*As the author of this blog I disclose that I do hold ADANI PORT & SEZ LTD in my investment portfolio.
Scrip Code: 532921 / ADANIPORTS
CMP: Rs. 259.25; Buy at current levels.
Medium to Long term Target: Rs. 285; STOP LOSS – Rs. 238.50; Market Cap: Rs. 53,667.34 Cr; 52 Week High/Low: Rs. 293.85 / Rs. 117.95; Total Shares: 207,00,51,620 shares; Promoters : 155,25,38,715
shares –75.00 %; Total Public holding : 51,75,12,905 shares – 25.00 %; Book Value: Rs. 45.09; Face Value: Rs. 2.00; EPS: Rs. 9.74;
Dividend: 50.00 % ; P/E: 26.61 times; Ind. P/E: 31.72; EV/EBITDA: 18.01.
Total Debt: Rs. 8,266.77 Cr; Enterprise Value: Rs. 65,211.13 Cr.
Adani Port and
Special Economic Zone LTD: The Company was incorporated in 1998 and is based in
Ahmedabad, Gujarat- India. It was earlier known as Gujarat Adani Port Limited
and was set up as a Special Economic Zone at
Mundra. Gujarat Adani Port Ltd was then merged with Mundra Special Economic Zone
Ltd in April 2006 and the company was renamed as Mundra Port and Special
Economic Zone Limited, to reflect the nature of business. In January 2012 the company board renamed
the company as Adani Port and Special
Economic Zone Ltd. Adani Port and Special Economic Zone Ltd is a subsidiary
of Adani Enterprises Limited from September 2010 and this company engages in the development,
operations and maintenance of multi product special economic zone and related
infrastructure in India. The company came with an IPO on November, 1st 2007 offering 4,02,50,000
equity shares of Rs. 10 each for Rs. 440 per share raising Rs. 1,771.00 Cr. The
object of the issue were to achieve the benefits of listing on stock exchanges
& to raise capital for construction and development of basic infrastructure
and allied facilities in the proposed SEZ at Mundra; to utilize the funds for
construction and development of a terminal for Coal and other Cargo at the
Mundra Port; for contributing towards investment in Adani Petronet (Dahej) Port
Pvt Ltd, Adani Logistics Ltd and Inland Container Pvt Ltd. The shares got
listed on November 27, 2007 at Rs. 770 a share. The
company declared split in face value of its shares from Rs. 10 to Rs. 2 on 17
May 2010. The company through its Mundra port located in Gulf of Kutch, India
provides cargo handling & other value-added port related services. It
operates port infrastructure facilities of bulk cargo at Dahej, Gujarat,
handles bulk, liquid and containerized cargo, single point mooring, storage,
and transportation of cargo by road, rail and pipeline. Adani Ports
and Special Economic Zone Limited, together with its subsidiaries, develops and
operates ports and port based infrastructure in India. The company operates a
port at Mundra, Gujarat; a dry bulk terminal located in Dahej, Gujarat; a bulk
and container handling terminal at the port of Hazira, Gujarat; and coal
handling terminals at the port of Mormugao, Goa and Visakhapatnam in Andhra
Pradesh. It also operates 4 bulk terminals with 15 berths to handle dry and
liquid bulk cargo, 3 container terminals with 6 berths, and 2 offshore single
point mooring facilities for handling crude cargo at the port of Mundra; a dry
bulk cargo terminal with 2 berths at the port of Dahej; and 1 bulk terminal
with 3 berths to handle dry and liquid bulk cargo, and 1 container terminal
with 2 berths to handle container cargo at the port of Hazira. In addition, the
company is developing a bulk terminal located in Kandla, Gujarat; a rail
corridor; and road and highway projects. Further, it offers port services,
including marine, handling intra-port transport, storage, other value-added,
and evacuation services for terminal operators, shipping lines and agents,
exporters, importers, and other port users; and infrastructure leasing and
logistics services at the Mundra Port through its surrounding infrastructure.
Additionally, the company provides multi-modal cargo storage-cum-logistics
services; and non-scheduled (passenger) services through its aircrafts. The company also operates container trains on specific
railways routes; and provides multi-model cargo storage and logistics services
through the development of inland container depots at various locations. It
operates a fleet of approximately 2517 vessels. In addition, APSEZL provides nonscheduled
(passenger) services through its aircrafts. The company has sixteen subsidiaries as of March 2014. Adani Port and SEZ ltd is locally compared
with Essar Ports ltd, Gujarat Pipavav Port Ltd, Pipavav Defence and globally with Avia Solutions Group Ab, DP World of UAE, Gemadept Corp, Kuwait and Gulf
Link Transport Company, Luka Rijeka d.d, Wesco Aircraft Holdings Inc, Isewan
Terminal Services Co., Ltd of Japan, Azuma Shipping Co., Ltd of Japan, Meiko
Trans Co., Ltd of Japan, Rizhao Port Co. ltd; Shenzhen Chiwan Wharf Holdings
Ltd.
