Gujarat Pipavav slips on FE3 switch to Mundra

MUMBAI: Shares of Gujarat Pipavav fell 4.3 per cent to Rs 199.85 after Far East India Subcontinent 3 (FE3), led by Maersk Line, CMA CGM group, APL and OOCL, decided to shift to rival Mundra Port. Analysts said, however, FE3's exit is unlikely to impact Gujarat Pipavav's earnings in a big way.

“A worst-case earnings impact of 9 per cent on the volume loss due to FE3 exit, but rupee depreciation and liquid ramp-up could cushion the damage with earnings impact to 5 per cent“ said Inderjeetsingh Bhatia and Amit Sinha, analysts at Macquarie Capital Securities India.

FE3 will move to Mundra Port from September 14. Gujarat Pipavav said the negative impact of FE3 would be limited to the short term.

In response to an ET query, a company spokesperson said, “The FE3 services currently has 70 to 80,000 TEUs annually. As there are multiple carriers in the same service, we do not have im pact of volume loss to Pipavav at the moment“.

Analysts said, notwithstanding the FE3 exit, the Western cost of India is seeing continued weakness in container volume growth.

“Led by continued weakness in trade growth we expect only a 5-6 per cent growth in container volumes for the west coast in FY16“ said Shirish Rane, analyst, IDFC Securities.

“We see limited upside from current levels given that our target price of Rs 220 already builds in a 21 per cent CAGR in container volumes over FY17-20“.

Gujarat Pipavav stock currently trades at 21 times FY17 estimated earnings.

“We believe the container volume will stabilize in the next 2-3 quarters,“ said Macquarie's analysts, while maintaining an `outperform' rating on the stock with a price target of Rs 269.