Adani Ports and SEZ Q2FY23 port Ebitda rose 29% y-o-y on double-digit average selling price (ASP) and volume; maintain FY23e volume guidance despite headwinds.
Port Ebitda up 29% y-o-y in 2QFY23: ADSEZ consolidated its Gangavaram Port (GPL) effective 1 April 2021 and Ocean Sparkle from Q2FY23; both are 100% owned. Port throughput rose 15% y/y and, along with 14% y-o-y growth in ASP, drove 29% y-o-y growth in port Ebitda. Logistics Ebitda rose 59% y-o-y.
Managing FX volatility: ADSEZ is exposed to foreign exchange volatility due to the mark-to-market of its USD-denominated bonds, albeit its USD revenues provide some natural hedge. So far, in FY23, the INR has fallen 8.4%. In Q2FY23, ADSEZ revised its currency risk management approach by applying active hedging and designating about $2.8bn of USD-denominated bonds as a natural hedge against future revenues. In Q2FY23, FX losses reported on its P&L narrowed to Rs 3.7 bn, while a further Rs 4 bn in FX losses were reflected in other comprehensive income, not in the P&L.
ADSEZ reiterated its FY23 volume guidance of 350-360mmt and consolidated Ebitda of Rs 12.2-12.6 bn. Management said that despite the global headwinds, its volume guidance was achievable driven by the ramp up of its ongoing expansion and India’s relatively stable foreign trade, particularly coal imports. However, this year dry bulk cargo may be the key driver while container volumes may lag. Management was confident about rolling out its logistics expansion, which should lift segment ROCE from 7% in 1HFY23 to 16% over the next 2-3 years.
We adjust our FY23-25e port Ebitda estimates; overall remains largely unchanged. We lower our FY23e port throughput to 351mmt, closer to the low-end of ADSEZ’s guidance range of 350-360mmt throughput to reflect the impact of slower global trade. However, the lower throughput is offset by higher yields and the consolidation of GPL , which results in a higher port Ebitda although this is offset to some extent by lower non-port Ebitda and foreign exchange losses.
Maintain Buy rating; raise DCF-based TP to Rs 1,000: The stock trades at 15.7x consensus 12-month forward EV/Ebitda, which is 0.6 SD above its historical mean since 2011. Its diverse and sticky cargo should buffer the impact of trade uncertainties while vertical integration should strengthen its capacity and pricing power. A stronger USD vs INR could present FX risks given its $3.9 bn of USD debt exposure as of FY22.