Investment Rationale:
Adani Ports and SEZ
is a part of global Adani Group, founded in 1988, India’s leading business
houses with revenue of over $8.7 billion. Group’s logistics division denotes a large network of ports, Special Economic
Zone (SEZ) and multimodal logistics - railways and ships. Adani owns and operates
three ports – Mundra, Dahej and Hazira in India. The Mundra Port, which is the largest
port in India, benefits from deep draft, first-class infrastructure and SEZ
status. Adani is also developing ports at Mormugao and Kandla in India. India
has a coastline of 7,517 kilometers (excluding the Andaman and Nicobar Islands), and with a port industry that has grown dramatically in past decade. India at present has 13 Major
Ports and 187 Non-major Ports with total cargo traffic tonnage handled of about
934.88 mmt for the fiscal year 2013. Indian Ports handle approximately about 95
% of India's total trade in terms of volume and 70 % in terms of value. Most
cargo ships that sail between East Asia & America, Europe and Africa passes
through Indian territorial waters. Port traffic in India is set to rise about a
CAGR of 15.9 % over FY12-14 and about 5.5 % for Non- major ports & about 22 % for major
ports. It is estimated that in FY17 the cargo traffic may touch 1,758 million metric
ton. India’s total external trade is estimated to have grown to $ 79,100 Cr in
FY13 implying a CAGR of 17.7 % since FY06. The total volumes are expected to increase
further as India continues its economic expansion, with real GDP growth in
India is expected to be at an average of 7.3 % and 8.0 % per year for next 5
and 10 years from the fiscal year 2014, respectively, this will make India one
of the fastest growing economies in the world. The consequence of strong GDP
growth results in rising energy demand, and India currently meets about 75 %,
of its total crude oil demand by imports. India’s crude imports touched 185 mmt
in FY13 implying a CAGR of 8.7 % over FY07-13, and private ports have been good
at attracting crude import traffic and Petroleum, oil and lubricants traffic at
both major and non-major ports added up to 353.2 mmt in FY13. APSEZL is the
largest private port in India in terms of volume. It handles the third highest
container traffic in India and also handles the world’s largest fully
mechanised coal terminal with a capacity of 60 MTPA. In FY13, Mundra port alone
handled cargo traffic of 72. 3 MMT, from which container traffic contributed
the most followed by Coal and Edible Oil, Chemicals and Petroleum, oil and
lubricants. APSEZL at its port of Mundra handled 82.13 million tonnes of cargo
in financial year 2013, a growth of 28 % year to year. Compared with the major
as well as non-major ports of India, it ranks 2nd in terms of total cargo and container
cargo handled during the year under review amongst all government owned
commercial ports. The Special Economic Zone Policy was framed in April, 2000
with an objective to increase the exports, attract Foreign Direct Investment
and to accelerate the economic growth of the country. The company's Multiproduct
SEZ of 6,473 Hectare area at Mundra is the largest notified SEZ in the country.
The Exports from Mundra SEZ up to March,
2013 comes to about 7,357 Crores (cumulative). Mundra SEZ with its multi-modal
connectivity including road, rail, sea port and airport is expected to attract
more and more investments in the coming years. Further, based on approval from
Government of India (GoI), the company has set up a Free Trade Warehousing Zone
(FTWZ) in an area of 168.41 Hectare at Mundra. The development activities in
the FTWZ SEZ have been initiated. The key success factors of the APSEZ is the strong
availability of Draft Depth and Waterfront, it is closest port to Northern
hinterland, the cargo generation is from its parent firm, they have long term
cargo contracts. This makes the APSEZ a good pick in the port sector.
Outlook and
Valuation:
Adani Port is the largest private Port in
Indian with No.1 position in container cargo. Adani
Ports is strategically located for global trade. Situated on the northern coast
of the Gulf of Kutch on the west coast of India, it provides a convenient
international trade gateway to Europe, Africa, America and the Middle East.
