Gujarat Pipavav Port Limited (GPPL) Earnings Call Transcript & Summary

Hello, and good afternoon, everyone. This is Manish Agnihotri from Gujarat Pipavav Port Limited, and welcome to the earnings call of Q2 FY '24 of the company. We have Mr. Girish Aggarwal, Managing Director; and Mr. Santosh Breed, CFO. We will start with the opening remarks from Mr. Aggarwal and followed by financial numbers by Santosh, and then we'll open up the floor for the questions. So over to you, Girish.

Good evening, everyone. GPPL reported an excellent quarter. We reported an operating profit of INR 150 crores. This is the highest-ever EBITDA recorded in a quarter so far. Overall, net profits year-on-year were higher by 52% and margins for this quarter was 60%. This was fueled by growth in volumes across the board. Container volumes year-on-year were higher by 16%; liquid, 52% higher, largely because of the LPG volumes, which was 74% higher. The RoRo volume was 139% higher. Overall, revenue was higher by 12%, EBITDA higher by 25%, and as I said, net profit higher by 52%. Even quarter-on-quarter, we showed significant growth. Volume of container quarter-on-quarter was higher by 8%; bulk, higher by 15%; liquid, higher by 21%; and RoRo, higher by 40%. So overall, an excellent quarter from a business perspective. Basis the results, the company has announced an interim dividend of INR 3.6 per share, aggregating about INR 174 crores. This is the highest-ever interim dividend that we have declared so far. Thank you. Santosh?

No, I think the key financial numbers were well covered in the opening remarks by Girish. So I think let's jump to the question directly.

Okay.

So again, please raise your hand for questions, and then we can take it one by one. Yes, Aditya, go ahead.

Sorry, if I missed this. If you covered it in your opening remarks, the uptick in margins and probably a 1Q, 2Q interplay and wanted to check whether one shouldn't be focusing more on 1-ish numbers over here? Or is there something on the margin side in 2Q that you would want to highlight as to why they were so strong?

So, Aditya, if you see the numbers, as Girish mentioned in his opening remarks, all our business streams has done well year-on-year as well as quarter-on-quarter. And on the container business, mainly the volume uptick is driven by the EXIM volumes, which gives a highest realization. So all these cumulative upticks have helped to improve the margins. Going forward, of course, we believe liquid and RoRo business will do good, will continue to perform. Container, of course, we need to really keep on monitoring. The overall inputs coming from the shipping line for '24 is that it's going to be a challenging year for them. But we also see that, that should also create opportunity for us as well. So we'll have to really monitor this for next few quarters, how the volume develop at shipping line and then what's the opportunities for us out of that.

Understood. And the implied realization for the quarter gone by is it just reflective of a mix impact?

Absolutely.

Have there been any changes to the price points? None, no change at all?

No, there's no change in the price line. Aditya, it is purely the mix, the favorable mix what we are seeing.

Okay. So the way I assess it -- the way you are seeing it that the margins for the quarter at 60%, are a reflection of broadly stable pricing and change in mix. And if growth was to sustain at high level, you will see these kinds of margins incrementally as well.

That's right.

Okay. I also wanted to check, have there been any new line additions that have happened in the quarter gone by for the incremental quarters?

In the service added during the quarter?

No. There was no additional service added in this quarter.

Priyankar, go ahead.

So sir, the first question is, so regarding, let's say, what I see is that this is the first quarter you have received certain insurance claims. I don't think it had happened earlier. So can you guide us where are we in the process? And what sort of claims can we expect, let's say, in the coming quarters? That's the first one.

Yes. So the insurance claim, what we see right now is, of course, a part payment towards our claim. But we also had received the claims in the earlier quarter as well, last year as well. So this is not the first time. We are still in the process of finalizing the full and final amount for the damage that happened during Cyclone Tauktae in 2021. And we expect that full and final claim to be settled somewhere in the first quarter of the calendar year '24.

Okay. Sir, and furthermore, on the LPG side, so I understood that you had made this VLGC-compliant jetty, and there was a further potential of expansion of volumes. So how are you seeing the traction over there? And what sort of ramp-up trajectory do you see, let's say, going into the next year as well?

Yes. So LPG volumes year-on-year for this quarter was higher by 74%, partially because of the VLGC-compliant jetty, which happened in the month of August. We believe the growth on LPG will continue. For this financial year, we're looking at a volume of about 1.2 million to 1.25 million metric ton, which is very close to our capacity basis the mix that we have. And we believe that we will continue to max out our capacity in '24, '25 as well, which is roughly 1.3-odd million metric ton.

