| Gujarat Pipavav Port Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
| ||||||
| 1 crore = 10 million | ||||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
|
CRISIL has reaffirmed its 'CRISIL AA-/Stable/CRISIL A1+' ratings on the bank facilities of Gujarat Pipavav Port Limited (GPPL). |
| Analytical Approach |
|
For arriving at the ratings, CRISIL has considered the financial and business risk profiles of the company on a standalone basis. |
| Key Rating Drivers & Detailed Description |
|
Strengths * Healthy business risk profile GPPL's business risk profile is driven by healthy traffic volume handled by its container (capacity of 1.35 million twenty-foot equivalent unit [MTEU]) and dry bulk (capacity of 4 million tonne per annum) capacities. Traffic volumes from these capacities account for more than 85% of the annual operating income, and were utilised at 65% and 58%, respectively, in fiscal 2020. Scale of operations grew by a moderate 3.5% over the past 5 fiscals, and operating income stood at more than Rs 700 crore in fiscal 2020. Operating performance was healthy in the first 9 months of fiscal 2020, as reflected in revenue growth of 10% (vis-a-vis 8% in the first 9 months of fiscal 2019) to Rs 522 crore because of strong growth in dry bulk (around 30%) and liquid bulk (55%) cargo handled. Growth in cargo handled was driven by increase in import of fertilisers in dry bulk cargo and liquefied petroleum gas in the liquid bulk cargo. Container cargo declined by 1.2% during this period because of economic slowdown, while RoRo cargo declined by 24% on account of declining automobile exports. Although the outbreak of Covid-19 led to de-growth across all these cargo types and the impact is likely to continue in first half of fiscal 2021, it is expected to gradually normalise once the pandemic subsides. This is supported by the port's inherent potential to generate healthy trade volume, backed by its location, connectivity to industrial hubs in Gujarat and northern hinterlands, and efficient operational metrics. Pre-berth time and turnaround time of cargo operations at the port are usually better than industry average, especially for container operations. Furthermore, the operating margin is strong at over 55% supporting profitability. * Robust financial risk profile The financial risk profile is driven by strong profitability and minimal dependence on debt by the company. Strong profitability is reflected in stable operating margin of more than 55% per fiscal, leading to generation of operating profit above Rs 350 crore year-on-year. Operating margin remained strong at 60.4% in the first 9 months of fiscal 2020 (55.7% in fiscal 2019). Despite strong operating profitability, net cash accrual is low because of distribution of most of the profit as dividend to shareholders in the absence of large capital expenditure (capex) requirement since fiscal 2017. Net cash accrual was at Rs 100-120 crore in the 3 fiscals through 2019. The company continued to pay majority of the profit as dividend in the first 9 months of fiscal 2020. Networth was Rs 2,040 crore as on September 30, 2019. Debt continues to be nil on the company's books, and unencumbered cash balance was above Rs 600 crore as on April 30, 2020. GPPL does not have any major capex plans except rail electrification work of around Rs 70 crore inside the port on the Pipavav Railway Corporation Ltd section, and annual maintenance capex requirement over the medium term. Capex requirement is likely to be met through internal accrual and cash balance. Dividend outgo will continue from most of the profit generated, given the moderate capex plans. Substantial dividend outgo over net profit, if any, will result in depletion of cash generated, and will be a key monitorable. * Strong business linkages with the parent The company leverages the expertise, resources, and network of its parent in developing business with shipping lines. Maersk Line remains one of the largest customers (accounted for 30% of revenue in fiscal 2020). Benefits are also derived from access to modern technology, operational know-how, and best industry practices because of an association with APM Terminals and the ultimate parent, AP Moller-Maersk A/S Maersk Line (part of the A P Moller-Maersk group; 'BBB/Negative' by S&P Global Ratings). The rating outlook on the ultimate parent was revised to 'Negative' from 'Stable' in April 2020 on account of expected decline in global trade volume amid the increasingly challenging global conditions because of the pandemic. Given the strong business linkages with Maersk, GPPL's trade volume will also be impacted. However, the impact is expected to be marginally lower because GPPL trades more with Far East countries where the pandemic's impact is lower. Prolonged impact of Covid-19 on trade volume will be a key monitorable. Weaknesses * Moderate scale of operations and susceptibility to competition from neighbouring ports Despite enhancement of container capacity to 1.35 MTEU in fiscal 2017 from 0.85 MTEU earlier, scale of operations remained moderate as reflected in estimated revenue growth of 3.5% between fiscals 2016 and 2020. Revenue was in the range of Rs 650-750 crore during the period. Although capacity utilisation of the container cargo improved gradually (utilisation in fiscal 2018 was 52% and improved to 65%-67% in fiscals 2019 and 2020), fluctuation in traffic volume and realisation of other cargo curtailed any significant growth in revenue. Furthermore, GPPL faces competition from neighbouring ports, including Jawaharlal Nehru Port Trust (7.7 MTEU) and Adani Port & SEZ Ltd (domestic capacity of over 395 million tonne), which are comparatively larger in scale of operations and attract healthy traffic volume from surrounding industrial hubs and export-import activities. The company's ability to offer competitive tariff and ensure healthy operating efficiency will support growth over the medium term. |
| Liquidity Strong |
|
Liquidity is supported by healthy cash accrual, nil debt repayment, and a strong liquid surplus. Cash accrual is expected to be over Rs 125 crore per fiscal against nil debt repayment over the medium term. Cash balance was ample at more than Rs 600 crore as on March 31, 2020, and is expected to largely remain at this level, given the moderate capex requirement. The bank guarantee facility was utilised at around 60% on average during the 12 months through March 2020. |
| Outlook: Stable |
|
CRISIL believes GPPL will maintain its business and financial risk profiles over the medium term, backed by moderate traffic growth and a healthy operating margin. |
| About the Company |
|
Incorporated in 1992, GPPL has been operating the Pipavav port in Saurashtra, Gujarat, since 1998. It has exclusive rights to develop and operate facilities of APM Terminals in Pipavav until September 2028, according to a concession agreement with Gujarat Maritime Board and the government of Gujarat. The company handles four cargo types: container, dry bulk, liquid bulk, and RoRo. |
| Key Financial Indicators (CRISIL Adjusted Numbers) | ||||||||||||||||||||||||
|
|
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
| Annexure - Details of Instrument(s) | ||||||||||||||||||||||||||||
|
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||
| For further information contact: | ||||||
|