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

Good morning, everyone, and welcome to the Q3 FY '24 Earnings Call of Gujarat Pipavav Port Limited. My name is Manish Agnihotri. I have along with me Mr. Girish Aggarwal, Managing Director; and Santosh Breed, CFO. Today [Technical Difficulty] [Operator Instructions] Thank you. Over to you, Girish.

Good morning, good afternoon, everyone. GPPL delivered another strong quarter. Just to give you a quick key highlights. On a year-on-year basis, our revenue is up by 8%, EBIT is up by 17%, our EBITDA margins are up by 300 basis points, and net profit is up by 39%. I mean net profit is essentially because of an exceptional item, a lower cyclone restoration cost. The good performance is backed by increase in container volumes, which is up by 6%. Out of which, EXIM volumes are up by 19%. RoRo volumes are up by 175%. While there was a slight decline in the liquid volume but the mix is favorable. The LPG was up by 5%. I will also give you a quick view of 9 months, on a year-on-year basis our 9-month performance. Revenue is up by 8%, EBIT is up by 16% and net profit is up by 36%, again, backed by strong growth in container volume, 10 percentage points up, out of which, EXIM is 14% up. Liquid is up by 20%, out of which, LPG is up by 31% and RoRo overall is up by 149%. Our overall 9 months EBITDA margins are at 56% versus 55% on a year-on-year basis. This is in the back of strong headwinds that we experienced in Q1 where we had a power outage in Cyclone Biparjoy when our port was shut for 16 days. And as I spoke to you last time, a little bit more tighter container market. That's just the opening comments from our side. We are open to questions.

Lavina, go ahead with your question.

Just two questions from my end. One is on this Red Sea side, the disruptions, right? Are you seeing any impact of the same? And secondly, on the concession extension, I know limited can be said about it because it's a decision by the Maritime Board but any updates over there, please?

Yes. I think Red Sea is the real crisis. When I spoke about the demand of container volumes last quarter or a declining demand last quarter, of course, not envisaged Red Sea. But Red Sea essentially builds impact on our performance in the next quarter at least as we see it. We have a service called MECL, which is [indiscernible] service following Americas via the Suez. We are seeing some reduction in volumes on MECL and also some blank sailing. So our expectation is very difficult to quantify at least at this point in time, Lavina. But I do suspect that our container volumes will be at the further pressure in this quarter, Q4 of '24.

And the concession extension, any thoughts, any updates there?

We continued our engagement with our stakeholders, specifically GMB and the law officials in the government of Gujarat. I think, again, no red flags, all very positive discussions and meetings. The time, of course, will be decided by GMB and the government of Gujarat, which is currently unknown. So I mean, I'll keep it at that at this point in time.

Deepak Maurya, go ahead with your question.

A couple of questions. One, on the RoRo, the volumes are significantly up. Is this like more like a one-off? Or is it like a reversion to trajectory prior to the pandemic? And then the second question is on your realizations. Have you taken any tariff increases or are there any tariff increases in the foreseeable future?

So the RoRo volume is structural in nature, it's not one off. We do expect similar volumes moving forward. In terms of tariff increase, we had announced a 7% tariff increase with effect from 1st of January.

The realizations for the quarter for container business has been better, mainly because of the favorable mix. So it was in the range of about 7,900 to 8,500 per TEU. There is no tariff increase.

And then maybe a comment on the other expenses, if you can possibly?

Sorry, could you repeat your question, please?

Could you maybe comment on the other expenses during the quarter? I mean is this kind of a normal trajectory? Because I remember last quarter, you had mentioned that some insurance increases -- insurance pricing increases had reflected on your other expenses. So should we take this like a standard run rate going forward or is this something, which could normalize from here?

So the other expenses, of course, there are certain one-offs which we have. We do have some participation [indiscernible] but barring that [indiscernible] run rate would be more or less [indiscernible].

Priyankar, go ahead with your question.

