Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL A1+’ rating on the short term bank facilities of Gujarat Pipavav Port Ltd (GPPL). Also, CRISIL Ratings has withdrawn its rating on the Rs.1124.45 crore proposed long term bank facility based on GPPL’s request. The withdrawal is in line with CRISIL Ratings’ policy.

 

Operating performance has improved in fiscal 2023 with 23% growth in operating income which stood at Rs 917 crore supported by 21% volume growth in container cargo which contribute 60-70% of total revenue. With stabilisation of global supply chain issues, the operating performance has improved in fiscal 2023 after flat revenue growth for fiscal 2021 and 2022. The growth momentum continued in fiscal 2024 as well wherein first 9 months of fiscal 2024 (9m-2024) has experienced 7% revenue growth which stood at Rs 737 crore backed by 10% volume growth in container cargo and higher realizations of Rs 7,900-8,500 per twenty-foot equivalent unit (TEU). Traffic volumes have grown at a healthy rate in fiscal 2023 and 9m-2024 for other cargoes, liquid bulk cargo and Roll-on/Roll-off (RoRo), as well except dry bulk cargo. Though GPPL’s container volumes have experienced some supply chain challenges due to global issues in last quarter of fiscal 2024 (Q4-2024), the operating performance is expected to remain stable in fiscal 2024 with operating income expected at over Rs 900 crore backed by healthy volume growth in 9m-2024, steady realizations and healthy operating margin.

 

While operating margin declined marginally to 54.8% in fiscal 2023 from 55.5% in the previous fiscal given higher operating expenses, it has shown improvement in 9m-2024 at 56.4% and expected to remain at similar level. GPPL is expected to incur capital expenditure (capex) of USD 90 million (approximately Rs 750 crore) over fiscals 2025 and 2026 for new liquid berth. GPPL’s financial risk profile continues to remain strong backed by no debt obligations and strong liquidity, with cash balance of more than Rs 950 crore as of January 2024.

 

The ratings continue to reflect GPPL’s healthy business risk profile driven by healthy traffic volumes especially from containers and strong operating profitability, robust financial risk profile driven by healthy cash accrual, no debt, and above-average net worth. The ratings also factor in strong business linkages with the parent, Netherlands-based APM Terminals BV (APM Terminals; part of the AP Moller-Maersk group). These strengths are partially offset by the moderate scale of operations and susceptibility to competition from neighbouring ports.

Analytical Approach

CRISIL Ratings 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 TEU [MTEU]) and dry bulk (4 million tonne per annum) capacities. Traffic volumes from these capacities account for around 90% of the annual operating income, and were utilised at 57% and 98%, respectively, in fiscal 2023 and 61% and 73% in 9m-fiscal 2024. Scale of operations grew by 23% in fiscal 2023 after a moderate 2 % growth over the past 5 fiscals through fiscal 2022, and operating income stood at Rs 917 crore in fiscal 2023. GPPL is planning to incur a capex of USD 90 million over fiscals 2025 and 2026 for new liquid berth to increase the capacity of liquid cargo. Accretion of the benefits from the same over medium term to increase the scale of operations will be a key monitorable.

 

Operating performance improved in fiscal 2023 and 9m-2024, as reflected in healthy revenue growth and good operating profitability. Operating performance in fiscal 2023 and 9m-2024 was also supported by healthy growth in GPPL’s – a) liquid bulk cargo (volume growth of 26% in fiscal 2023 and 20% in 9m-2024) backed by higher liquified petroleum gas (LPG) imports from very large gas carriers (VLGC); b) RoRo cargo (volume growth of 60% in fiscal 2023 and 120% in 9m-2024) backed by increase automobile volumes. However, dry bulk cargo has experienced a degrowth of 7% and 32% in fiscal 2023 and 9m-2024 respectively on account of lower coal and fertilizer volumes. There was a power outage from main source of electricity in June 2023 but it didn’t affect operations materially as the port used its captive power plant. Also, operations were suspended for 16 days due to cyclone Biparjoy in June 2023. Nevertheless, this suspension didn’t have any material impact on the port operations. Container cargo volumes have observed some skip calls by shipping lines due to supply chain challenges given global issues in Q4-2024. Nevertheless, operating performance is expected to remain stable in fiscal 2024 backed by healthy volume growth in 9m-2024, steady realizations and healthy operating margin at 55-57%.

