Gujarat Pipavav Port Ltd

NSE:GPPL

Earnings Call Analysis

Revenue Growth Driven by Liquid and RoRo Volumes

The company delivered a strong quarter, with revenue increasing 14% year-on-year, mainly due to higher liquid and RoRo volumes. Liquid volumes surged 32%, while RoRo volumes soared 175%, driven by strong passenger vehicle exports. Despite a 17% decline in container volumes due to transshipment issues, improved cargo mix boosted EBITDA by 41%, leading to impressive margins of 61%. Fertilizer volume growth of 38% partly offset an 18% drop in dry bulk volumes. Management expects stabilization and better performance in Q3 and Q4, despite ongoing geopolitical challenges. The company recorded a INR 100 million revenue adjustment due to volume-based rebates.

Quarterly Performance Overview

For the latest reported quarter, the company achieved impressive financial results, with revenue increasing by 14% year-over-year. The EBITDA saw a remarkable 41% growth while EBIT spiked by 56%, demonstrating strong operational efficiency. The EBITDA margin stood at a healthy 61%. The growth in revenue can primarily be attributed to substantially higher volumes in liquid and Roll-on/Roll-off (RoRo) cargo, with liquid volumes increasing by 32% and RoRo volumes soaring by an astonishing 175%.

Challenges in Container and Dry Bulk Segments

Despite the overall growth, the company faced challenges in the container segment. Year-on-year, container volumes dropped by 17%, largely due to a decline in transshipment volumes attributed to structural changes by a major shipping line, Maersk, which discontinued its Jade service. In the dry bulk category, fertilizer volumes increased by 38%, but overall dry bulk volumes decreased by 18%.

Cargo Mix and Revenue Growth

The increase in revenue was also supported by a favorable cargo mix. The substantial growth in both RoRo and liquid cargo significantly offset the decline in transshipment volumes. It is essential to note that while RoRo contributed to about 10-15% of the total revenue, it plays a larger role in the bottom line, indicating its profitability for the company.

Future Outlook for Container Volumes

Looking ahead, management expressed a cautious optimism regarding the container market. Although the current quarter is presenting challenges, they foresee stabilization by the latter half of the fiscal year. Guidance provided by the management hints at an improvement in EXIM (Export-Import) cargo and improved market conditions in Q3 and Q4, which aligns with the expectation for an overall return to normalcy.

Impact of Global Economic Conditions

Global economic factors remain on the management's radar. Concerns regarding potential recessionary impacts in the U.S. and geopolitical tensions were discussed, notably the situation in the Middle East. Management suggests that while these factors may introduce uncertainty, there is an underlying trend of inventory buildups that could mitigate some of the recessionary impacts. They expect tonnages to rebound in services calling at Pipavav, indicating potential for recovery.

Long-term Growth Initiatives

Amidst current operational challenges, the company is also focusing on long-term growth strategies. The RoRo segment is expected to benefit from India's expanding automobile manufacturing capabilities, with notable manufacturers like Maruti ramping up production capacities. The management anticipates maintaining their RoRo growth momentum, projecting consistent monthly volumes through the financial year.

Concession Renewal and Future Projects

On the regulatory front, progress on concession renewal discussions remains positive, with no current red flags noted by the management. Additionally, the company is actively working on the development of a liquid terminal, with preliminary approvals secured while awaiting environmental clearances to proceed further.

Conclusion

In conclusion, while the latest quarter presents a mix of challenges and opportunities, the company demonstrates resilience with a solid growth trajectory in key areas, particularly in liquid and RoRo segments. Investors should closely monitor market conditions along with operational developments as the management navigates through current headwinds, ensuring a balanced outlook for the remainder of the fiscal year.

Earnings Call Transcript 2025-Q1

[Manish Agnihotri, executive]

Good morning, everyone. This is Manish Agnihotri. Along with me, we have Mr. Girish Aggarwal, Managing Director; and Santosh Breed, CFO. The way we have planned today's call is Girish will have his opening remarks and then we'll open the floor for Q&A. Over to you Girish.

[Girish Aggarwal, executive]

Thank you, Manish. Good morning, everyone. The company delivered a strong quarter. Again, our revenue year-on-year was increased by 14%. EBITDA was higher by 41%. EBIT year-on-year was higher by 56%. Our margins were at 61%, EBITDA margins. The increase in revenue is largely due to higher liquid and RoRo volumes. Our liquid volumes were higher year-on-year by 32%, with much higher LPG volumes and our RoRo volumes increased substantially by 175%, with a very strong export volume of passenger vehicles.