So my first question is regarding like what is your -- so the first question is, see, in the Vibrant Gujarat, I think probably we heard your management -- top management say about possibility of investing something like INR 3,300 crores if the port is extended. So what sort of extensions are we looking at? And is there an adequate volume visibility?

Yes, so Priyankar, at this point in time, I would not like to detail out where we would do the investments. [indiscernible] out of the investments that we announced [indiscernible] investment of INR 700-odd crores on a new liquid jetty. There are other investments that we believe we would go ahead and do once the concession is granted.

So if I can squeeze one in. So regarding -- like I am aware that you are going in for, let's say, significant marketing efforts probably in the northern hinterlands, like there has been an office -- marketing office opened up in Ludhiana. And then you also have a CTO license with regards to PRCL. So what are the efforts that you are doing regarding increasing the volumes, if you can elaborate on that? And what has been the channel responses so far?

[indiscernible] question, Priyankar. But in general, I mean, our efforts to increase the market for us in Pipavav continues. Northern hinterland is a key market for Pipavav through our -- through the rail connectivity. Punjab continues to be a strong market for us as well as a great opportunity to increase our market share in that market. We always are on the lookout for increasing our presence in some of these markets. Of course, we've opened up an office, as you rightly said. So we will continue our efforts on that. PRCL has a CTO license, not GPPL. So PRCL has a CTO license. We also use that license to run certain rails between various locations. And I think that will continue to grow as we move forward. The rest of the commentary should come from PRCL rather than me, Priyankar. And then your last question, Priyankar, was?

So how has the efforts being taken out by the trade channel? Like what do you get a sense of like based on your marketing efforts in Northern India?

So, in general, of course, Northern India continues to be, as I say, the maximum volume generator for us in Pipavav. The market channels as well as the markets are, of course, very positive about how we perform. I mean in my interaction with some of our end customers, they've always talked positively about the service levels of Pipavav as well as the rail connectivity into Pipavav. Through the DFC in channel, now it's even further improved. So I think they are all positive news from that aspect, Priyankar. Of course, we continue to do more. We need to continue to do more and we will continue to do more to keep pushing ourselves as well as more volume out of the Northern India.

Yes. And sir, if I just can squeeze one more in. So this is regarding the connectivity to the port. So earlier, our road network was quite lacking in the sense that a lot of the connecting routes were actually in quite a bad shape. So what is the status right now as far as road connectivity is concerned?

Yes. I think [indiscernible] the coastal road in the State of Gujarat, I think, is significantly up. I would argue that about 85% to 90% of the 4-laning is completed. There's last 10% to 15% left. So work is going on. So we have -- the connectivity is significantly better. If you look a look at some of the volumes of reefer in this -- in the last quarter, Q3, you would realize that the volumes have gone up significantly, which largely comes from the Veraval belt. So that also speaks about the fact that customers are now more comfortable [indiscernible].

Aditya, can you go ahead with your question, please. Aditya Mongia?

Go ahead, Aditya. Sorry, Aditya, we can't hear you. Maybe Aditya can come back in the queue.

Achal, maybe you can go ahead.

Sir, my first question, sorry, I couldn't hear that if you could repeat the EXIM volume growth for the third quarter and also for 9 months, what was the EXIM volume growth?

19% for quarter 3, 14% for 9 months.

Understood. Now with respect to realization also, if you could highlight, sir?

As far the container, Achal, the container realizations were in the range of 7,900 to 8,500 [indiscernible] favorable mix. We have not taken any tariff increase in this quarter. Bulk and liquid realization continue to maintained in the range of 450 to 700 per metric tonne.

Liquid would be what range, sir? That would be 450 to 500, right?

450 to 700.

Okay. Combined, you're saying. All right. Sir, the second question I had with respect to the realization. So is there any element of the reversal of the rebates, et cetera, in this quarter, given it's a year-end -- calendar year ending quarter?

No Achal. As I mentioned this is mainly to do with the favorable mix of EXIM volumes [indiscernible].

