By Edelweiss Securities
Despite the pandemic playing havoc in FY21, Adani Ports & SEZ (APSEZ) managed to report 11% volume growth (2% organic growth). In our view, this is a strong manifestation of internal drivers like market share gains (500bps in FY21 in Container), new shipping lines, cargo diversification, improved hinterland, and cargo stickiness, among others; & external factors such as the rise in business trade.
The firm acquired a 25% stake in Krishnapatnam port (KPTL) for a value of INR28bn (20% higher than initial deal) in FY21. This is likely to add ~INR18/share to SoTP. We expect APSEZ’s FY22 volumes to stay robust led by the acquisition and strong business momentum. Maintain ‘BUY’.
Fourth quarter marks one of best quarters; container volume spikes. APSEZ reported volumes of 26MT (up 40% YoY) in Mar-21. Adjusting for KPTL, volume growth is 18–19%, although on a favourable base. Even so, a strong sequential recovery is encouraging. For Q4FY21, volumes stood at 73MT, up 27% YoY (organic growth of ~10%). APSEZ recorded cargo of 247MT (up 11% YoY) for FY21. This comes after a 27% YoY dip in volume in the first quarter, which implies a strong volume recovery of ~25% over the balance nine months. We reckon KPTL recorded ~20MT in cargo in H2FY21, which implies APSEZ logged 2–3% organic volume growth. While the volume mix isn’t available, container volumes (7.2mn TEUs) recorded strong 16% YoY growth, led by Mundra volumes (5.65mn TEUs, up 18% YoY).
Acquisition of 25% stake at slight premium, but value-accretive. APSEZ has acquired the remaining 25% stake in KPTL; it now owns 100%. The acquisition value is Rs 28bn, which puts the KPTL equity value at Rs 110bn as against ~Rs 80bn earlier. Nevertheless, it adds Rs 18 per share to our SoTP. APSEZ has turned around KPTL in less than 12 months with a strong 1,500bp EBITDA margin improvement and a reduction in debt cost.
Recently, KPTL received the CRZ clearance for the third phase of expansion at an investment of INR120bn over the next few years. This could lift KPTL’s overall capacity by ~300MT cargo.