Gujarat Pipavav Port Ltd

NSE:GPPL

Earnings Call Transcript 2023-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to the Gujarat Pipavav Port Limited discussion on Q2 FY '23, H1 FY '23 results hosted by Centrum Broking Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ashish Shah. Thank you, and over to you, sir.

[Ashish Shah, analyst]

Yes. Thank you, Vivek. And good morning to everyone. On behalf of Centrum Broking Limited, I invite you to the conference call of Gujarat Pipavav Port Limited for discussing the Q2 FY '23 and first half FY '23 results. We have from the management, Mr. Jakob Sorensen, who is the Managing Director; and Mr. Santosh Breed, who is the CFO of the company. We will begin with opening remarks on the results from the management and then follow with the question-and-answer session.

So over to you, sir. Thank you.

[Jakob Sorensen, executive]

Over to me. Thank you very much, and thank you for your interest as usual. And I hope you can hear from the tone of my voice that I'm in a good mood today because yesterday, we had a fantastic board meeting in Ahmedabad, and the results are kind of speaking for themselves.

I would like to just point out that in the comparisons of the financial years, we do have 2021, on the 17th of May, we had the cyclone and then the subsequent interruptions that that gave us in [indiscernible]. But I'm also very proud to say that we got out of that cyclone. As a phoenix, we have been rising. And the results of this quarter has been cementing the fact that we are back to pre-COVID levels and we are firing on all cylinders here. So looking forward to your questions. And when they come a little bit more in the details and on the account of numbers, then Santosh Breed is the expert.

So with that, I'll hand it back to Mr. Shah, and then let's get started with the questions.

[Santosh Breed, executive]

Yes. So before that, just a quick update, just to give a key update. The presentation, of course, is all there on the website, but we'll express some numbers here. The container volumes have grown by 19%. I'm referring to now a comparison between the current quarter versus the same quarter last year, where volumes have grown by 19% and then that is mainly driven by EXIM and the transshipment volumes. The EXIM volumes were higher by 10%. And the ICD volumes, which is the main market, has also gone up by 7%.

The dry bulk volumes were low by 7%, but we are again -- it is mainly because of a significant import what we've seen last year for minerals. The overall volume for dry bulk, if you see our presentation, are about 1.3 million metric tons in the quarter. So that a good run rate that is now being maintained consistently for dry bulk. Liquid volumes were higher by 6%. This is mainly driven by the higher import of LPGs. RoRo ones were also higher by 5%. So we are seeing some gradual increase in our [ car ] export volume as well.

And with that, we have seen a 17% increase in revenue. EBITDA is at INR 1.2 billion and higher by 11%. The interest income and the lower tax rate, for both favorable, has helped to further improve our net profit and it was higher by 56%. Board meeting -- as Jakob mentioned and said, the Board has also approved an interim dividend of INR 2.70 per share and this will be paid by 1st December.

[Jakob Sorensen, executive]

And that's the highest interim dividend.

[Santosh Breed, executive]

That's right. That's the highest income in the company has deepened so far. So with that, probably we can take the questions now.

[Operator]

The first question is from the line of Mohit Kumar from DAM Capital.

[Mohit Kumar, analyst]

Congratulations on a very, very good set of numbers. So my first question is, of course, H1 has been pretty good for us. But as we enter into H2, do you think the weak commentary or global trade is going to have some kind of impact on container volumes in H2? So do you think the entire benefit of DFC has kicked in now and are you seeing any benefit?

[Jakob Sorensen, executive]

Yes. Starting with the outlook. And yes, there is signs of recession somewhere in the world, and there's elections going on, there's wars in Europe. But if I can zoom in on us in India, I think India is still in a very good situation, and we continue to see growth. And for Pipavav, I think we are entering into new markets. So you will see with the fact that the continued rates are coming down, it's probably going to be helping us because we see, for example, export of rights from India, going back to containers. And I think that then we are in a good spot in Pipavav. We are also not 100% exposed to North Europe or to United States. We are the West Coast beltway entry from Asia to India.

