HDFC Securities has downgraded Gujarat Pipavav Port to 'Sell' with target price of Rs 97 as against current market price (CMP) of Rs 136 in its report.

Commenting on the investment rationale, the stock broker said, "Gujarat Pipavav Port (GPPV) delivered a strong operating performance in CY13 that saw operating leverage kicking in with YoY EBITDA margin expansion of 587bps to 49.6%.

This was owing to tariff revision in Aug-13 along with shift to USD based pricing, Two new services introduced in Jun-13 in place of Maersk lines and new Gulf service expected to add 50,000-60,000 TEUs. Further, commencement of liquid cargo handling operations in CY14E will aid volumes.

Accordingly, we expect 13% CAGR in container volumes over CY13-16E along with EBITDA margin expansion of 972bps to 59.3%.

Consequently, GPPV's stock price has seen a stellar run owing to turnaround in business and an improving macro outlook going ahead. However, with RoEs expected to peak at 15% from CY16E onwards, we believe that current valuations at 2.8x CY16E P/B and 20.0x CY16 P/E are unjustifiable. Further, with limited capacity addition at Pipavav over CY15-19E, GPPV faces the risk of losing incremental container market share in the long term as peers such as Adani Ports & SEZ (BUY) and JNPT (addition of fourth terminal) scale up capacities."

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