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Monday's trading session began with news that HSBC analyst Deepak Maurya upgraded Gujarat Pipavav Port (NSE:GPPL) Ltd. (GPPV:IN) stock rating from Reduce to Hold, albeit with a reduced price target of INR140.00, down from the previous INR150.00. The revision comes after a significant drop in the company's share value over the last six months.
Maurya pointed out that while Gujarat Pipavav's earnings growth prospects appear limited due to a lack of catalysts for container traffic expansion, the company is expected to see some growth in the second half of FY25 and FY26. This growth is attributed to a low-base effect and is anticipated to be driven by improvements in the mix of business, which could lead to margin expansion.
Despite the cautious outlook on earnings growth, with an estimated Compound Annual Growth Rate (CAGR) of only 8% in EBITDA for FY25-27, Gujarat Pipavav's stock is considered to be trading at fair value. This assessment is based on its performance relative to the broader market, as the stock has seen a 41% decline over the past six months, compared to a 3% drop in the Sensex.
The analyst also highlighted Gujarat Pipavav's valuation metrics, noting that on consensus estimates, the stock is trading at a 12-month forward Enterprise Value to EBITDA (EV/EBITDA) multiple of 7.9 times and a Price to Earnings (PE) ratio of 13.1 times. These figures are near the lower end of the company's historical trading ranges. Additionally, Gujarat Pipavav is expected to offer an attractive dividend yield of approximately 7% in FY26-27e.
The price target adjustment and rating upgrade by HSBC reflect a nuanced view of Gujarat Pipavav's financial outlook, considering both the challenges and the valuation appeal of the stock in the current market context.
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