Okay. Because if we do a very simple math about the realization revenue divided by the volume, it comes to INR 688 per tonne, which is implying 20% jump Y-o-Y and almost a 15% jump Q-o-Q. So I was just curious is that absolutely driven by the product -- the EXIM mix alone or could there be a reversal?

So there's no reversal [indiscernible] favorable mix.

Understood. Secondly, if I look at the commentary for last 2 quarters, we have been fairly cautious in terms of the near-term outlook. However, we see that the volume growth is actually pretty strong in terms of EXIM growth, if I compare with the West Coast or the other peers. So -- and you kind of indicated again for fourth quarter, there would be some pressure on volumes. So just curious to understand how do we look at this? Is this driven by any particular sector, liner? Any more clarity if you could help us?

No, I think the coming quarter or this quarter, which is Q4 of FY '24, is going to be a tough quarter when it comes to container volumes. We are seeing impact of the Red Sea crisis, which is quite severe in nature. Not only the container volumes, we've also seen certain dry bulk vessels getting delayed or getting canceled, which usually plying on the Red Sea now. So I generally think that quarter 4 FY '24 will be a difficult quarter when it comes to container volumes for sure [indiscernible]. Our RoRo volumes will continue to be strong and Liquid volumes will also be similar in range.

Understood. With respect to -- for the competing ports, we have seen that they have kind of benefited from the coastal movement of coal. Is there any opportunity for us? Are we participating into that? Or if not, what could that reason be, sir?

We're not participating in any coastal movement of coal. It's a conscious decision at least at this point in time we've taken. We'll see how that goes after a quarter.

Understood. And with respect to competition, so if you look at the additional capacity, which is being talked about in Kandla by PSA -- by DPW. We have PSA expanding in JNPT. We have Mundra continues to expand year after year. How do you see the competitive intensity? Do you see a risk of overcapacity on the West Coast and hence, pressure on the realization? And b, can we argue that our growth over medium to long term would be better than the industry growth?

On the second piece, I generally think that our growth vis-a-vis peers would be higher than industry subject to the investments that we put in. As of now, if you look at our capacity, we are at capacity on liquid. We are investing on RoRo, we will continue to grow in RoRo. On the container side, again, we are at 1.3 -- 1.25 to 1.3 million TEUs and we're doing about 8,00,000, 8,50,000 TEUs. So there's some room there. But again, I mean, the additional room for growth will come through investments as we move forward. On the general capacity expansion, I think, if you look at Western region, Mundra is broadly full. Nhava Sheva is broadly full. So I think even in the near term -- at least in the near term, I do not see capacity expansion as a problematic statement. In fact, that's what the customer demands. And if we look at the macro environment in India, over the next 5 to 10 years, I think there is very high potential of growth on the export side. And hence, I don't think in the near term or over the next 5 years, capacity is going to be issue on the container side. On the bulk side, it may be a different story. We can separately discuss that. But on the container side, I think we should be okay.

Understood. And just one more question, if I may. Given the tariff what we have somewhere around INR 8,000 to INR 8,500, how does it stack up against the Kandla or Mundra or JNPT? Are we lower or we higher than them?

We're lower in some cases. We're higher in some cases. So that's like you would look at that. I mean most of the ports are published tariffs, so on that comparison you can do also.

So on the published tariff that certainly, we are [indiscernible] but each one would have the underlying contract [indiscernible] difficult to comment on that because that is [indiscernible] But on the tariff, we're quite competitive.

Mr. Mohit Kumar please go ahead with your question.

Am I audible?

Yes.

Yes.

Sir, my first question is, what is our dependence on Red Sea or Europe? Is it possible to quantify based on your overall volumes? And are you seeing incrementally the noise dying down and the volumes are coming back to the normal?

Sorry, the question is not clear. Your question is what is the...

