An Adani Group company, Mundra Port & Special Economic Zone is the developer and operator of Mundra Port. Incidentally, Mundra Port is one of the leading non-captive private sector ports in India based on cargo handled in the year ended March 2007 (FY 2007). Apart from operating the port, the company plans to use surplus land surrounding the port to develop a multipurpose special economic zone (SEZ) spread over 2,658.2 hectares (or about 6,568 acres). The concession period for developing and operating Mundra Port and related facilities is up to February 2031.
Once fully developed, Mundra Port &SEZ will have diverse revenue streams including income from offering port services, value-added logistic service income and lease and rental income from SEZ.
Since commencing operations in October 2001, Mundra Port & SEZ now offers facility to handle dry bulk, liquid/crude and containerised cargo. The port has four terminals. Of these, two are multipurpose terminals for handling solid and a liquid cargo and two container terminals. The company operates the solid- and liquid- cargo terminal as well as container terminal II. Incidentally, container terminal I is operated by a sub-concessionaire: Mundra International Container Terminal (MICT), part of Dubai Port World.
The Mundra port handled cargo of 19.8 million tones in FY 2007, a growth of 69% over FY 2006. In addition, the company also offers value-added port services including railway services. Adani Logistics, in which the company holds 50% stake with the balance held by the promoters, has got licence to operate container rail. Adani Logistics was operating one rail rake in the Delhi-Mundra corridor end September 2007. The company is developing the multipurpose SEZ land for industrial usage and allied social infrastructure.
Mundra Port has wide range of third-party customers that operate at or use the port, including the container sub-concessionaire MICT and the Indian Railways. Indian Oil Corporation, Indian Farmers Fertilisers Cooperative, Food Corporation of India and some of the Adani Group companies such as Adani Enterprises and Adani Wilmar are the major users of the port services. Strategic arrangement with the Indian Railways and MICT allows Mundra Port & SEZ to get revenue share for the infrastructure created by it. To connect Mundra Port with the Indian Railways network, the company has laid the Mundra-Adipur railway track and gets a share of the revenue on the cargo moved on this track. Similar revenue-sharing agreement is in place for the private container terminal operation at the port.
Mundra Port & SEZ intends to use the proceeds of the issue for 1) construction and development of basic infrastructure and related facilities in the proposed SEZ at Mundra and surrounding areas, 2) construction and development of terminal for coal and other cargo at Mundra Port, 3) investing in Adani Petronet (Dahej) Port, 4) investing in Adani Logistics’s container business, and 5) investing in Inland Conware ‘s inland container depot business.
Estimated fund requirement is about Rs 3160 crore. This covers Rs 700 crore for development of SEZ, Rs 2000 crore for coal terminal project, Rs 255 crore for Adani Petronet (Dahej) Port, Rs 49 crore for Adani Logistic, and Rs 156 crore for Inland Conware. Mundra Port & SEZ has already deployed Rs 174 crore. About Rs 1200 crore will be financed by debt, Rs 350 crore through internal accruals and the balance from the IPO proceeds.
Strengths
Mundra Port is an operational port with natural draft depth in the range of 15-32 meters at a short distance from shore, enabling it to handle large-sized future generation vessels. There are no major ports in India, either in the public or the private sector, with such a huge natural draft depth. As a result, only Mundra port is currently able to handle large new generation ships such as container liners of up to 8,000 twenty-foot equivalent units (TEUs) and modern capesize vessels (ships).
Port congestion in competing peer ports in the northern part of the western coast gives a natural advantage to Mundra Port. It currently has relatively lower congestion. The distance to northern hinterland is also shorter. This provides Mundra Port a strong growth opportunity.
Railways and roadways are important links for transportation of goods to and from any port to the cargo centres. Strong port connectivity by both rail and road; access to hinterland; and operational efficiency compared with its peers on the west coast, specially in Gujarat and Maharashtra, give an edge to Mundra Port in attracting cargo. With a capability of handling large bulk cargo vessels of more than 50,000 dead weight tonnage (DWT) equipped to handle approximately 20,000 tonnes of bulk cargo per day, the port’s vessel turnaround time was as low at 2.4 days in the quarter ended June 2007. Similarly, the vessel turnaround time at Container Terminal I stood at 14.5 hours, close to the average vessel turnaround time of 13 hours in leading ports in Asia, in the 15 months up to June 2007.
