September 2028) had suppressed the valuation. We have reason to believe that the permissions would get renewed this year itself (for another 20 years i.e., till 2048) given the fact that GPPL has complied with each of the requirements of the Gujarat Maritime Board (GMB).
At the current valuation of 6.0X FY24 EV/EBITDA, the stock is significantly undervalued. 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), DMIC and Make in India (Aatmanirbhar Bharat), significant cash pile of INR 725 cr and commitment of ~INR 730 cr to enhance port capacities (by 18.5% to 1.6 mn TEU) make GPPL an attractive proposition for a long-term decadal growth story with a significant margin of safety.
At the CMP of INR 101, the stock is trading at 6.0X FY24 EV/EBITDA, which is significantly lower than peers – 11.0X of Adani Ports SEZ and 7X of Gateway Distriparks. We value the stock at INR 175 (11.0X FY24 EV/EBITDA) given its strong growth outlook, debt free status and strong parentage. Our price objective represents an upside of 74% from the CMP over the next 18-24 months.