What is our dependence on the Red Sea or Europe for our cargo? Is it possible to quantify it based on our overall volumes for FY '23? And are you seeing incrementally the issue is dying down and the volumes are coming back to normal, yes?

No, no, the issue is not dying down. The issue is only going up unfortunately for us. As I spoke about, we have one service, Maersk service called MECL. That calls the Americas via the Suez and the Red Sea and that has a very high impact as of now in this quarter, Q4. We'll see how things change. I think the shipping lines are also working on their network to try and minimize to mitigate these challenges. We'll get to know a little bit more as we move along towards the end of Feb-March. So let's see in all that. But the challenge is real and growing, not declining. Sorry, what was your second question, [ Mohit ]?

No. The second question is, has any last tariff hike you have taken and are our tariff at a discount to the competitors or they are very similar?

Yes, see, the tariff -- the last tariff hike, as I said, we took on 1st of January -- with effect from 1st of January 2024.

Sir, prior to that.

Prior to that, I think 2 years back, right, that '22 some -- February 2022.

Okay. Understood, sir. And any comment on the tariff, how they compare to the other ports or they are very similar? Is it...

No, no, again, I mean, this was the question just -- Santosh just answered. I mean we are competitive in the market when compared to the ports in Gujarat as per the tariffs that are published by various ports on their websites.

Understood, sir. My third question, sir, can you please give us the breakup of the bulk volume, which you give generally every quarter?

Sure. So basically, in the current quarter, we've handled 589,000 metric tonne of fertilizer and 168,000 metric tonne of minerals [indiscernible].

Okay. My last question, what is the update on the CapEx for LPG terminal? And how much is spent and when do you expect it to be commissioned?

So again, we are working through the various regulatory approvals. We still expect to go live somewhere middle of 2025.

Deepak Maurya, go ahead with your question, please.

I had a couple of follow-ups. On the Red Sea situation, you did mention that one of the Transpacific or one of the U.S.-bound service, which goes via the Red Sea, has been impacted, and therefore, you're seeing some volume pressure. But I'd just like to draw a comparison with the COVID-19 situation. During the pandemic, you had mentioned that because rates are more lucrative for the shipping lines on the long-haul routes, they have been diverting capacity away from the subcontinent and that indirectly has been impacting your volumes. This is what we understood during the pandemic. Are you seeing a repeat of that already yet? Besides the direct service, which got impacted, are you seeing any diversions of services, which are also impacting your volumes due to the Red Sea situation?

So it's a good question, Deepak. Essentially, the normal -- I mean, the normal route -- when you change the normal route through the cape, expectation is that in services like MECL, we have put in at least 2 more vessels. Where will these vessels come from? They could come from idle capacity or they could come from diversion, as you said as well. So it is possible that some diversion may happen. Usually, the diversion happens from weaker trades. We haven't seen a diversion yet, but it's a possibility. And as I said, I will await feedback from the shipping lines, specifically on MECL from Maersk to understand how they are changing their network. We're hearing a few things. I think we should wait a little bit more and we'll get more details in terms of how they're planning to do their network, specifically for MECL and otherwise as well.

And continuing with the same topic, we also saw some news reports saying that the EXIM rate from India, right, exporters from India were probably withholding their shipments because the freight rates from the subcontinent to U.S. and Europe have just run up so high. So I mean, it's just anecdotally, I don't really have any proof of that data. But are you seeing any changes in the behavior of your customers that they are holding back shipments, probably hoping for rates to normalize after the Chinese New Year? Is that something which you are seeing in your trade flow from your ports?

Not much on the holding, Deepak. But there is also the fashion industry, which I think, are potentially using the air freight route for some of their shipments, which are, let's say, time bound. So a shipment for Valentine's has to go out before Valentine's. And if the vessels can't carry it, they'll potentially air ship them. So mix of everything is welcomed. There will be some customers who will hold back but not the larger customers. That's not going to happen. In my view, there will be certain categories of goods, which are time sensitive, they will also see some air shipping. But of course, it's expensive. I mean it's not -- it won't be very large.