And as you mentioned, we have the link with the DFC to the NCR. We are also seeing exports strong to the Middle East, and we're going to start 1 or 2 new Middle East connectivities on the open part. In this month, actually, we have a service staff from Pipavav to [ the valley ], which is going to be an express export service from India to the Middle East. So frankly, if you're asking for second half of this financial year, I'm remaining optimistic. And I think we are not truly exposed to all the bad news, but we also have some good outlook on the horizon.

And the second question is about if we are seeing -- I actually had the pleasure of meeting the minister of railways, Mr. Ashwini Vaishnaw, the honorable Minister of Railways, only last week. And the answer is really that, no, we have not seen the surface, we have not scratched the opportunities and the benefits of the DFC has not kicked in yet, there's a massive, massive opportunity lying waiting for us there. And we've only begun. So this is going to be a long journey, it's going to be years of work, but I'm convinced that the conversion from road to rail is going to continue. DFC has done a great job in building. They're going to continue to expand the network. And this is kind of -- this is actually the sort of concrete background of the [indiscernible] combined with IT capabilities and coordination. But the physical road -- sorry, the physical movement from road to rail is propelled by DFC, and we're just starting. So that's going to be a very, very exciting journey with our customers to take full advantage of that.

[Mohit Kumar, analyst]

Understood, sir. Secondly, how do you see the bulk volume panning out? Of course, this quarter was pretty strong given that 1.4 million, 1.3 million tonne is a good number for us. How do you think the H2 -- do you think some days on weakness in the bulk volume as we go forward? Or do you think this kind of volume can sustain on a quarterly basis?

[Jakob Sorensen, executive]

Well, so we had a little bit of UTCL volume involved in that, but luckily they have recovered now from the cyclone and we built their own jetty. So some of the volume will go away again. But I think the bulk volumes, both import and export, remains strong. On import, we have very, very strong fertilizer are coming in and our operations, we're doing the import of totalized on bagging it and then sending it out to India by railcars. It's going very well. And we have added one more banking lines in our warehouse operations for that. We have also added new commodity surplus wood pulp that's coming in. And with that, we also see weak rise and Forum and other export commodities with the brand new that we have not participated in for a long time. That's now starting to move as export. So I remain quite optimistic about the outlook for bulk, both import and export.

[Operator]

The next question is from the line of Achalkumar Lohade from JM Financial.

[Achal Lohade, analyst]

If you could help us with the EXIM growth for the quarter on a Y-o-Y basis on a Q-o-Q basis if possible?

[Santosh Breed, executive]

EXIM volumes are up by 10% on Y-o-Y basis.

[Achal Lohade, analyst]

EXIM volume 10% Y-o-Y, right?

[Santosh Breed, executive]

Yes.

[Achal Lohade, analyst]

Understood. The second question I had, if you look at the EBITDA margin, they are about 53%, 54%. And we have seen that for the last few quarters, we have been between 53% to 55%, 57%. Can you help us understand the -- how do we look at the margins going forward? When do we start hitting the 60% plus, which is the aspiration what we had indicated earlier?

[Santosh Breed, executive]

So you're right, that's the aspiration of what we have, and we continue to pursue that aspiration. What were of course right now is because of the cargo mix our presentation also mention in the container volume is a mix of EXIM and transshipment are handling some casing volume which comes at a lower action. And then also the dry bulk where we have seen some consistent volumes. So these also done a lower realization as compared to other businesses. So because of this, we are seeing this variation in the EBITDA margin. But I think we're not really extremely worried about this because all stores still helping us to cover our fixed costs. And eventually, when we see any in the continued volume, mainly on the gift when we about 50% EBITDA margin.

[Jakob Sorensen, executive]

And I would like to add to that, that on the container volumes, we have seen a steady, consistent growth month-on-month. It's not double digit, but it's a recovery that's strong. And as I said, it's recorded that every month, it's a little bit better than the previous months. And as Santosh said, in the meantime, what we are being helped is that the various bulk activities we're doing is helping us cover some of our fixed costs and so forth. So I think it's a very good sign that the whole balance exposure and the cargo mix is helping us to continue to produce good yields and returns. And as you can also see, we are inching closer to the 60%.

[Achal Lohade, analyst]

So if I were to put it in a different fashion, ex of the dry bulk and the transshipment, would margins be tracking that 60% plus?

[Santosh Breed, executive]

That's right.

