Assign ‘add’ rating on Adani Ports with a revise SOTP-based target price to R 310 (from R340 per share) led by lower coal and other volumes estimates across ports, and higher revenue share to maritime boards for concession renewal.
Adani Ports has intensified its focus on (1) increasing the share of containers and liquid cargo volumes in the overall mix, (2) replicating the success of Mundra across other ports, (3) reducing the debt cost further, and (4) monetizing the SEZ. The benefits of these will fully reflect in the medium term. The present high mix of bulk cargo and EXIM slowdown will impact in near term.
During our recent meeting, the management outlined its focus on the growing share of container cargo over time. Recent additions of Vizhinjam and Kattupalli ports corroborate this strategy. The company has similar plans to grow liquid volumes and sees strong uptick in demand at key ports (Mundra, Hazira). Such a strategy will reduce exposure to bulk cargo where visibility of business growth over the medium-term is low, in our view. The other areas of management focus are replicating the success of Mundra (fungible capacities, high level of mechanization, tight leash on capex/opex) across other ports, and further reducing the cost of debt for both foreign currency and domestic debt helped by good credit rating. Adani Ports now has 10 ports in its fold, including Kattupalli (acquisition pending approvals).