Sir, any capacity additions beyond that?

Which we have announced, Priyankar? Yes, this was announced, I think, in Q1, if I'm not mistaken, or Q4, which is an additional liquid jetty, USD 90 million of investment, subject to regulatory and statutory approvals. We expect that is all going fine. We -- all going fine, we expect that mid-2025, we should have a new jetty ready.

Just squeezing just one last question. So can you -- so like in -- so can you just help us with where are we in relation to concession extension? Any discussions on that front? So that's the last question from my end.

We continue to engage with the relevant stakeholders, Priyankar. And again, I just want to say that we are seeing no red flags. It is, of course, to the government -- it is, of course, left to the government to announce their policy or anything on the concession extension for us. We still hold a concession until 2028. There is still some time to go. But in all my personal discussions with the government authorities, the relevant stakeholders, we don't see any red flags, so -- however, the timeline is difficult to state.

Mr. Vipul Shah. Aditya, are you -- I think Mr. Shah is not around. Aditya, can you go ahead with your question?

Sure. So I also wanted to get a sense that from a continued growth -- so you talked about liquid, but could you throw some light on the prospects of you growing in containers at, let's say, a double-digit pace? I think you did highlight near-term weakness. Maybe if you could give us a more near-term and a 1-year out view on how you think through the container business?

Yes. I think we are cautious on the container growth. Whatever we are hearing from a market perspective, 2024 overall looks like a tough year for the shipping lines basis the overall global environment. So it's difficult to give a number. Right now, I think we are watching this closely. And we'll get back to you over the next 2 quarters in terms of how the volume development happens. Again, needless to say, we are working with multiple customers and shipping lines to try and improve our throughput as much as is possible, but we have to be cautious on the container volume growth. It's very tough to say how much that impact will be at least at this point in time. So I think, Aditya, we'll just hold off on that, and then maybe we have a better answer for you either next quarter or when we announce our annual results.

Sure. Again, maybe a question on containers. One, you're allowed to -- you would see JNPT getting connected to the DFC. I'm unsure how soon before that event do -- does the trade start thinking through, whether the opportune port for them is inside Gujarat or the JNPT? Any views that you have to share on that front?

Yes. There are two points here. One, there needs to be space in JNPT. JNPT is practically full, if you look at where they sit today. Second, we must look at the distance between the northern hinterland and JNPT vis-à-vis the distance between the northern hinterland and us or Mundra, right? So clearly, moving cargo on DFC or otherwise will attract higher tariffs, rail tariffs for goods moved from the northern hinterland to Nhava Sheva. So there are two challenges that I see. One is the cost of movement from the hinterland. The second is space itself in Nhava Sheva. So I -- while I think DFC is the right way to go and Nhava Sheva will be connected, I would be very doubtful that we'll see movement of cargo into Nhava Sheva. Simply because, honestly, I would take it the other way around. We are now connected to DFC, while Nhava Sheva is not. So we could potentially see movement of North Gujarat -- South Gujarat volumes, which traditionally go to Nhava Sheva come to us. So I think I'm not worried about DFC and Nhava Sheva connection.

And just one more data point, if you could share, one of your logistic service provider on the rail front suggested that the meaningful part of whatever leaves the port today and goes towards the northern hinterland actually plies some on the railways itself at this point of time. Just trying to get a sense whether this would be an accurate judgment because it then puts into question what benefits would DFC eventually bring inside? So just trying to get your view.

Sorry, we can't get your question. You will have to repeat. You're not very clear. What is your -- the logistics provider said, sorry?

Could you give us a sense that of the cargo that comes through the Gujarat ports, including yours and also in northern hinterland. How much is already plying by rail and how much is still going on road to the northern hinterland?

Yes. So our rail coefficient is roughly anywhere between 60% and 65%, Aditya. And most of that, if not all of it comes from northern hinterland on rail.

Mr. [ Vipulkumar ], can you please go ahead?

Sir, you had -- regarding -- in your opening remarks, you said that expansion of margin is due to change in mix. So can you give more color regarding the change in mix during this quarter?

So Vipul, the change in mix, which what we referred was mainly in our container business, where we have done more of the EXIM volumes of the growth, which is coming on year-on-year basis is mainly driven by the EXIM volumes. And that's the reason why we see a better realizations and better margins from the container business. In the past calls also, we have mentioned that EXIM gives us the highest realization as compared to the coastal and the transshipment volume that we handle. So that's the favorable mix, which I was referring to, which has helped to improve the margins.