[Jakob Sorensen, executive]

Yes. The dry bulk, in some nature, it's less automated, and that means there's also a variable cost for labor, et cetera, which if the volumes go up, then the costs go up as well. And you're right on transshipment. This is normally a service on the container side where we get discounts, whereas import/export is, of course, the main thread and butter for that business.

[Achal Lohade, analyst]

Got it. So if I hear you out, you're saying that month-on-month, there is a recovery in the volumes and you are optimistic about the volumes. Now my question was from a longer-term perspective, given the way the trade is shaping up with respect to [indiscernible] transshipment terminal being set up, is there -- could there be a risk to our business given currently the transshipment volumes, which are happening in Colombo are coming to our ports?

[Jakob Sorensen, executive]

No, not really. And I think other the ports in [indiscernible] are not more into that business, and it goods that you have noticed that the transshipment is really a marginal business. Nobody is really making money on that. So we are a gateway port, and that means we are focused on import and export. And then we love it when we also do photo because that's supporting SagarMala, but -- and then, of course, as been mentioned from the previous caller, we also lined on the land with the DFC. So we're truly an important component of an end-to-end multimodal supply chain. This transshipment services are not really interesting, and it's not something really aspire to be part of.

[Achal Lohade, analyst]

Understood. And is there any update with respect to the DMCC location Dholera, if I recall the name right. Is there any update on that, how it is progressing?

[Jakob Sorensen, executive]

Not a big update, but you would have noted that Dholera has clinched a couple of really big investors and people are developing manufacturing there. I recall having seen that Foxconn confirming to be located there. Tata Power is going to do lithium batteries. Renew Energy is going to do solar panels. So I think it's a long term. But during the location, I actually also think moving on with an international airport in Dholera. So given the location, obviously, people are with a natural gateway port for that as well. And we are looking at the rail connectivity to Dholera. There's about 30 kilometers of new tracks that has to be built by the railways. But in fact, it's one of the things that's been discussed. But it will be a little bit longer term, give it a couple of years before that's really taking off, but we are in a good position for that as well.

[Achal Lohade, analyst]

Got it. And just one more, if I may, sir, with respect to the concession extension is there any update you would like to share?

[Jakob Sorensen, executive]

Yes. Actually, I have a very good reason not to share updates at this moment because we are into the back out period due to the elections that's been called now in Gujrat. So we remain, of course, with a long-term view and optimistic about the extension and those discussions that we are having with [ CMB ] will resume again in December once we have the results of elections.

[Operator]

The next question is from the line of Priyankar Biswas from Nomura.

[Priyankar Biswas, analyst]

Congratulations. My first question is regarding this VLGC [ bulk ] was under development at Pipavav. So this project has been going on for some time. So what's the status of that? And can you give some update like what sort of uptick can we see potentially in the next financial year because of the possible volumes?

[Jakob Sorensen, executive]

It's a good question. Thank you very much because we are very focused on LPGs and liquids and the upgrade is going well. The physical infrastructure is now ready, and we have had some challenges in certain parts that had to come in and some delays. And of course, we had to wait to finalize this after the monsoon, but we are operationally ready. And we're also in the process of getting the firefighting system upgraded, which is, of course, to be in compliance with all rules and regulations for test. From what we are specifically waiting for now is Capesize approvals done. And we are hopeful to start VLGC on a partially related VLGC carrier at least within this calendar year. But the volumes will continue to be booked. If you see, our liquid volumes have been like 200,000 or 2 lakh...

[Santosh Breed, executive]

200,000 metric tons.

[Jakob Sorensen, executive]

Metric tons on a monthly basis, and I think that will continue. So we are still optimistic about the outlook. And the pool with the VLGC is really going to benefit our customers because -- we continue to handle animate, but once you can do a deal to then the fear charges go down per ton. And that's, of course, something that the customer was happy about.

[Priyankar Biswas, analyst]

Sir, my next question is a basic one. So has there any new liners or service lines added in this quarter? Or do you expect some more additions in the say, the coming quarter as well? So if you can throw some idea of the spec?

[Jakob Sorensen, executive]

In the quarter, we have not added anything, but we are just about to start a new service. I believe I mentioned it earlier this morning as well. We have a new express service from Pipavav out to the Middle East that will start later this month.

