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Alpha | Adani Ports & Special Economic Zone Ltd. – Equity Research Desk

July 22, 2024 . Equities Desk

Alpha . Equity Research

Adani Ports & Special Economic Zone Ltd – India’s foremost port operator

Incorporated in 1998 and headquartered in Ahmedabad, Adani Ports & Special Economic Zone Ltd. (APSEZ) is India’s largest private sector port operator. As part of the Adani Group, APSEZ manages 15 domestic and 4 international ports, including India’s largest port at Mundra. With an aim to become world’s largest transport utility company, APSEZ currently owns 627 MMT cargo handling capacity, 111 marine flotillas, 127 trains, 12 multi-modal logistics parks, 690 km of rail tracks, 2.4 mn sq. ft. of warehousing space, and 1.2 MMT of grain silos.

Products and Services

Ports and Terminals: APSEZ manages approximately 24% of India’s port capacity.
Industrial Land: Home to India’s largest port-based manufacturing hub, Mundra Industrial Land.
Logistics: Includes logistics parks, road logistics, rail operations, warehousing, and auto & agri logistics.
Dredging: With a fleet of 23 dredges and support equipment, the company offers dredging and reclamation solutions for port and harbour construction.

Subsidiaries: As of FY24, Adani Ports & Special Economic Zone Ltd. (APSEZ) has 106 subsidiaries and 27 joint ventures.

Growth Strategies

Established Position: In FY24, APSEZ managed 27% of India’s overall cargo and 44% of container cargo, with a 21% YoY growth in domestic cargo volume.
Record Volumes: Ten domestic ports, including Mundra, achieved record-high cargo volumes, with Mundra handling 7.4 million TEUs, a 15% increase over its closest competitor.
Credit Rating: APSEZ obtained a ‘AAA’ rating from CARE Ratings, becoming the first private corporate infrastructure company in India to achieve this.
Strategic Acquisitions: Completed acquisitions of Gopalpur and Karaikal ports, and formed a JV with MSC for Ennore Container Terminal.
Expansion Projects: Investing in Dhamra LNG Terminal, CB3 berth expansion at Hazira Port, and developing India’s largest transhipment port at Vizhinjam.
Logistics Enhancements: Launched trucking segment with 900 trucks for last-mile connectivity and added 34 rakes, 3 MMLPs, 2 agri silos, and new warehouses in Mumbai and Indore.

Q4FY24

Total Income: Rs. 6,897 crore, up 19% from Rs. 5,797 crore in Q4FY23.
EBITDA: Rs. 4,029 crore, a 23% increase from Rs. 3,271 crore in Q4FY23.
Net Profit: Rs. 2,015 crore, a 77% rise from Rs. 1,139 crore in Q4FY23.
Cargo volume: Increased by 26% during the quarter.

FY24

Revenue: Rs. 26,711 crore, a 28% increase from FY23, with 30% growth in ports and 19% in logistics.
EBITDA: Rs. 15,751 crore, up 44% from the previous year.
Net profit: Rs. 8,104 crore, marking a 50% raise YoY.
EBITDA margin: 59%, and net profit margin: 30%, the highest among peers.

Financial Performance (FY21-24)

Revenue and PAT CAGR: 29% and 21% over FY 21-24.
Average 3-year ROE and ROCE: 16% and 11% for FY21-24.
Debt-to-equity ratio: 0.94.

Industry outlook

Maritime transport handles 95% of India’s trading by volume and 70% by value.
The Indian ports and shipping industry is crucial for trade and commerce growth.
India, with a 7,517 km coastline, is the sixteenth-largest maritime nation.
The government offers incentives to support port development, inland waterways, and shipbuilding.

Growth Drivers

Budget Allocation: US$ 281.23 million (Rs. 2,345.45 crore) allocated to the Ministry of Shipping in the Interim Union Budget 2024-25.
FDI Policy: 100% FDI allowed under the automatic route for port and harbour projects.
Sagarmala Program: Government initiative for port-led development and growth of logistics-intensive industries.

Competitive Advantage

Compared to the competitors like JSW Infrastructure Ltd, Gujarat Pipavav Port Ltd etc.

APSEZ is the most undervalued stock in the large cap segment delivering consistent returns on invested capital and increasing earnings in proportion to its sales growth.

Outlook

APSEZ is set to outperform India’s overall growth with its strategic port portfolio and integrated logistics.
Aims to become the world’s largest private port company by 2030 and carbon neutral by 2025.
FY25 guidance: 460-480 MMT cargo volumes, Rs. 29,000-31,000 crore revenue, and Rs. 17,000-18,000 crore EBITDA.
Entry into the transhipment port segment, particularly Vizhinjam Port, is expected to boost volumes significantly.

Target Price of ADANIPORTS

APSEZ’s strategic investments in ports and logistics are anticipated to strengthen the company’s ongoing growth trajectory. We recommend a BUY rating in the ADANIPORTS stock with the target price (TP) of Rs. 1,757, 32x FY26E EPS.

Risks

Economic Risk: Slowdowns in key sectors could reduce cargo movement, affecting port utilization and revenue.
Climate Risk: Physical risks from climate-related events (e.g., sea level rise, storms) may impact port operations.
Financial Risk: Issues such as declining credit quality, liquidity problems, or debt repayment failures could affect financial stability.

Note: Please note that this is not a recommendation and is intended only for educational purposes. So, kindly consult your financial advisor before investing.