Retain ‘buy’ on Adani Ports & SEZ (ADSEZ) and a target price of Rs 257.
We use the DCF methodology to value ADSEZ’s various entities separately, except for assets that are at a nascent stage. We value Mundra port at ~Rs 200 per share, at a cost of equity of 12% and value the investments in Dahej, Hazira, Vizag, and Murmugao ports at 1.5x P/Bv.
We value the SEZ landbank at Rs 50 a share. Our target price is based on a SOTP valuation.
ADSEZ continued to record strong volume growth, with container volumes rising 13% y-o-y at the consolidated level to 800,000 TEUs. Even Mundra port volumes were up 10% y-o-y to 748,000 TEUs. This compares with just 4% y-o-y growth for the Indian port industry. Further, improved cargo mix has led to strong ebitda margins at Hazira and Dahej as well as increased monthly landings at these ports.
Going forward, we can expect contributions to increase from Kandla, Vizag and Goa as they ramp up over the next two years. We continue to be positive on the company, as we have a fundamental liking of ADSEZ’s core asset story, which should continue to benefit from demand-supply mismatch in India’s port capacity, in our view.
ADSEZ’s standalone Q1FY16 revenues were in line with our expectations at Rs 1,040 crore. However, Ebitda margins improved ~230 bps y-o-y to 70%, which was ahead of our and Street estimates of 64.1% and 67.3%, respectively.
This resulted in Ebitda of Rs 730 crore, which was 10% and 5% ahead of our and Street estimates, respectively.
PAT at Rs 620 crore was up 23% y-o-y and was 13% and 11% ahead of our and Street estimates. However, at the consolidated level, the results were slightly (2-4%) ahead of the Street with revenues at Rs 1,450 crore (up 40% y-o-y), Ebitda at Rs 11,40 crore (up 42% y-o-y) and PAT at Rs 640 crore (up 13% y-o-y).