IPO Note | 5th November, 2007 SUBSCRIBE | Price Band - Rs. 400 to 440 Issue Details Issue Size 40.25 mn Equity Shares Price Band Rs. 400 to Rs. 440 Employee reservation: 0.15 Mn shares Equity dilution post issue: 10.05% Issue comprises of fresh issue At the upper band the issue is worth Rs. 1771 of equity capital crores & at the lower band Rs. 1610 crores. Capital Structure Authorised Capital: 99,50,00,000 Equity sahres (FV Rs10) 50,00,000 Non-Cumulative Preference shares (FV Rs 10) Isuued, Subscribed & Paid-Up Capital: Pre-Issue 360,428,820 Equity Shares (FV Rs 10) 2,811,037 Non-Cumulative Preference shares (FV Rs 10) Post-Issue 400,678,820 Equity Shares Promoter Background Mundra Port & SEZ is promoted by Adani group headed by Mr Gautam Adani who is a first generation entrepreneur. Adani Group is a $3.5 billion diversified conglomerate with a complementary and balanced business portfolio that includes Commodities Trading Edible oil Manufacturing Mundra port operations Natural Gas Distribution Mundra port commenced commercial operations in 1998.The company has also Company Background received approval for the development of a multi product SEZ spread over 2658 hectares (6568 acres) making it one of India's first port based SEZ. The company has signed a 30 year concession agreement with the Gujarat Maritime Board for exclusively developing and operating Mundra port. The agreement was signed when the port was already functional thus the benefit of the entire duration of the concession period will be available to the company. Research Associate - Saurin Jhaveri 1 [email protected] | 2284 6555 PPFAS | IPO Note Mundra Port And Special Economic Zone Limited Construction and development of basic infrastructure and allied facilities in the Objectives Of The Issue proposed SEZ at Mundra. Construction & development of coal terminal at Mundra port Contribution towards investment in Adani Petronet Port Pvt Ltd (Dahej) Contribution towards investments in Adani Logistics Ltd(ALL) Contribution towards investment in Inland Conware Pvt Ltd (ICPL) General corporate expenses Use Of Ipo Proceeds SEZ 700 Crs Coal Terminal 450 Crores Dahej Port 209.5 Crores Adani Logistics Ltd. Investment 22 Crores ICPL Investment 54.38 Crores General Corporate Expenses Balance 1. Deep Natural Draft: Investment Outlook; The deep natural draft of the port Approx 15mts (one of the largest on western coast) Positives: allows for larger capacity vessels including very large crude carriers(VLCCs) and container vessels of 8000+TEUs (Twenty Foot Equivalent Units). This also allows shipping companies to improve the total ship utilisation period and also helps bring in more revenues to the port on the back of improved realisations for shipping companies. 2. Northern Hinterland: The lower distance of Mundra port from north and north western Indian hinterland of approximately 300 kms as compared to Mumbai & JNPT (Jawaharlal Nehru Port Trust) is a very big advantage in terms of logistic costs and time saving. Also nearly 50% of India's trade in commodities comes from North And north-western states of Rajasthan, Punjab, Haryana, Uttar Pradesh, Delh and Gujarat. 