Revenue at Rs 29 bn (+3% y-o-y, adjusted for asset sale gain of Rs 4.3 bn) was in line with our estimate but below consensus of Rs30.5 bn. Adj Ebitda at Rs17.08 bn (-23% y-o-y) was 3%/13% lower than our/cons estimates. Core Ebitda margin of 63.8% was lower than our estimate of 65.5%. We think that lower than our estimated Harbour sales and miss in Adani Logistics margins (unlisted) were the key reasons for the miss. Forex translation losses of Rs1.45 bn was broadly in line with our Rs1.46 bn forecast. Cargo mix was slightly adverse in 9MFY20 vs FY19 due to a lower share of crude oil (higher margin).
While the results appear disappointing at initial glance the volume outlook has improved sequentially. Addition of 400kTEU pa of container lines in Q3 is a major positive development. Ramp-up of LPG and LNG volumes (management guides for 1.5mnt each in FY21) are also key positives.
Outlook
Volume, revenue guidance largely unaltered: FY20F volume guidance at 224-226mnt was largely unchanged vs the 8-10% guidance provided earlier (we estimate 225mnt). Management guided for FY20 revenue growth of 12-14%. Management expects addition of 1.5mnt of LPG and LNG volumes on an annual basis in FY21F, which should lead to an improved liquid share, and bolster margins. LPG and LNG capacities are 3.6mntpa and 5.0mnt pa at Mundra, which highlights the potential for growth.
Regarding LPG, long-term volumes have been tied up with oil marketing companies (OMCs).
Addition of 400kTEU/y of new container liners provides increased visibility on FY21F volume outlook. Since these are EXIM containers, we do not expect margin dilution, which would have
been the case if these were transshippment containers.
FY20/21F capex guidance levels maintained at Rs40 bn. FCF (ex acquisitions) guidance was unchanged at Rs20-22.5 bn. Myanmar is on track; management expects commissioning by end-FY21. Similarly, the first phase of Vizhinjam port is guided to be completed by Dec’22. Krishnapatnam acquisition should conclude by Q1FY21.
SEZ income guidance also retained at Rs8-10 bn on an annual basis. We expect potential upside to SEZ’s earnings over the next 2-3 years once its facilities are exploited at Dhamra following the commissioning of Dhamra LNG.
Estimates, valuation, and target price
We value ADSEZ using SOTP: we value the various assets using DCF (12.5% cost of equity), Adani Logistics at 20x Sep-21F EPS, Adani Harbour at 10x Sep-21F EPS, and AALL at 10x Sep-21F EV/Ebitda) to derive our TP of Rs430. We maintain our Neutral rating on the stock. We prefer Concor (CCRI IN, Buy) in the logistics space.