Strategic relationship with customers through long-term contracts assures stable cargo traffic and regular cash flow. Mundra Port & SEZ has long-term contracts with Indian Oil Corporation for providing port services. Similar agreement has also been inked with Guru Gobind Singh Refinery (GGSRL), a subsidiary of Hindustan Petroleum Corporation (HPCL), for single-point morring facilities and 310 acres of land for a crude-oil terminal at Mundra. Similar long-term port service agreements have been signed with Tata Power and Adani Power.
Mundra Port &SEZ is setting up a coal-handling jetty with a capacity of 30 million tonnes per annum to take care of the coal imports of about 22 million tonnes required by the Mundra ultra mega power plant (UMPP) of Tata Power and the 2,640-MW Mundra power project of Adani Power.
The around 15,665 acres of land that is owned by Mundra Port & SEZ includes the development and usage rights granted for 3,404 acres around Mundra Port under concession agreement for 30 years. Further, it also includes 2,658.2 hectares (or about 6,568 acres) of area notified as SEZ. In addition, it also has approximately 4,000 metres of undeveloped waterfront land it can utilised in growing its own port operations.
Freedom in fixing tariff is one of the major advantages enjoyed by Mundra Port & SEZ when compared with other major ports in the country that take orders from the Tariff Authority for Major Ports.
Weakness
MICT, the private operator of Container Terminal I, is contesting the operation of the second container terminal, citing the non-compete clause in the framework agreement with the private operator. The injunction sought by MICT was quashed by the city civil court. It ruled the framework agreement has been superceded by the subsequent sub-concession agreement between the parties. The matter has now been referred to arbitration by MICT. The private operator has also filed an appeal against the order of the city civil court in the high court at Ahmedabad. If the judgement is not favourable, assets will have to be transferred to MICT at consideration lower than the cost incurred by container terminal II under the frame work agreement. The non-compete clause, which will have to be adhered, will restrict operations.
The incremental growth in cargo handling was from Food Corporation of India’s (FCI) grain imports in FY 2007. FCI cargo accounts about 27% of the total bulk cargo handled by the port in FY 2007. The type and quantity of cargo largely depends on the government of India’s grain import-export policy.
Proactive steps by the Gujarat government and neighboring states such as Maharashtra in privatising minor ports could increase competition.
Since the SEZ Act came into place, a large number of SEZs have been approved. Gujarat had granted approvals for 29 SEZs as of 3 October 2007. This will heightened competition for potential investors.
The Securities and Exchange Board of India (Sebi) has prohibited the promoters of Adani Exports --- Adani Agro, Adani Impex, Crown International, Shahi Property Developers, Adani Properties, Advance Exports and International India --- from accessing the capital market and trading in securities for aiding and abetting entities associated with Ketan Parekh in manipulating the prices of equity share of Adani Enterprises. The Securities Appeal Tribune has stayed Sebi’s order. The matter is now up for hearing on 18 December 2007. Sebi has also filed a criminal complaint against Adani Enterprises and its promoters including Rajesh S Adani for executing offmarket deals.
Valuation
Income from operation grew at a CAGR of 51% from Rs 167.67 crore in FY 2004 to Rs 579.74 crore in FY 2007. Net profit was Rs 192.11 crore in FY 2007. EPS on post-issue equity of Rs 400.68 crore is Rs 4.7. P/E at the price band of Rs 400-440 work out at 85.1 and 93.6 times. There is no comparable player with presence in port and SEZ.
Mundra Port &SEZ has a double advantage of an operator of a functioning port as well as a developer of SEZ. Given the current craze for infrastructure projects, the long-term growth potential is likely to get discounted in the price well in advance and one may not need to go through the operational and regulatory uncertainties and gestation period that such large projects normally entail.