Container volumes continue to be a tough market, and our volumes year-on-year dropped by 17%. It was mainly transshipment volume that declined, the cargo mix hence, has improved. On the dry bulk side, our fertilizer volume increased by 38%. However, overall dry bulk volumes declined by 18%.

I will pause here and open for questions.

[Manish Agnihotri, executive]

[Operator Instructions] Deepak, over to you.

[Deepak Maurya, analyst]

Are you able to hear me?

[Manish Agnihotri, executive]

Yes.

[Deepak Maurya, analyst]

Just wanted to understand, what is the outlook for the transshipment. It's been declining. And in the last call, we discussed it was related to the Red Sea, the congestions and also the fact that many shipping lines have been skipping some port calls to the region. So are you seeing any improvement on that regard?

And secondly, have liquid and RoRo grown substantially enough to offset the decline in transshipment volumes, because the revenue growth was kind of surprising.

[Girish Aggarwal, executive]

So just on the container piece -- and let me first talk a little bit in general about the containers piece. Because of the Red Sea crisis, as you rightly said, there is constraint in the market in terms of capacity, also with the freight rates, which have experienced a significant hike between Asia and Europe, a lot of equipment flow also moves into Asia, primarily China. And that's led to relative lower capacities and hence for skip call. So in general, for us, the container market has seen a decline.

The transshipment, specifically, we spoke about last time, you're right. But the transshipment reduction is essentially due to a network change that Maersk effected towards the end of last year, which is -- they pulled out their Jade service, which was primarily a transshipment product. And hence, the transshipment reduction is also a little bit more structural for us, where because of the Jade service no longer available, that transshipment volume reduction has happened.

So -- I mean it's a mix of two. The transshipment volume reduction will continue to be there because there's no Jade service. On the container outlook, while there is a reduction now, what we are seeing is that it is now stabilizing. So we expect -- I mean, while this quarter continues to be, I think, tough, I have a -- we think that things will stabilize and things will start to improve as we move to Q3 and Q4.

[Deepak Maurya, analyst]

Okay. And if you could provide some outlook on the EXIM part. How has that been faring? And probably if you could also touch upon the realizations during the quarter for the different cargoes, which you typically provide?

[Santosh Breed, executive]

Yes, maybe. So I can start with the realization. So the container realization continue to be in a range of INR 8,000 to INR 8,600 per TEU. For bulk, it is in the range of INR 450 to INR 700 and the same for liquid as well.

[Deepak Maurya, analyst]

Okay. And the EXIM outlook?

[Girish Aggarwal, executive]

So EXIM outlook fundamentally, as I said, because of the whole Red Sea issues and the tonnages being moved out of -- I mean clearly reduced capacity and hence the tonnages being reduced and skip calls. We believe this quarter to be continuing to be a difficult quarter, but things are stabilizing as we see in the market. So I do believe Q3 and Q4 will be better on the EXIM front.

[Deepak Maurya, analyst]

Okay. And the typical question on the concession renewal progress?

[Girish Aggarwal, executive]

I think progress is good. Again, I mean, I'll say the same thing. It's essentially -- there's no red flags. We're meeting the relevant authorities. The discussions are ongoing with them. We are not seeing any red flags. We understand the policy framework will be laid out by the government of Gujarat. So we await that policy framework. But again, as I say, I mean there are no red flags.

[Deepak Maurya, analyst]

Okay. And then this was the third consecutive quarter when coal was not handled. So I have asked this in the last couple of quarters as well. When will we have any visibility if GPPV will resume handling coal?

[Girish Aggarwal, executive]

Okay. See, again, I mean, as I spoke, we have some operational challenges and especially in the monsoons, those operational challenges actually exacerbate. So my sense is we'll not handle coal at least for this quarter, and then we will review the situation post the monsoons.

[Manish Agnihotri, executive]

Nidhi Shah?

[Nidhi Shah, analyst]

Am I audible?

[Manish Agnihotri, executive]

Yes.

[Nidhi Shah, analyst]

So again, again, just adding on some of the previous questions. You spoke about the realization. But just looking at the realization figures, it's a little -- it seems that maybe this 14% growth that we are seeing in revenues, just looking at the realization looks to be a little too good. Is there any -- some kind of one-offs that we have taken this quarter in terms of revenue, something that we could not see in the future quarters?