Okay. And then last question on -- coming back to, I think, Achal's question on the dry bulk volume mix. You -- if I look at your presentation, the coal volume, last 2 quarters, it was around the 200-tonne range, 200 metric tonnes range -- 200,000 metric tonnes range. But this quarter, we did not see any coal volumes in the mix of dry bulk. So could you please maybe comment on overall the size of the volume that is around 600 to 700 range that we are seeing in the last 4 quarters? Is that something kind of the normal trajectory going forward and as well as the coal component in that mix?

So yes, the run rate what you see right now is in the range around 750s to 800. I think that should be our normal run rate [indiscernible].

And coal?

Yes, coal, basically, we've not handled coal for this quarter. And so basically, we are looking at -- so the coastal volumes we're certainly handling. And we will review this handling position again in a couple of quarters to decide how much coal we have to handle.

And is it a conscious decision by you to not handle coal? Or is that the business -- the customer business has changed...

No, no, it's a conscious decision.

And what is driving this? If I may just to understand, what is driving this decision, actually?

So there are some operational reason because of which we have decided [indiscernible] we'll keep on reviewing this position in the next few quarter. So it's not a permanent discontinuation, but a temporary discontinuation.

Thank you. Mr. [ Sai Siddarth ], please go ahead.

This is Aditya Mongia. I hope I'm audible to you now.

Yes, Aditya. Go ahead.

See, the first question I had was around margins. Now the -- this is the second quarter of 59% EBITDA margins versus 54% that you were doing for the full fiscal FY '23. Could you give us some more color as to what has driven this 500-bps expansion and whether it is sustainable?

Maybe I'll start and then Santosh can chip in. So essentially, one is the -- of course, the growth in volumes and hence, the fixed cost proportioning over a larger volume. Second, we talked about the mix being more favorable than what it was. And hence, for example, handling more EXIM volume than transshipment volume of the container side, handling more LPG than non-LPG on the liquid side, growth on the RoRo volumes as well as handling more fertilizer as a percentage than [indiscernible]. So that's one part on the revenue side. And maybe Santosh, you talk about the cost.

Absolutely. I think, mainly this revenue mix of the cargo [indiscernible] the fixed cost, which is driving the margins, Aditya. And as you know, also in the past calls, we have always given [indiscernible] about our cost drives. So we'll continue to have those cost drives to ensure that the costs are maintained, specifically [indiscernible] are maintained [indiscernible]. So all those features have been to improve the margins to the current levels. But the key drivers is favorable mix of the cargo.

And can that sustain? So what I'm trying to also ask you is that, let's say, you have taken a container price increase in the month of January and like past price increases, I think there is no cost element associated with this uptick. So should one be then assuming if 59% is sustainable for you to breach the 60% mark in FY '25?

Yes, that's the expectation as well as Girish mentioned, right, we are quite optimistic about the RoRo volumes, which are on the better margins. Liquid, also, we expect to do well. I think what we've seen in the current quarter is the same run rate. Container is something what is expected to be under pressure. But if the mix is favorable, then we should see the margins to be stable like this.

Understood. And again, just a broad question. See, if I see your overall volumes, whether it is 3Q or 9M, this includes everything inside. I think the numbers are broadly flattish. Correct me if I'm wrong. And the sector has grown about 7% to 8%. Now you would have done well in certain things and not. But could you give a sense of why will there be a meaningful disconnect between the volumes for the sector and for the company?

Which sector you're talking about?

So I'm saying if I add up major ports and nonmajor ports, pardon me, I'm not putting Gujarat volumes right now. On 9M basis, the sector has grown close to about 7.5%-or-so. And if I see the company's volumes, while they have done fine on containers, but on an overall basis, they've been broadly flat. So just trying to get a sense of -- see, the basic question I'm trying to kind of think through is, are there other things that are -- what is driving this divergence? And if there is any realization element that is leading to softer volumes -- realization growth component is giving softer volumes for the company.