[Priyankar Biswas, analyst]

Sir, previously, like if I recall, so while you had not lost out any of your customers, I mean the liners, but there was an issue of canceled sailings. I mean I think last year, it was a huge issue. So what is your view on that? Are you seeing some easing or is the situation is still the same? What are your thoughts on that?

[Jakob Sorensen, executive]

What we can see is that the global network is becoming more stable and the delays around the bottlenecks and the delays around in the system globally with intent, and that has a positive effect on our exposure and the pit costs have certainly gone down. So I think to the sedan this is, of course, a major factor as well across in recording that month-on-month growth on the container volume. So it seems to be stabilizing.

[Priyankar Biswas, analyst]

So at least in Pipavav, you are seeing reduced skip calls, like, let's say, [indiscernible]. That's the way. And sir, the last question from my side. So one of the larger port companies here is actually planning to develop into an end-to-end logistics player. So like essentially dose delivery to the customer, so what is your thoughts as APM terminals like how are you geared up to face this challenge? And what is GPPL doing on this aspect?

[Jakob Sorensen, executive]

Yes. I think it's a really good observation because we are also part of a global group who has the same strategy of being end-to-end supply chain. And we, of course, as people are spot, we are located fantastic as a port with the DOT and with the ocean connectivities we are adding. So with our, what do we call, Maersk, we call them our sister company, then we are actually already well ahead of the [indiscernible] you mentioned in pursuing that integrated strategy table, and we are a true global player, and I believe the people you mentioned are more to be considered as a regional player. There is wage as we say computes group.

[Operator]

[Operator Instructions] The next question is from the line of Mohit Kumar from DAM Capital.

[Mohit Kumar, analyst]

Really congratulations on a really good set of number. Our operating expenses are higher by 30% Q-on-Q, whereas the volume growth has been only 10%. So is it the reason because of bulk volume?

[Santosh Breed, executive]

Yes, you're right. It's mainly driven by the dry bulk [indiscernible] in the mix, in our presentation, we also given the mix of the dry bulk and there is a significant increase in volume. So that's the reason for increase in operating cost.

[Mohit Kumar, analyst]

Okay. Because of the [indiscernible] volume we are seeing this higher operating expense?

[Jakob Sorensen, executive]

I think I tried to clarify a bit earlier that when you have commodities like fertilizers, then the variable costs are also going up because they -- there's a less mechanization on that process and therefore, it can be a little bit tricky to analyze the numbers because that grows in operational cost is a function of the volume going up on fertilizer. So there's a manual operation going on with the packing there, which, of course, is a little bit linear to the volume. So the more volume you have, the more bags you do and the more manpower needed to load them.

[Mohit Kumar, analyst]

Understood. And sir, again, [indiscernible] and maintenance related to the cyclone. So how much more such expenses are you expecting in H2? And when will we recover from?

[Jakob Sorensen, executive]

I think Santosh is going to elaborate on it. But again, the cyclone has, of course, been a tough experience, but it's also given us the ability to renew a lot of things and upgrade and still stronger. And we are at the end of it. It's given us some extra work, but it's also meant that we've been able to rebuild the port. And some of the challenges has, of course, been dealing with the insurance companies because we could not expect them to pay for upgrades and improvements of already within our facilities that got insured damage, of course, in the cyclone. But Santosh, you have some more specific on the recovery costs.

[Santosh Breed, executive]

So we have actually completed most of our restoration. The work for the bond retail is going on. So that's what we expect to come in the coming quarters, and that should be in the range of around INR 30 crores to INR 40 crores which will be there. On the insurance, I think we are good there because all your submissions have been signing on a monthly basis. And we do expect some settlement will happen in the coming quarters for how commission made so far. So we already recovered about INR 30 crores of insurance in the past, [indiscernible] what tenant and further will come in this quarter.

[Operator]

Thank you. [Operator Instructions]

[Ashish Shah, analyst]

Yes. I will take a question. Ashish here. So sir, I had a couple of questions from my side. Any tariff hikes that may be in the offering in the near term?