[Santosh Breed, executive]

So Nidhi, so basically, yes, there is a one-off, because we do have a rebate scheme with most of our customers, which are volume related. So whenever we see if the certain volumes are not likely to meet, then those reversals are taken into account in a particular quarter. So from that perspective, yes, those are one-off because not necessary the entire amount is pertaining to the same quarter.

[Nidhi Shah, analyst]

All right. And also just a little update on the liquid terminal that is being developed. So could you just tell us how is that progressing?

[Girish Aggarwal, executive]

So we are still working on the various permits and clearances. We've got an initial NOC from GMB. Now we are working on the environment clearance. Once the environment clearance comes, then we'll go back to the GMB for final approvals.

[Nidhi Shah, analyst]

Understood. And my absolute last question would be, is that -- would it be fair to assume that at this point, RoRo makes up about closer to 10% to 15% of your revenue this quarter or would that be false?

[Santosh Breed, executive]

Yes, it's fair to assume that.

[Girish Aggarwal, executive]

Bottom line is clearly more. So RoRo makes more on the bottom line than on the revenue. Yes.

[Nidhi Shah, analyst]

Okay. So if I assume 10% to 15% of the revenue, could I safely say 25% to 30% of the bottom line?

[Girish Aggarwal, executive]

So -- I don't know. Santosh?

[Santosh Breed, executive]

Sorry, we'll not really comment on the bottom line of this business right now, Nidhi. But what you mentioned about the revenue is a fair assumption there.

[Nidhi Shah, analyst]

Okay. And on this -- on RoRo, what do you see the outlook for this year? And in general, we see that RoRo volumes the way that GPPL is being able to do no other port is seeing this much growth in RoRo, at least as far as I'm aware. So could you give some color on that?

[Girish Aggarwal, executive]

I think it is structurally India's manufacturing capability is significantly improving on the automobile side. We are seeing a lot more of manufacturing capacities coming up. I mean, Maruti has announced a significant expansion of their capacities from 2 million to 4 million over the next 6 to 7 years.

It's at the back of one of the key reasons is also export volume. We are seeing export volume in general growing out of India. And we believe that this is -- from our perspective, we are really well positioned, to take significant growth on the RoRo side.

This year, I mean, we've done this month about 38,000, 39,000 cars. I expect a similar number ongoing quarter-on-quarter at least for this financial year.

[Nidhi Shah, analyst]

All right. And how much percentage of your RoRo volumes would approximately be exports and how much will be coastal?

[Girish Aggarwal, executive]

How much will be export and?

[Nidhi Shah, analyst]

How much would be, say, shipping to another state?

[Girish Aggarwal, executive]

No, no, there's no coastal. This is all exports.

[Manish Agnihotri, executive]

Nimesh Shah, please go ahead.

[Nimesh Shah, analyst]

So again, I had one question on the EXIM front. So if you could just highlight how we are doing vis-a-vis the West Coast volumes? And how are we trending in terms of our market share? So you mentioned that we are witnessing some skip calls, but is this skip call true for the entire Indian West Coast line or they are just calling one port and probably dumping all the containers at one port? So some highlight on that front.

[Girish Aggarwal, executive]

Yes. So I mean, from a transshipment perspective, it is very specific to us because as I talked about the fact that the Jade service was calling us, and it was a transshipment product of Maersk, which is being withdrawn and hence, the loss of transshipment volume is ours rather than the West Coast, so to say.

We've seen increase in transshipment volumes in some other ports on the Western side. So from that effect, they have seen higher volumes. In general, because of our loss of the transshipment volume, our market share has declined.

[Nimesh Shah, analyst]

Got it. But the thing on the EXIM front? EXIM market share would be stable? Is that a fair assumption?

[Girish Aggarwal, executive]

Yes, it should be stable. But again, we look at an overall market share perspective. So overall, as I said, because of our transhipment volume reduction, our market shares are...

[Manish Agnihotri, executive]

Achal, please go ahead with your question.

[Achalkumar Lohade, analyst]

Can you hear me?

[Manish Agnihotri, executive]

Yes.

[Achalkumar Lohade, analyst]

Okay. Great. Sir, if you could quantify the rebate reversal for the quarter?

[Santosh Breed, executive]

It is in the range of INR 100 INR million, Achal.

