Adani Ports and SEZ (APSEZ) missed our Q4FY19 EBITDA estimate by 7% due to underperformance of the SEZ business; the Ports business reported robust numbers.
Adani Ports and SEZ (APSEZ) missed our Q4FY19 EBITDA estimate by 7% due to underperformance of the SEZ business; the Ports business reported robust numbers. Key highlights: 1) FY20 volume guidance revised to 13% (235MT). 2) Strong FCF of Rs 25bn (Rs 15.7bn post-AAL acquisition). 3) Reduction in working capital due to a 31% YoY decline in trade receivables. APSEZ is contemplating rewarding shareholders via higher dividend payout/buyback. We remain optimistic about APSEZ’s long-term prospects given its strategic port locations, strong customer relationships and turnaround at newer ports driven by operational efficiency. We are revising SoTP-based TP to Rs 472 (from Rs 400) as we build higher growth in Dhamra/Hazira(`35 per share impact) and roll forward the valuation to September 2020E. We also revise up our FY21 earnings by 4%. Maintain ‘BUY’.
APSEZ has made plans to incur fresh capital outlay (organic/inorganic) of Rs 40bn to drive its growth strategy in both logistics and ports businesses. However, this is likely to reduce the APSEZ’s average FCF to `20 bn over the next two years from `25bn.
We believe the spike in net debt is manageable as net debt/EBITDA is under 3x.
Management’s long-term vision of turning in 400 MT volume by FY25 (12% volume CAGR) is a reflection of its clear strategy to consolidate its position around the ports and logistics business to lift utilisation of the combined infrastructure. Currency movement due to unhedged borrowings and pledging activity at the group level are key variables and may keep the stock volatile in our view. We have also factored in recent logistic acquisitions in our earnings estimate. Maintain ‘BUY/SP’.