Gujarat Pipavav’s cost management skills impress investors


Shares of Gujarat Pipavav Port Ltd gained 4.6% in Wednesday’s trade after the company reported better-than-expected performance for the March quarter.

Revenues declined 10% year-on-year, reflecting sluggish market conditions and a fall in volumes, but the company sharply reduced expenditure avoiding a hit to operating earnings.

Total expenditure during the quarter was down 24%. Consequently, earnings before interest tax depreciation and amortization or Ebitda grew 1%. Profit margins expanded seven percentage points from year ago to 62%.

“Nearly 70% of Gujarat Pipavav’s costs are fixed in nature being a port company. Gujarat Pipavav’s realisation has risen 2% ₹463 per ton in 4Q and by 4% to Rs461 per ton in FY20,” Jefferies India Pvt. Ltd said in a note. “There has been saving of ₹5.6 crore due to IND-AS 116 implementation (accounting change); even accounting for this fixed costs would be down 2% YoY in 4Q.”

The cost optimisation measures reflected in the full year numbers as well. Revenues during FY20 grew 5% but thanks to an 8% fall in expenditure and improvement in profit margins, operating earnings for the full year rose an impressive 15%.

“Full-year numbers were comforting with Gujarat Pipavav forming a new peak of profit before tax after a period of five years,” analysts at Kotak Institutional Equities said in a note. “Ebitda margin expansion was largely driven by declining fixed costs, commendable given flattish overall volume print.”

Management commentary has been predictably cautious. Sluggish global trade can hit port volumes in the current quarter (Q1 FY21).

Larger peer Adani Ports and Special Economic Zone Ltd has also warned of a negative impact of covid-19 on business volumes in current quarter.

“Our assumptions factor in a 25% drop in 1QFY21E volumes, given the lockdown impact and a gradual recovery to flattish growth by end FY21E,” added analysts at Jefferies India on Gujarat Pipavav.

While low business volumes can hurt financial performance in the current quarter (Q1 FY21), cost rationalisation measures and the company’s strong parentage–it is a part of the A.P.Moller-Maersk group–should help it withstand market slowdown better.
Source: Live Mint



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