Adani Ports & SEZ: Retain ‘buy’, fair value at Rs 410

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Published: April 15, 2020 2:00 AM

FY20 has been a meaningful year of outperformance for ADSEZ’s portfolio, which grew 7% versus a flattish year for major ports and 3-4% growth for aggregate Gujarat volumes (the state accounts for ~80% of Adani Port’s volumes).

Adani Ports has seen reduction of share pledges worth Rs 58 bn aggregated across ports, transmission and enterprises on repayment of underlying debt. Adani Ports has seen reduction of share pledges worth Rs 58 bn aggregated across ports, transmission and enterprises on repayment of underlying debt.

The Adani group reduced aggregate share pledges by ~Rs 60 bn to ~Rs 320 bn in April 2020, the first such instance of meaningful repayment of underlying debt for years. The group can halve aggregate share pledges from peak Rs 400-bn levels with the remaining proceeds from stake-sale transactions. Past history of outperformance and the current healthy balance sheet comfort against a testing FY21E. We cut estimates to bake in the impact of Covid-19 disruption and lower fair value to Rs 410 (from Rs 460). Retain ‘buy’.

Adani Ports has seen reduction of share pledges worth Rs 58 bn aggregated across ports, transmission and enterprises on repayment of underlying debt. This has driven a meaningful decline in aggregate share pledges closer to Rs 300 bn versus Rs 400 bn that have sustained over the past two years. The same suggests usage of the some of the proceeds from recent stake- sale transactions. More importantly, it suggests the strength of the balance sheet of group entities, leading to the promoter group repaying such loans. We have been highlighting both these aspects in our recent notes on March 19, 2020 and December 19, 2019.

Our assessment of the individual share pledges suggests the promoter repaying underlying debt worth ~Rs 23 bn, which has high asset cover and thus led to a large Rs 58 bn worth of reduction in share pledges. We note a total of Rs 51 bn of proceeds realized from stake-sale in Adani Gas and another Rs 28 bn of potential return of loans/ perpetual securities that can come to promoters from other entities that have benefitted from stake-sale transactions (transmission, green energy). We note prospect of aggregate share pledges going closer to Rs 200 bn or sub- 25/18% as share of promoter/ overall shareholding if the entire remaining proceeds for the promoter from recent stake-sale transactions get utilised.

FY20 has been a meaningful year of outperformance for ADSEZ’s portfolio, which grew 7% versus a flattish year for major ports and 3-4% growth for aggregate Gujarat volumes (the state accounts for ~80% of Adani Port’s volumes). This coupled with 60% share of its volumes being sticky should limit the impact of a weak year for global trade ahead. ADSEZ’s balance sheet position is comforting with cash position at 1HFY20 in excess of sum of Krishnapatnam acquisition, debt repayment for Adani Ports for FY21 and maintenance capex.

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