3. Infrastructure Development: The investments made in the space of infrastructure development especially in areas of Road and rail connectivity. Key areas are double stacking container trains which is available on the rail route connecting Mundra to hinterland and the proposed freight corridor between Mumbai and Delhi. 4. Strategic Tie-ups: The company has entered into strategic tie-ups with Indian Oi Corporation (IOC) for handling of crude oil at Mundra. Similarly the arrangement with Container Corporation of India Ltd and Mundra International Container Terminal Ltd will help in its railway facilities and container cargo operations ramp up. 5. SEZ notification: The company has already completed the acquisition of land for the SEZ and has received notification for the same. The indirect tax benefits in the form of exemption form customs duty, excise duty and other tax initiatives coupled with the proximity of a functional port should enhance the prospects of speedy development of the SEZ. 2 PPFAS | IPO Note Mundra Port And Special Economic Zone Limited 1. THE COMPANY HAS ENTERED INTO A NUMBER OF CONCESSION AGREEMENTS Areas Of Concern and key contracts WHICH poses significant risk with respect to the renewal of these contracts. 2. Delay in the project completion as per projected schedules especially the SEZ can severely impact the cash flows of the company and intern affect its other operations. 3. Inability to improve share of high profit margin cargo. The total income has grown from Rs 54.49 crores in FY'03 to Rs 596.12 crores in FY'07 Financials on the reported financials on an unconsolidated basis. This is a CAGR of ~82%.The total income for Q1 FY'08 is Rs 132.41crores. During the same period net profit has grown from a loss reported in FY'03 of Rs 4.14 crores to a profit of Rs192.11 crores for FY'07.Corresponding amount for Q1FY'08 is Rs. 20.13 crores. The Net profit figures have been adjusted for prior period expenses, write back of provisions, miscellaneous expenditure, deffered tax etc. The total cargo handled has grown from 5.2 million tonnes in FY'04 to 19.2 million tonnes in FY'07.this represents a CAGR of ~56%. The EPS for FY'07 on fully diluted post issue equity works out to 4.79. At the upper band it works out a P/E of ~92. Book-value per share as at 31-3-07 is Rs 18.66. The RONW for year ended 31-3-07 is 25.70%. The rise in revenues is clearly at a faster rate than that in tonnage of cargo handled indicating the shift from low margin bulk cargo to higher margin businesses like container cargo and crude. Going forward the company would look at these segments along with rail revenues and land development and SEZ as growth drivers. 2004 2005 2006 2007 Crude Oil Container Tonnage wise Break-up of Cargo Type Liquid Cargo Dry Cargo 0 2 4 6 8 10 Dry Cargo Liquid Cargo Container Crude Oil 100% 80% Percent-wise Break-up of Cargo Type 60% 40% 20% 0% 2004 2005 2006 2007 3 PPFAS | IPO Note Mundra Port And Special Economic Zone Limited Balance Sheet Particulars (Rs Mn) Jun-07 Mar-07 Mar-06 Mar-05 Mar-04 Mar-03 Application Of Funds Fixed Assets Gross Block 23,254.1 22,331.0 16,457.6 12,211.9 11,452.2 4,811.1 Less:Accumulated Depreciation 2,738.2 2,509.1 1,599.3 943.2 534.9 135.3 Net Block 20,515.7 19,821.9 14,858.3 11,268.7 10,917.3 4,675.8 Capital WIP 4,937 .3 4,179.4 4,117.0 4,369.0 1,785.2 3,208.1 25,453.0 24,001.3 18,975.3 15,637.7 12,702.5 7,883.9 Investments 