 

Inherent potential of the port to generate healthy trade volume, backed by its location, connectivity to industrial hubs in Gujarat and northern hinterlands, and efficient operational metrics, should continue to support revenue growth. Additionally, strong operating margin at 55-56% supports profitability.

 

• Robust financial risk profile: The financial risk profile is driven by strong net worth of Rs 2,073 crore as on March 31, 2023 and no debt. This is aided by strong profitability reflected in stable operating margin of more than 55%; operating profit was above Rs 500 crore for fiscal 2023 and expected to remain above this level over the medium term.

 

Despite strong profitability, net cash accrual is low because of distribution of most of the profit as dividend to shareholders in the absence of large capex requirement since fiscal 2017. Net cash accrual was Rs 156 crore in fiscal 2023. Nevertheless, unencumbered cash balance was above Rs 950 crore as of January 2024.

 

Apart from annual maintenance capex requirement, capex for new liquid berth is also likely to be met through internal accrual and cash reserves with no debt to be taken. Dividend outgo will continue from most of the profit generated post capex requirements. Substantial dividend outgo over net profit, if any, resulting in depletion of cash balance will remain 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 22% of revenue in fiscal 2023). 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+/Stable’ by S&P Global Ratings). Any material change in the credit risk profile of APM Terminals will continue to be a key rating sensitivity factor.

 

Weakness:

• Moderate scale of operations and susceptibility to competition from neighbouring ports: Although scale of operations increased by 23% in fiscal 2023 with operating income of Rs 917 crore, it has come post a stagnant revenue growth of 2% in the five fiscals through 2022 despite enhancement of container capacity to 1.35 MTEU in fiscal 2017 from 0.85 MTEU earlier. Revenue was at Rs 650-750 crore during the period. Capacity utilisation of dry bulk cargo improved gradually from 46% in fiscal 2018 to 105% in fiscal 2022, it has again declined to 73% on annualized basis in 9m-2024. Fluctuation in traffic volume and realisation of other cargoes could curtail any significant growth in revenue. GPPL faces competition from neighbouring ports, including Jawaharlal Nehru Port Trust (7.7 MTEU; rated CRISIL AAA/Stable) and Adani Port & SEZ Ltd (domestic capacity of over 498 million tonne), which have larger 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 remain critical to support growth over the medium term.

Liquidity: Strong

Cash accrual is expected to be over Rs 150 crore per fiscal against no debt repayments over the medium term. Cash balance was ample at more than Rs 950 crore as of January 2024. The bank guarantee facility was utilised at around 67% (Rs 40 crore utilised out of sanctioned limit of Rs 60 crore) on average during the 12 months through January 2024.

Rating Sensitivity factors

Downward factors:

• Fall in revenue by more than 15% because of lower traffic
• Large debt-funded capex or substantial dividend pay-out over and above the profit generated, depleting cash position and weakening of financial risk profile

 

Environment, social and governance (ESG) profile

CRISIL Ratings believes GPPL’s ESG profile supports its already strong credit risk profile. The sector can have a moderate environmental and social impact, primarily driven by its plastic waste generation, intensive water usage and direct impact of its product on the health and wellbeing of its customers.

 

Key ESG highlights:

• The port has installed 1000 kWp (Kilowatt peak) DC capacity solar power plant, and it has been commissioned. Also, the company has entered into an agreement with a renewable energy supplier for purchasing green energy. Subsequently, about 45% of the company’s power requirement is being sourced through renewable energy. The company is also working at various levels to increase this contribution of renewable energy.
• The company is committed in ensuring safety and security of its employees. It aims for zero fatality and LTI free days. LTIFR rate for fiscal 2023 is 0.29.
• The company is committed to the local communities around the port and actively driving social initiatives in Education, Sanitation and Health, Women Empowerment, Skill Development, and Infrastructure Development.
• The governance structure is characterized by effectiveness in board functioning and enhancing shareholder wealth, presence of investor grievance redressal mechanism and extensive disclosures.

 

ESG is gaining importance among investors and lenders. GPPL’s commitment to ESG will play a key role in enhancing stakeholder confidence, given shareholding by foreign portfolio investors.

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.

 

The promoter, APM Terminals, is among the world’s largest port and terminal operators; it operates and manages over 75 port facilities in 40 countries and has inland services operations at over 100 locations in more than 50 countries. It provides ports, terminals, inland services management, and operational services to more than 60 container shipping lines.

Any other information: Not Applicable