[Jakob Sorensen, executive]

That's a good question. We have taken 3 adjustments in the last couple of, I would say, 3, 4 quarters, right? And the customers have actually now gotten to pay those agreements. In the next quarter, I don't think we plan anything further at this moment. Also, as you get the outlook of the shipping rates are dropping, and there are some discussions. The timing is not right to increase in the near term. So the question is probably no.

[Ashish Shah, analyst]

Sure. Sir, secondly, when I'm looking at our volume in the last 3 quarters, we have seen the total container volume go up, but we have seen the ICD volume stagnate or remained flat at about 1,18,000 a quarter. So can one assume that the incremental volume, which has come in the last, let's say, 2 or 3 quarters is largely attributable to transshipment? Or there is maybe some increase in the care of road-bound containers as well at the port?

[Jakob Sorensen, executive]

There is a slight increase of road-bound containers and also a little bit on transshipment. As I said earlier, I still believe there's lots of opportunities in the intermodal with rail, and we are continuing to work with our sister company, PRCL, on the DFC or the venue of ICD cargo there. But it's a long journey. But I agree with your observations, but I don't think that's necessarily an alarm clock that prove is just proving that it's going to take a long time to bet the full benefit of the DFC. Incidentally, here, I just want to mention that earlier this week, we filled up a train for Maersk from Sonipat North of [indiscernible] to Pipavav. So we continue to build intermodal products.

[Ashish Shah, analyst]

Sure and maybe last one from my side. We also have an ongoing sort of a dispute with the GMV where they have impact certain bank guarantees and they are asking for some more liquidated damages. So is there any update on that? How is that likely to shape up? And any views on how that might go ahead.

[Jakob Sorensen, executive]

I think it's going to take a little while, but you know what, it's not a major dispute and it's slipping into solution through some arbitration and we are following that development. But I mean, there's no new market that's coming out of that dispute to business dispute, and we will get it settled and solved. And I think we are in a good position in that dispute.

[Operator]

The next question is from the line of [ Ritul Shah ] from [ Sumangal ] Investment.

[Unknown Analyst]

Congratulations for a good set of numbers. Sir, any plan to expand our container capacity in the near future?

[Jakob Sorensen, executive]

Yes. Thank you for the question. Yes, we have planned for continuously being ready to expand our container capability and our capacity, but not in the near future. We are probably going to give ourselves more flexibility. As you have seen, we have upgraded now our liquid is to -- the next step we are working on is actually to expand into further capabilities on the liquids side. And that is, if you follow my business long term, it's not in the near future. But if you're looking at our ability to expand, it depends on how much waterfront we develop. And the idea is that we can convert our existing liquids to containers when we passed the trigger point in terms of our volume. And to enable us to do that, we, of course, don't want to give up the liquid. So we're also going to expand our liquids capabilities.

[Unknown Analyst]

And sir, again coming back to expenses related to cyclone. So just wanted to confirm, they are recoverable from insurance companies or they are not recoverable?

[Santosh Breed, executive]

They are recoverable from the insurance company.

[Jakob Sorensen, executive]

But what we have done in connection with the cyclone is that we've taken an advantage where we've had -- I'll give you an example. When we've had an old warehouse that was damaged, we simply turn it down and then we are building it stronger and better and better. And that, of course, the insurance company will not recover when you build that kind of new facility from a -- again, it's totally written our facility, but that has gone in at the CapEx on top of insurance compensation.

[Operator]

The next question is from the line of Deepak Maurya from HSBC.

[Deepak Maurya, analyst]

Particularly, I wanted to get some color on the revenue growth. A large part of your revenues are denominated in the USD, and given that the USD has appreciated and the rupee has depreciated, I would have expected a faster increase in revenues versus the volume growth. And then also given in the context that you had a tariff hike sometime in October last year and again in February this year, but the growth in revenues is largely in line with the volumes rather than above volumes. If you could help us reconcile that, please?

[Jakob Sorensen, executive]

So I think here it's Santosh's department, we're talking about exchange rates. And Santosh what do you think?

