Maintain ‘buy’ on Adani Ports and SEZ with TP at Rs 490

By: | Published: March 2, 2018 3:32 AM

Our recent visit to Adani Ports SEZ’s (APSEZ) flagship ‘Mundra’ port where we interacted with top management left us enthused about the company’s long-term growth prospects.

Adani Ports SEZ, Mundra port, Private Freight terminals, Railway transportation, PSA terminal, EBITDALeveraging its relationships with shipping liners and its ability to offer end-to-end solutions can make ALL’s business sizable (targeting 5x revenues over next four years).

Our recent visit to Adani Ports SEZ’s (APSEZ) flagship ‘Mundra’ port where we interacted with top management left us enthused about the company’s long-term growth prospects. Our confidence was bolstered by: APSEZ’s potential to ramp up capacity 5x hereon along with highly efficient operations at par with global standards; The preparedness to take on emerging competition (PSA terminal); and Logistics business (ALL) that is set to be a significant growth driver. We believe APSEZ’s strong fundamentals will accelerate volume growth and cement strategic customer relations. Maintain ‘BUY’ with SoTP based TP of Rs 490. Mundra port with its 40km waterfront (world’s largest harbour) is only 20% utilised currently and has massive scope for expansion. Further, congestion-free evacuation facilities, better Gross cranes rate (30 moves per hour against international benchmark of 26) and deep draft of ~ 16.5 metres results in fast turnaround time (<1day).

Probability of Mundra port losing volumes to the new PSA International terminal (2.4 million TEU’s capacity) at JNPT is low at least in near to medium term as: PSA terminal will compete with rivals APMT-GTI and DP World (already snapped one customer); Shipping liners would continue to make multiple port of calls rather than one; Equity participation by DP World, MSC and CMA CGM buys volume commitment; and PSA will attract volumes from Maharashtra and Madhya Pradesh (growing at ~20%) and not north bound cargoes (growing at 18%), the mainstay for Mundra. Also, it will maintain the distance advantage to north bound cargoes.

Leveraging its relationships with shipping liners and its ability to offer end-to-end solutions can make ALL’s business sizable (targeting 5x revenues over next four years). Management aims to achieve this with an asset light model and roadmap including Railway transportation, Private Freight terminals, trucking and Warehousing. We remain confident on APSEZ’s continued ability to garner market share. We maintain ‘BUY/SO’ with TP of Rs 490 (24% upside), implying an exit EV/EBITDA of ~14x.

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