Retain buy on Adani Ports shares, target price Rs 187: Normura

Nomura Posted online: Wednesday, Jan 29, 2014 at 0000 hrs
Adani Ports’ Q3 earnings were mixed. While on the positive side, the company continued to deliver strong volume growth (+24% y-o-y), on the flip side, lower-than-expected realisations (partly due to a change in the cargo mix) led to below-estimate earnings.

More importantly, according to the company, there was no further increase in the loans and advances levels in Q3 vs H1. The cash levels on the balance sheet also improved sequentially with borrowings remaining flat. In our view, the acquisition of Dhamra Port, if it happens, could be an important catalyst for the stock in two ways: first, it would provide ADSEZ’s entry into the eastern coast of India and, second, it will provide the market confidence that cash now tied up in corporate deposits will get deployed in the core business.

We reiterate our ‘buy’ call on the company, as we have a fundamental liking towards the ADSEZ’s core asset story, which will continue to benefit from the demand-supply mismatch in India’s port capacity. Our target price of Rs 187 per share implies an approximately 29% upside potential. Adani Ports reported weak operating performance, as there was a miss on both top line as well as margins. Revenue and core Ebitda missed our estimates by 8% and 15%, respectively.

The company again delivered strong volume growth, as Mundra port volume grew at a faster pace of +24% y-o-y (vs +21%y-o-y in Q2). However, there was some disappointment on the earnings front, as both revenue as well as Ebitda missed our expectations. We believe sequential increase in cash levels, and no further increase in loans and advances, will provide some respite and put one of the main investor concerns to rest for the time-being.

- Normura