886.3 789.9 1,228.2 320.3 - - Net Current Assets Inventories 140.1 104.3 46.0 30.7 25.5 - Sundry Debtors 3,180.4 3,449.3 766.7 412.0 196.5 26.6 Cash & Bank Balances 865.1 569.0 956.5 305.8 117.5 31.6 Other Current Assets 260.5 234.8 217.4 215.3 275.8 175.0 Loans & Advances 1,614.5 1,260.1 747.2 583.2 1,647 .2 403.0 6,060.6 5,617 .5 2,733.8 1,547.0 2,262.5 636.2 Less: Current Liabilities, Provisions Current Liabilities 2,666.2 2,011.5 1,394.0 616.0 1,008.7 675.7 Provisions 125.4 177.7 589.2 74.9 9.4 - Deffered Tax Liability 602.0 507.0 692.2 308.1 - - 3,393.6 2,696.2 2,675.4 999.0 1,018.1 675.7 2,667.0 2,921.3 58.4 548.0 1,244.4 (39.5) Total Funds Employed 29,006.3 27,712.5 20,261.9 16,506.0 13,946.9 7 ,844.4 Sources Of Funds Shareholders' Funds Share Capital Equity 3,604.3 3,604.3 1,802.1 1,400.0 1,400.0 1,400.0 Preference 28.1 28.1 28.1 28.1 28.1 - Equity Shares Suspense A/C - - - 402.2 402.2 - Reserves & Surplus 4,042.6 3,842.8 4,179.0 3,849.1 3,173.0 523.1 7,675.0 7,475.2 6,009.2 5,679.4 5,003.3 1,923.1 Loan Funds Secured Loans 13,985.0 12,813.4 8,919.2 5,898.5 4,027 .4 5,254.9 Unsecured Loans 8.4 9.0 699.0 345.3 363.4 - 13,993.4 12,822.4 9,618.2 6,243.8 4,390.8 5,254.9 Amt Recd Under Long Term Infrastucture 7,338.1 7,414.9 4,634.5 4,582.8 4,552.8 666.4 Usage Agreement Total Funds Employed 29,006.3 27,712.5 20,261.9 16,506.0 13,946.9 7,844.4 4 PPFAS | IPO Note Mundra Port And Special Economic Zone Limited Profit & Loss Account Particulars (Rs Mn) Jun-07 Mar-07 Mar-06 Mar-05 Mar-04 Mar-03 INCOME Income from Operations 1,234.0 5,797.4 3,845.3 2,640.9 1,676.7 523.4 Other Income 90.0 163.8 123.5 133.5 56.3 21.5 Total Income 1,324.1 5,961.2 3,968.7 2,774.4 1,733.0 544.9 EXPENDITURE Operating Expenses 293.9 1,943.7 1,068.1 745.8 495.9 129.2 Personnel Expenses 61.0 147.9 88.0 65.2 63.0 24.7 Administrative and Other Expenses 171.2 629.8 577.7 228.6 213.3 62.8 Interest 253.0 667.6 507.2 343.3 514.3 257.4 Depreciation 207.8 807.0 614.1 437.1 376.2 102.4 Total Expenditure 986.9 4,196.0 2,855.1 1,820.0 1,662.7 576.5 Profits/(Losses) before Tax, Prior Period 337.2 1,765.2 1,113.6 954.4 70.3 (31.6) and Extraordinary Item Extraordinary Item Prior Period Item 116.6 (12.9) (15.5) 34.7 13.2 (5.8) 2.8 (4.7) - Profits/(Losses) before Tax 440.8 1,749.7 1,161.5 948.6 68.4 (31.6) Provison For Tax Current Tax 83.8 50.0 97.7 70.9 8.6 Deferred Tax (Credit)/Charge 131.0 (133.2) 389.1 215.2 - - MAT Credit Utilised 2.2 8.5 2.4 - - - Fringe Benefit Tax (47.8) (50.0) - - - - Net Profits/(Losses) after Tax 271.6 1,874.4 672.3 662.5 59.8 (31.6) Adjustments (Net of tax) (Refer Note 1 (70.2) 46.7 68.6 13.6 (193.2) (9.8) appearing in Annexure IV(C)) Net Profits/(Losses) as Restated 201.3 1,921.1 740.9 676.1 (133.4) (41.4) Balance brought forward from Previous Year (Refer to Note 5 appearing in 1,020.5 899.6 625.0 (39.9) 90.7 144.6 Annexure IV (D)) Pre-operative expenditure and Miscellaneous Expenditure (to the extent not written off) adjusted in accordance with (36.1) the scheme of amalgamation (Refer to Note 11 appearing in Annexure IV(D)) Amount available for appropriation 1,221.9 2,784.6 1,365.9 636.2 (42.7) 103.2 DISCLAIMER This report does not constitute or form part of, and should not be construed as, any offer of sale or a solicitation to buy any security.