Adani Ports & SEZ’s 26% dip in net profit did not deter the share price from surging 3.7% on Wednesday morning to trade at Rs 347 apiece, when benchmark indices were seen slipping into the red. The Marine and Port Services company’s dip in net profit was better than many had expected on Dalal Street. The April-June quarter witnessed lockdowns at various levels to tame the spread of coronavirus, hitting business revenues. Adani Ports & SEZ has, however, reported a steady increase in throughput across Ports from July. Brokerage firms are upbeat on the stock, with some even increasing their target price.
Revenue in the April-June quarter was down to Rs 2,292 crore from Rs 2,794 crore in the same period a year ago. Cargo throughput witnessed a decline of 27% resulting in 18% decline in consolidated revenue, Adani Ports & SEZ said. Despite this, the company managed to maintain Port EBIDTA margin at 70% which was helped by stronger-than-expected realisations on the back of 2.5% tariff hike and favourable cargo mix. Adani Ports informed investors that its Mundra port has now become the largest container handling port in India by handling 0.97 mn TEUs in the first quarter surpassing state-owned JNPT volume of 0.85 mn TEUs.
“Adani Ports & SEZ volume dipped 27% in the previous fiscal on-year basis owing to the lockdown-induced upheaval in the logistics chain. However, an 8% on-year jump in realisation—led by higher tariff, favourable cargo mix and currency benefit —offset most of the pain,” said analysts at Edelweiss Securities in a note. To add to this, Adani Ports in a post-result release said that during the month of July, it handled cargo volume of 18.30 MMT, a growth of 6% on-year basis and 31% over June.
The 2.5% tariff hike by Adani Ports is being looked at positively by Edelweiss Securities, adding that it suggests the company’s strong pricing power. “Furthermore, it is in the process of accelerating the extended gate operations, which could lead to faster client acquisitions and thus strong volume growth,” they said. Edelweiss has a BUY rating on the scrip with a target price of Rs 395 per share. Promoter pledging, which stands at 33% currently, could keep the stock volatile, according to Edelweiss Securities.
Adani Ports & SEZ said that the worst is behind the company and assured investors that it has emerged operationally stronger and resilient to externalities. The company’s management said that it expects to complete Krishnapatnam port acquisition by the July-September quarter with the CCI’s approval already received. The company expects renewal of the concession agreement with GMB to happen in the next 18-24 months based on bilateral negotiations. Adani Ports has, however, said that it will only be able to give debt guidance post the second quarter of this fiscal year.
The company’s ability to take the usual price hike and alter cost structure to maintain port margins despite volume decline has impressed analysts at Kotak Securities. “ This is comforting at a time when narrow gaps in the cost structure of other listed logistics plays are coming to the forth,” Kotak Securities said in a recent note. Adani Ports remain a leading player in the transportation space. Adani Ports & SEZ has a BUY rating from Kotak Securities with a fair value of Rs 400.
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