Okay. Can you quantify EXIM mix in this quarter?

Frankly, we don't really split the volumes between EXIM, coastal and transshipment. But I can probably share with you is an overall percentage, so roughly an increase of 22% year-on-year in the EXIM volumes.

Okay. That's really helpful. And sir, since we have reasonable cash on balance sheet means any inorganic opportunity you are looking at, so your thoughts will be really helpful.

No. I mean if you acquisition, if that's your question, we are not looking at acquisition at this point in time.

The focus, Vipul, is to grow at Pipavav, and that's why we announced an investment of INR 720 crores into liquid berth. And we still have a lot of opportunity to grow within Pipavav itself. So that's our current focus.

Mr. Nikhil Abhyankar, please go ahead.

Sir, first up, can you give us the LPG volumes, exactly how much it was out of 310 kilotons of liquid?

Actually, we don't really split the liquid volume between LPG and non-LPG. What I can certainly share is a percentage of growth. If you can just give a minute to me, I will share that with you. So on a year-on-year basis, as Girish also mentioned in the opening remarks...

74%, was I think you mentioned.

The LPG volume has grown almost 74%.

Okay.

Sorry?

Okay. And sir, also on the bulk volume, the bulk volume has reduced almost half it has become. And the coal volumes are also down despite the power demand being higher. So any specific reasons around it?

Yes. I mean, year-on-year, our bulk volumes are down by 40%, as you rightly point out. But that's essentially because the previous year we were handling bulk for the UltraTech cement plant, which is nearby because their jetty was under repairs post the cyclone damages, which henceforth has now been fixed, and that volume has shifted back to their jetty.

Okay. Okay. Probably my last question, yes. And the -- sorry, the PAT contribution from PRCL has substantially increased to 45 million in this quarter as compared to Y-o-Y. What exactly is the reason, sir, volume increase? Or have we gotten any tariff hike?

No. There is no tariff hike per se, but it's the volume. As you see the volume that has grown in the port, that has corresponding impact also on the PRCL result because I know as Girish also explained that the coefficient what we have on the rail is almost 60% to 65%. So those volumes, which goes on the PRCL also helps them in improving their revenue. PRCL, of course, the cost, if you look at it, a significant part is fixed. So any increment in volume certainly helps in improving their profits.

Okay. So as the container volume grows, should we expect the PRCL contribution to increase as well?

Absolutely. That's right. So this container liquid, the LPG moves on [ rail ], so that is also helping them, and even the fertilizer volumes.

Achal, please go ahead with your question.

Just to clarify, you mentioned 22% EXIM growth Y-o-Y. Have I understood right, for the second quarter?

That's right. Yes, that's right.

And can you help us understand what has driven this? Is that any service line addition? Any particular geography addition? Or simply the wallet share gain?

No. So as compared to last year, if you remember, earlier quarter narrative, we had mentioned about addition of some services. So we had added a service to Far East and Middle East. One was Shaheen, which was for Middle East, which is the most aligned service. And then there's another service, CIX for Far East. So those volumes have been ramped up now, and that's why we can see the effect of those volumes in the current quarter. Apart from that, even other services are doing good as compared to last year.

Understood. Understood. So is it possible to quantify these two lines? How much would they have added incrementally for the quarter?

Sorry, Achal, I don't think we're able to give those details right now.

No problem. No problem. Secondly, in terms of the pricing, what has been the pricing for the quarter for container, coal and container bulk?

And so pricing-wise, the range has remained the same. If you look at the realization, 7,000 to 7,900 has been broadly the range for the container per TEU, which was given in the earlier quarter. And same thing with bulk and liquid. So we've not taken any price change in the current quarter.

Right. Okay. So container 7,000 to 7,900 so approximately, let's say, 7,400 to 7,500. How does that stack up versus Mundra and JNPT terminals?

So I think we are very competitive -- the tariff...

No. We are in no position to answer that question.

Yes, that's right. So what we can certainly answer at the tariff level, right? So tariff level, we are -- I think we are very competitive with the ports, Mundra, [ us ], JNPT.

Okay. Understood. Another question I had, one of the answers you mentioned that JNPT is congested or fully utilized or something, right? Have I understood right? So is that on the yard front, waterfront? Where do you see the blockage actually? Because we were under the impression that JNPT is seeing significant capacity addition by PSA. So the yard side capacity or the waterfront capacity won't be a challenge. Is that right?