[Achalkumar Lohade, analyst]

INR 100 million. Okay. Understood. The second question I had with respect to EXIM. Can you give us some sense in terms of -- because if you look at the other ports, the volumes are growing, while for us, the decline -- there is a decline. So have we also seen a decline in the EXIM cargo? Or there is still some growth in EXIM for the quarter?

[Girish Aggarwal, executive]

There is -- as I was talking about the entire Red Sea issues, specifically to certain specific shipping line, the skip calls have increased and hence our EXIM volume for the quarter has also declined slightly year-on-year overall. I mean, it's declined for a specific shipping line. A large portion of that is covered up by the other shipping lines.

So -- I mean, I would not really like to worry about it much simply because I think the things are stabilizing, and we are already seeing those skip calls reducing in this quarter. So as we move forward, I think that thing should stabilize.

[Achalkumar Lohade, analyst]

Would you be able to quantify, sir, in terms of the skipped calls, in terms of number of calls or number of containers, which got skipped.

[Girish Aggarwal, executive]

No, no, we would not like to specifically call that out at this point in time. Overall, as I said, for the quarter, we are at 17% decline.

[Achalkumar Lohade, analyst]

Right. The second question I had was with respect to lines addition. If there is anything which is likely over next few quarters in terms of line addition where you are at the -- in the advanced stage of discussion and you expect certain conversion or the growth has to be driven by the existing lines itself?

[Girish Aggarwal, executive]

No, no. I mean it has to happen on both ways. But at this stage, it's not appropriate for me to call out anything in terms of what we are doing from a commercial perspective.

[Achalkumar Lohade, analyst]

Understood. And just one more question, if I may, sir, with respect to macro. Is it possible to give us some sense in terms of the total volumes in India, how much would be transshipment? And of the EXIM, how much is being -- the transshipment is being done in the ports of Sri Lanka or Singapore, which could be at risk given the another large player setting up transshipment terminals?

[Girish Aggarwal, executive]

I don't have that numbers handy, honestly, about the volume and transshipment in Tanjung Pelepas or Singapore or Colombo, I don't have that information, but that information is readily available.

[Manish Agnihotri, executive]

Bharanidhar, please go ahead.

[Bharanidhar Vijayakumar, analyst]

So I believe in one of the earlier responses, you alluded to one-off due to revenues being booked related to earlier quarters in this quarter. Is that right? And if so, can you tell me the quantum?

[Santosh Breed, executive]

Yes. So what I mentioned was that we certainly have a contract with the customer, which are volume-based rebates. And whenever there are variations in terms of committed volume versus actual, then we do have the adjustments on the revenue -- to the revenue on that front. So these adjustments are related to those adjustments. The amount which I mentioned was in the range of around INR 100 million.

[Bharanidhar Vijayakumar, analyst]

Okay. INR 10 crores. Got it. Okay. And second question is on the quarter's performance. So overall, the volumes have come down by about 14%, while the revenue was up by about 17%. So it looks like -- of course, the realization on an average has gone up by close to 30%, 35%.

And if I were to look at the numbers you gave on realization on containers and others, it looks like container did not grow so much. So -- like was it the case that the realization on RoRo and liquid grew to such an extent that it has contributed to this high amount of revenue growth despite a 15% fall in volumes?

And if so, or because of the loss in transshipment volumes, has that also contributed to better mix on containers, like just trying to understand this at 30% realization growth, if container realization has not grown too much.

[Santosh Breed, executive]

Yes. So your observation is right. It is mainly driven by the cargo mix. So if you look at the container as Girish mentioned last year, we had the Jade service, which was doing transshipment for us. And transshipment, of course, comes with a much lower realization and an EXIM box. So yes, this is a bit of cargo mix benefit in the container business.

Likewise, even in the other business, if I look at bulk then we have handled higher volume of fertilizers during the quarter, and that certainly helps in improving the realizations. So it's basically the cargo mix, which drives this revenue upside.

[Bharanidhar Vijayakumar, analyst]

Okay. Understood. So if I were to look at the container volumes, if I were to strip out the transshipment volumes in the base of 1Q FY '24 and also for this year. So EXIM volume you are telling would be flattish to a slight marginal decline. Is that understanding right?

[Santosh Breed, executive]

Yes. Yes, you're right for the quarter.

[Girish Aggarwal, executive]

For the quarter, you mean?

[Bharanidhar Vijayakumar, analyst]

Yes, for the quarter, yes. Understood. And then how much was this Jade service contributing on a yearly basis in container?