I think the large reason -- I mean, I think what you're trying to say is, broadly, if I were to just dissect this question is, why have we degrown on a dry bulk volume? Maybe that's probably your question, right?

Sure.

We are growing on the container side, we're growing significantly on the RoRo side and we are also growing significantly, if you look at 9 months, on the Liquid side. So it's only the bulk I guess is what your question is. On the dry bulk side, essentially, the decline is because of the one-off large volume that we are handling of the UltraTech, which is just a nearby factory, and they have their jetty of their own, which was damaged in cyclone, which they have hence repaired and that volume has gone back. That's the big reason.

Understood. That clarifies. The next question that I have was more forward looking. Now specifically on the container segment, we've been kind of focusing on the pricing of GPPV and others. Now last 4 years, the -- it so happens now that GPPV from a CAGR perspective probably has taken the highest increase, okay, with the Jan hike that has happened. With that data point in front of us, we would want to kind of gauge the thought process when a large price hike was again taken in January? And b, would there be any volume underperformance issues that may crop up because of that?

Okay, on our price increase. In fact, our [indiscernible] price increase we've taken after 2 years. The last price hike was in February 2022 and now we have taken with effect from 1st of January 2024. We haven't seen a lot of pushbacks from our customers. However, you must understand that we are in contractual agreements with various customers. Depending on the contracts, there will be some customers who will get A percentage hike, somebody will get B percentage hikes, somebody will get C percentage hike. So as of now, we've taken this increase, it's moved forward with the customers that we think we wanted to move forward with. However, as per the contractual agreements of some other customers, they may not have got any.

Understood. To kind of round it off just two questions on data points. A, if you could specify the exposure of the service that is coming through the Red Sea route? And B, you may have already said, but probably I don't know. What was the Y-o-Y growth in EXIM volumes on the container side for you for the third quarter and 9M?

See Y-o-Y EXIM volume growth is 14% for 9M and 19% for third quarter. The other question you asked about MECL. We've spoken about. It's one service that we have. And that's under impact. I know for sure, that will be under impact for this quarter, Q4, but let's see how the network changes. We should not get into a lot more numbers at least at this stage.

Okay. Just since these numbers are pretty large, 14%, 19%. On a 3-year CAGR basis, how much would have been your EXIM volume growth? Just to see what the base is playing spoilsport or these actually fairly -- these are like fantastic numbers, right? I'm just trying to kind of doublecheck from a 3-year perspective as well.

We don't have a 3-year number handy, we will be coordinate.

Thank you. Mr. [ Koundinya ], please go ahead with your question.

Sir, my first question, I just wanted to check, what is the last date of current concession agreement? Is it in June '28 or September '28?

September '28.

Sorry, October?

September 2028.

Understood, sir. And sir, secondly, sorry, I missed on the CapEx announcement that you said. Is this INR 700 crores on the new jetty that you spoke of, if you can also elaborate on our plans over here, please?

INR 720 crores is what we've announced for the new liquid jetty. The others, we have given an overall number. We don't want to split at least at this point in time. We will see how that goes from a market position perspective. We will await the concession extension first.

Bharanidhar, please go ahead with the question.

Yes. I just had a few data questions. So what was the tariff hike we have taken from January 1, 2024?

7%.

Right. And what has been the realization per TEU on containers in 3Q? I didn't get the number. It was -- the line was not clear.

So the range is around INR 7,900 crores to INR 8,500 per TEU.

So this would go up by 7% from 4Q?

No. As we said, Bharanidhar, that this will be basis customer contracts. We have taken a general tariff increase of 7%. It may not mean 7% for some people based on our current contracts -- commercial contracts.

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

Okay. Thank you very much. Really appreciate you taking the time to join us and do this call. I look forward to speaking with you again once we announce the Q4 and full year results. Thank you very much.

Thank you, and a great day.

Thank you.