In future, right? So you're right, BMCT PSA is coming up with a 2.4 million TEU capacity, but that's going to come online '25 or '26. The JNPCT, which is now the NSFT terminal CMS CGM, they are also going to increase their capacity. But I'm talking just current-current, right? So there is this capacity constraint. Broadly, I think there are, today would be about a 7 -- or less than 7 million or 6 million -- 6 million to 7 million -- 6.5 million TEU capacity, which broadly will be full today.

Okay. Okay. But -- I mean I think the question was also with respect to the JNPT DFC connection. So eventually, this capacity will come in, right? I mean that's the -- if we make that assumption, does that impact us? I know you mentioned about the cost and the time, the distance part of it. But is it possible that some of the lines, which are calling us, may actually call only JNPT and not us anymore? Could that be a possibility?

Everything is a possibility, honestly, Achal. But I would like to believe in the possibility that they will start calling us only and not JNPT, right? So there's no reason for me to believe that we are worse off than JNPT. And as I said, from a hinterland connectivity perspective, we are significantly better and significantly cheaper than JNPT. So there is no reason for me to believe that the coefficient of rail, which is 14% in JNPT, will suddenly start to jump up. I really don't see that possibility. And by the time they will be up and running, we would be really fully entrenched in utilizing the DFC. So I think we have the first-mover advantage, and that will continue.

And Achal I think there is also one additional factor, right? Because when we look at the capacity, one is, of course, the waterfront, second is the yard, and third is the railhead as well. So when you look at JNPT, the railhead, which is there, is a shared facility between the terminals. So that also acts as one of the challenge on handling the rail volumes. And today, JNPT is anyway catering to the central India and Maharashtra market, which itself is utilizing the capacity in full. So that's another factor.

Fair point. Fair point. Sir, if I may ask just a very simple statistical question. How much of our total liners or customers, how many of them are calling both JNPT and us?

There are several. There are several.

Would you know the percentage as to how many of the vessels or the containers?

I don't have a percentage, but ONE has two services. They call both JNPT and us. We have a Maersk service, which calls both JNPT and us. We have the OOCL service, which calls us and JNPT. There's quite a bit of sharing between JNPT and us.

Deepak, can you please go ahead? Deepak Maurya.

So Girish and Santosh, I had a question around the service business. You mentioned previously that the two services to the Middle East and the Far East are now fully ramped up. Just want to understand if there are any other services which are yet to be fully ramped up? Or how the services that we had are now almost fully operational? And so the growth going forward would be driven by the underlying growth in those regions rather than a service ramp-up.

Yes. All are fully ramped up now.

That's right. That's right. So what I mentioned was about the new services, which were added. And the new service generally takes some time to fully ramp up, right? So that's why we see this increased volume. Having said this, again, all the service, existing services, right, they always look at opportunities to add more volumes for this -- for their slots. So that -- we've also seen some organic growth on the existing service as well, and we hope that will continue. But as Girish mentioned about the calendar year 2024, the indication coming from shipping lines looks quite challenging. So we have to wait and see how the performance continues in the coming quarters.

And then a follow-up to the same service question. With the ramp-up of these two services, how is your split between, say, at one level on the export/import, the mix? And at the second level, by region, like which regions are now -- if you can give some color of like by geography or by region, how much volumes of your export/import are directed like Far East versus Middle East versus in your region for that matter?

So in terms of the import and export, roughly around -- it is in the range of around 65:35 ratio of what we have. Most of the imports -- so 65 was imports and most of the imports are Far East-based. And of course, the narrative which also was saying about the overall -- the global implication what we are seeing at a shipping line on the volumes is mainly driven by export because of the U.S. and Europe economy where we see some demand challenges. And that's why we still believe that as a port where we have been mainly an import-heavy port, and India story being strong so far. We believe that we will still have some opportunities in 2024 to continue with a good volume performance.

Of course. And a second question which I had was around the LPG CapEx. If you could also provide some color on how much has already been spent? And for the remaining sums to be spent, what is the timeline?

So we are at a very initial stage of this project, where it's been -- the initial studies and initial designing has been done. So there's a very minimal spend as of now on CapEx for this project. So most of this will start happening somewhere in '24.

'24. And what would be the timeframe, like 18 months or 24 months?

So as I said, I mean, the expectation is that we are able to complete this by mid of 2025, subject to timely, statutory and regulatory approvals, which are still work in process.

Okay. And then one final question which I had, if I can, is on the concession renewal. You did mention that we had some discussions. But just wanted to understand what else is pending from your side or from the government side, the next steps before a final decision could be taken?