[Santosh Breed, executive]

Yes. So you're obviously of course right, there's some benefits coming up because of the depreciation of the rupee because we have our container tariff in dollars. But it is also on the cargo mix because when you look at our contract specific, then we have additional rates for transshipment decrease for and doing that also for the other rates like loan and LTE. So there is a bit of combination of this, and that's why when we look at these movements coming with a lower residual price of sand shipment all the OPA boxes, then that impact benefit of basin rate is lost sales. So I think it is more related to the cargo lease that we're helping today, which is we do these revenue changes.

But when I look at the future outlook, I think we are quite positive because if you remember, your back when you have these challenges because of forward in a substantial shortage of centers and the export a lot getting the bookings have changed now and there are a lot of NCs, which are coming in, which is good because when shipping is briefly increase, obviously, they have to go out of the country full. And as far as we expect that this NC which is high today will eventually revert into a [indiscernible]. So from outlook prospect, we see this again as a positive development.

[Deepak Maurya, analyst]

The other question which I had, and I think Priyankar previously asked as well. So when we look at the global network being stabilizing it and the freight rates are earning on the main and long-haul route. So that kind of makes them less attractive. And could we see more services than coming back or the planned savings stabilizing further? I mean when you look at the volume growth, which you've seen gains in growth of 10%, right? How much of it is like underlying and for much of it is because of stabilization of network.

[Jakob Sorensen, executive]

I mean it's a good combination, but we are actually working on more services coming on the waterfront. And as I mentioned, this month, we will have a new service to the Middle East, and we are looking at one additional service from the 5 that comes in maybe in January. So it's good news that the network globally is stabilizing the capacity and the availability of ships is stabilizing, and that means that the shipping lines are really trying to get their products to become more reliable. They have been appalling, honestly, in the global shipping lines, the on-time delivery has been Well, I think the 50%, and that's of course not sustainable and business given all the discussion about reliability on the supply chain. But what it moves for us in proper is that yes, we are seeing more vessels and we're seeing more services coming.

[Deepak Maurya, analyst]

Okay. And then the last question for me. On the CapEx front, right? When I look at the cash flow statement, actually the CapEx, it is almost 80%, 90% of what it was for the full year last year. So are we seeing some accelerated CapEx? Or if you could guide us on the CapEx for this year and for the next year?

[Jakob Sorensen, executive]

I thought you [indiscernible]. We would like to see the money in the bank. Maybe that's a trick question here. Sorry. Yes, we are working on some more CapEx. And obviously, we would like to reinvest the money that we are making. So it's good. It takes a little bit more work to get the approvals through the system. We had some good discussion on the Board level today -- sorry, yesterday in Ahmedabad, and I believe our CapEx will go up in the coming quarters.

[Deepak Maurya, analyst]

Okay. Thank you for the questions. Thank you.

[Operator]

Ladies and gentlemen, as there are no further questions. I would now like to hand the conference over to Mr. Ashish Shah for closing comments.

[Ashish Shah, analyst]

Yes. On behalf of Centrum Broking, I would like to thank everyone for participating in this call. And thank you to the management as well for giving us the opportunity to use of course. Any closing comments from you, Jakob?

[Jakob Sorensen, executive]

I just want to say we remain optimistic about India. And I think some of the gloom and people are talking about that we are now getting headwinds and things are changing in the market with inflation and what we call it less growth or recession in some economies, I continue to be seen India as a shining space to be in this situation. And as I've also said, we are not so exposed to some of those markets as others are. We have both the Far East, and we have Middle East and Africa exposure. These are both areas where we see continued growth in the import and export.

So I think combined with what we continue to talk about the dedicated freight corridor and the opportunities for lowering the overall supply chain and logistics cost in India, it's more competitive. So we are in a good spot, but it takes time. And in the meantime, as you can see, we keep improving quarter-on-quarter, and we are making money. And so while as time goes fine, we are having plans for the future, then it's good to see that we're still able to deliver some good returns, and we can issue some dividend to our shareholders and continue to build a strong balance sheet that makes us ready for CapEx. So thank you, everybody, for your continued interest and your support. And I would say we are quite satisfied with this quarter's result in the half year of the financial year. Thank you, Mr. Shah.

[Santosh Breed, executive]

Thank you.

[Ashish Shah, analyst]

Thank you.

[Operator]

On behalf of Centrum Broking Limited, that concludes this conference. Thank you for joining us. You may now disconnect.