Recommendation from Shipping Sector

This section gives a recommendation of a stock having stock price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon.

A PROXY PLAY ON COUNTRY'S EXTERNAL TRADE 

HERE IS WHY

Robust operational performance

Strong future outlook

Available at reasonable valuation 

 Gujarat Pipavav Port

According to the Indian Ministry of Shipping, around 95 per cent of India's trading by volume and 70 per cent by value is through maritime transport. The Indian ports and shipping industry plays an important role in sustaining the country's growth in trade and commerce. India is one of the largest maritime countries in the world, with a coastline of about 7,517 km. Apart from other incentives, the government has also facilitated a 10-year tax holiday to enterprises that develop, maintain and operate ports, inland waterways and inland ports. This encouraging scenario in ports and shipping industry led us to select Gujarat Pipavav Port Limited (GPPL) for Low priced scrip. 

GPPL is engaged in the business of developing and operating of APM Terminals Pipavav. It is India's first private sector port, which has multicargo and multi-user operations. It serves as a gateway for movement of containers, bulk, liquid and RORO cargo. In addition, it operates a container freight station (CFS) and also generates revenue from land-related and infrastructure activities.

It has posted an exceptional set of numbers in the second quarter of FY20. On a consolidated basis, the total income from operations rose by 16.44 per cent to Rs.199.23 crore on a yearly basis. The EBITDA grew by 29.97 per cent to Rs.126.72 crore in the same period. The EBITDA margin also improved by 7 per cent as well and stood at 63.6 per cent in the September ended quarter of FY20. Net profit increased by 21.87 per cent to Rs.76.28 crore in the September ended quarter of FY20 from Rs.62.59 crore in the same quarter of FY19.



The west coast of India handles almost two-thirds of the country's container business and it has grown by 11 per cent in the previous year. This growth was mainly driven by strong imports into the country, though growth in exports continues to remain a challenge. As the Indian government is trying to boost GDP, it is expected that exports of the country will strengthen in the coming period. Ports will play an important role in achieving this.

In the bulk cargo segment, the west coast handles mainly two commodities, namely coal and fertilizers. The government is aiming at increasing the domestic production for coal to reduce import dependence. But the gap between demand and supply of coal is high, thus requiring the county to import and that generates revenue for GPPL. In case of fertilizers, domestic production for urea is high, hence urea imports have reduced. But import for DAP and MOP is likely to continue. LPG imports are likely to remain elevated as the government is promoting households to switch to cleaner fuels. On the flip side, the RORO business of car exports from India is facing challenges because of the slowdown in the auto sector, but revival in the sector will reflect positivity in RORO business of the company.

On the valuation front, the stock of Gujarat Pipavav Port is trading at a PE of 18.79x FY19 earnings and ROE of 11.15 per cent. The valuation looks attractive than its peer group, hence we recommend our readers to BUY this stock.