No, there's nothing pending from, I guess, our side for sure. I mean it is left for the government how they want to approach the concession, right? So -- I mean they will come out with the process themselves. It's not fair for me to comment on how the government wants to approach this.

No. No. I just wanted to understand if there are any steps or any procedural aspects which are still ongoing? That's it.

They must be, at the government level.

Mr. [ Kunal Tokas ], please go ahead.

Okay. My first question was about the Kandla-Gorakhpur line, that is coming up. I wanted to know if we will have sufficient capacity to cater to that, given that you said that we are already operating at close to maximum capacity?

Yes, I mean, I think it's a good question. We expect the KGP to be ready somewhere middle to late next year. And as the volume starts to ramp up, I mean, we're not expecting a full ramp-up of the line immediately. The volume will ramp up over a period of time, for which the new jetty will then be online and able to cater to that increased volume. So I think the timing of our jetty as well as the ramp-up of the KGP should be coinciding.

Okay. So the new jetty will cater to that -- the demand from new pipeline.

Yes. That's right.

Okay. And my second question was about Dholera Industrial City. Are we seeing any traction from that? And like can it be a major driver for us in the future?

It's a fantastic question that you raised. We believe strongly that Dholera SIR will be a strong driver of growth to start with project cargo as new factories start to come up. And then we will be the natural port of choice as we are the closest as we -- as production ramps up at that place. So we are very -- quite hopeful in the medium-term, Dholera SIR will be another area of growth for us.

Understood, sir. And my third question was about the concession lease.

Sorry?

About the concession, my third question. So say that it does not get approved further, so what kind of replacement value are we building for the business?

Yes, we're not working on a scenario that this will not get approved, honestly. So there's no replacement value discussions that are happening, at least at this stage in the company.

All right. And just last question from my side, sir. After the addition of this new jetty, what kind of margins are you looking at? Will they be the same as before?

Sorry, after the?

The addition of the new jetty.

Okay. Okay.

Yes, the margins -- we expect that to maintain the margins going forward as well.

Mr. Nikhil Abhyankar, you have any questions? Mr. [ Vinay Jain ], you can go ahead with the question.

I have just one question on the other expenses, please. So a couple of quarters back, we had mentioned that there has been an increase in the insurance premium, which you are paying on a quarterly basis. But somehow, if I look at the Q-on-Q, there has been a decline in the other expenses. So if you could maybe just explain or maybe some -- throw some light on this would be really helpful.

Yes. So your observation has been right. So what we have been doing -- so the other expenses also includes our power charges and what we have been consistently working on, how we can improve our power source to green and by virtue of that also to get a reduction in our power bill. So the two initiatives, what we've taken, one, we already mentioned earlier, which was about the solar system being installed inside the port. So that certainly is helping. And then we also entered into some power purchase agreement through green sources that also is helping to reduce the overall electricity bill. Apart from that, the earlier quarter also had some repairs and maintenance cost, which is more of a preventive maintenance for the equipment, which is, of course, not there. So that's the key divisions what you see in the other expenses.

So this INR 35 crores is a normalized expense. There are certainly no one-offs in this?

There's no one-off -- there's certainly no one-offs in this.

Anybody has any questions? Yes, Mr. Vipul Shah, please go ahead.

So what will be the payback time for this upcoming LPG jetty, sir?

Vipul, I think -- I don't think we'll able to share all those details because these are based on a lot of internal assumptions and projections. So I don't think we're able to share that detail.

Aditya, you can go ahead with your question.

I just wanted to clarify that, from a royalty perspective, from what I recall, there is a part royalty and a full royalty, and the full royalty hits you in 2029. Is my understanding correct? And can you give us a sense of the difference between these two numbers?

Aditya, so our concession is 2028. So I don't know where this 2029 comes from.

Sorry, my mistake, 2028. My mistake.

So 2028, of course, our existing concession allow us to enjoy the concession royalty because of the investment that we have made in the port. So we don't expect to move to any full royalty regime within the concession period.

Understood. So the base case is that whatever is the current share of royalty or current formula for royalty, absolutely nothing will change. And that is how we are progressing towards it, and that's what you're suggesting, right?

That's right. That's right.

Okay. Any last questions from anyone? Doesn't seem to be the case. So thank you very much for your interest and for your time, and we wish you all a very happy Diwali.

Thank you, everyone, and wish you a happy Diwali. Thank you.

Thank you.