[Santosh Breed, executive]

No, we don't actually really split it by service. We don't give really in numbers by each service. So we're not able to provide you a number to that.

[Bharanidhar Vijayakumar, analyst]

All right. All right. Okay. And one more question. So we are hearing the last, let's say, few weeks to a month where a lot of concerns on global recessionary fears surfacing be it in U.S. and increased geopolitical tensions in the Middle East, et cetera. So how do you view this development on the general container trade at global level and for India and finally for Pipavav.

Even if you say eliminate the Red Sea issue. Like if it were to get reverse directly to -- other than that, if this macro concerns are going to get severe, is it going to be an impact on Indian trade and hence Gujarat. What's your view on that?

[Girish Aggarwal, executive]

So I mean, it really depends on how things pan out. The geopolitical situations are a little bit red to our mind, I mean, especially now the Iran, Israel, tension that is brewing up, could potentially harm the India trade as we see it, if it actually happens. So I mean, I think we have to just keep a close watch. There are many things that we do not know at this point in time. I think the Red Sea crisis is not behind us, that will continue at least for this -- our assessment is at least for this year -- I mean, calendar year, I mean.

We do not expect the Red Sea to improve over the next 5, 6 months is our sense. So this is the new normal, and we have to kind of work in the new normal. What is also, of course, happened is, there are some -- what we understand is at least the U.S., there's a recession fear, as you rightly said, but they're also building up inventories.

So from that perspective, the trade may not be impacted that much because of the recession. So what we are seeing is that the inventory buildup is increasing because of actually this geopolitical environment.

So from our perspective, I think Pipavav, as I said, while this quarter continues to be potentially tough, but we are already seeing tonnages getting back into our services that call us and hence, the back end of the year seems to be better than the first half of the year.

[Bharanidhar Vijayakumar, analyst]

Okay. Understood. So just one question. So when this Red Sea kind of an issue surface, shipping lines, they of course the only other alternative for them is to go around the Cape of Good Hope. So how does that happen? Do they do that? Or do they like cancel the service itself for port calls itself?

[Girish Aggarwal, executive]

No, no, they, of course, do that. But what that means really is that it adds a number of days to the voyage, which really means that, that much capacity is sucked out. So the assessment -- global assessment is about 15% of vessel capacity has been sucked down. It also means that the equipments, which could return back to China, for example, in x number of days now take x plus 20 days. And hence, the equipment capacity gets sucked out.

With the freight rates increasing between China, Europe with where they are, the preferences that the equipments are pushed back more to China than to other countries. And hence, that further deteriorates the capacity of equipment and vessels in markets like India. And hence, in general, the skips start to happen.

But again, then the shipping lines start to put in more equipment over a period of time and vessels in this whole trade and things start to stabilize. And that's what we have started to see that things have started to stabilize.

[Manish Agnihotri, executive]

Deepak, I can see your hand raised. If you have a question, please go ahead.

[Deepak Maurya, analyst]

I have a follow-up. So when you mentioned the realizations for the container segment. Is it for the overall mix of containers? Or is it specifically to the EXIM containers?

[Santosh Breed, executive]

No, this is for overall mix.

[Deepak Maurya, analyst]

Okay. Understood. And so this would typically range on the top end of the range or closer to the upper end of the range given that transshipments have declined, isn't it?

[Santosh Breed, executive]

That's right. That's right.

[Deepak Maurya, analyst]

Okay. Understood. And is there a possibility for you to share what would be the realizations for the RoRo segment because that is something which has bottomed out and is now clearly in a growth trajectory and will likely be a great driver for earnings. So if you could share some color on the realizations for RoRo.

[Santosh Breed, executive]

It's a little bit early right now because we are just building a customer base. So as of now, we will not be able to share, but maybe in the future.

[Girish Aggarwal, executive]

Yes. Also, I mean, at least at this point in time, roughly large -- two large customers. So it also gives a way for our commercial information that we like to protect.

[Manish Agnihotri, executive]

Any other questions from anyone? Doesn't seem to be the case.

[Girish Aggarwal, executive]

So thank you. Thank you again. I just wanted to say that the overall performance has been very positive against all the headwinds that we have. We look forward to continuing the performance and speak to you again after the next quarter results. Thank you.

[Manish Agnihotri, executive]

Thank you, and have a good day.

[Santosh Breed, executive]

Thank you.