Mundra has a deep draft (12.5 - 17 meters) which enables large vessels like
panamax and super post panamax carriers to dock alongside its berth. The port
has the world’s largest fully mechanised coal terminal with a capacity of 60
million tonnes per annum (MTPA). APSEZ is the only private sector port operator with presence
across six ports in India. The company’s aim is to increase annual cargo
handling capacity from 112.8 million MT in 2014 to 200 million MT by 2020. Company has its Economic Moat (A competitive advantage that one company has over the other companies in the same industry – by Warren Buffett) and with its expanding moats indicates a very strong sign of a future Multi-bagger stock. Recently, APSEZ acquired Dhamra Port Company Ltd (DPCL), located in Odisha a JV
of Tata Steel and L&T Infrastructure Development Projects (L&T IDPL)
for about Rs. 5,500 cr. Dhamra Port was commissioned in May 2011 with an 18 km
approach channel and a dedicated 62.7 km rail link to Bhadrak. The DPCL as operator
had been awarded a concession by the Odisha government to build & operate
the port on Dhamra River in Bhadrak district for 34 years including 4 years of
construction. This concession period may be extended by two additional terms of
10 years each. The first phase of construction was started in March 2007 with
an investment of Rs. 3,500 Cr and following the acquisition the second phase of
development will be initiated with 90 days and completion targeted in 30
months. This Port has two fully mechanized berths capable of handling coking
coal, steam and thermal coal, limestone and iron ore. In FY14, Dhamra handled a
total cargo of 14.3 million tonne. It also has 63 kilometers of private rail
connectivity. Dhamra being a port outside federal government, DPCL is free to
set its own rates. In comparison, rates at the Union Government controlled
ports are set by the Tariff Authority for Major Ports (TAMP). Importantly, it
is capable of allowing super cape size vessels, the biggest of the dry bulk
ships with a capacity to load as much as 1,80,000 tonnes of cargo to dock.
Dhamra after completion will be biggest success so far on the eastern sea
board. This expansion will allow Dhamra Port to exceed 100 million tonnes of
cargo capacity by the year 2020 and therefore allow Adani Ports to fulfil its
stated vision of becoming a 200 million tonne Port business well before 2020. ADANI PORT is
among the largest beneficiaries of an increasing demand-supply mismatch in
India’s port capacity. APSEZ’s competitive advantages and attractive location
plus connectivity provides a strong visibility of traffic for APSEZ. It should
be noted that 90 % of APSEZ’s estimated traffic comprises of coal, crude oil,
and container. Of this, coal and crude oil are not likely to see any impact
from global macro concerns, while container traffic should continue to benefit
from the shortage of capacity on India’s west coast. Amongst its other projects, the company
sold its 100 % in the Abbot Point Coal Terminal (Australia) to its promoter
group, Adani family. The equity portion in Abbot Point acquisition was around
$235 million and rest was in debt, the entire equity and debt portion is
transferred to the Adani family. The decision to sell off Abbot was to focus on
the high growth Indian Port and logistics sector and to maintain its leadership
position in India. Despite been in a capital intensive business, the debt situation for APSEZ
is at very comfortable level at 0.89. Since inception, Mundra Port & SEZ (MPSEZ) has posted 35 % CAGR in
revenue and with the stable cash flows from assured cargo and minimum working
capital investment, it would be very important for the APSEZ to make more sensible
capex in the future for growth. Based
on the SOTP valuation method the value APSEZ comes at Rs. 285 per share,
implying an upside of 10 % from current levels. The value of Mundra Port (core
operating asset of APSEZ) alone comes at Rs. 147 per share, constituting 51.57 % of
total value of APSEZ. Mundra Port, given its strategic positioning &
diversified mix of cargo, enjoys competitive advantage and has a deeper economic moat & is expected to deliver strong volume growth. The
company having delivered a strong track record of maintaining superior
realization & margin in past and is expected to perform on track and the company has emerged as the preferred port due to superior
infrastructure and technology, which facilitates faster transit of cargo,
thereby reducing the overall cost of handling for logistic companies and end
users. At the current market price of Rs. 259.25, the stock is
trading at a PE of 25.41 x FY15E and 17.51 x FY16E respectively. The company
can post Earnings per share (EPS) of Rs. 10.20 in FY15E and Rs. 14.80 in FY16E.
The SOTP
(sum‐of‐the‐parts) valuation of Adani Port & Sez comes at Rs. 285.
One can buy APSEZ with a target price of Rs. 285.00 for Medium to Long term
investment.
SOTP Valuation :-
Business Subsidiary
|
Value Per Share (in ₹ Rs.)
|
Mundra Port
|
147.00
|
CT3/4/5
|
21.00
|
SEZ
|
37.00
|
Adani Petronet (Dahej) Port
|
11.00
|
Adani Mormugao Port
|
3.00
|
Adani Hazira Port
|
19.00
|
Adani Vizag Coal Terminal
|
1.00
|
Ennore Container Terminal
|
1.00
|
Adani Kandla Bulk Terminal
|
3.00
|
Dhamra Port
|
23.00
|
Adani logistics
|
5.00
|
Cash & cash equivalents
| 14.00 |
TOTAL
|
285.00
|
| KEY FINANCIALS | FY13 | FY14 | FY15E | FY16E |
|---|
| SALES (₹ Crs) | 3,576.60 | 4,824.00 | 6,509.10 | 7,867.30 |
| NET PROFIT (₹ Cr) | 1,623.20 | 1,739.60 | 2,102.00 | 3,062.20 |
| EPS (₹) | 8.10 | 8.40 | 10.20 | 14.80 |
| PE (x) | 31.90 | 30.80 | 25.50 | 17.50 |
| P/BV (x) | 7.80 | 6.10 | 5.00 | 4.00 |
| EV/EBITDA (x) | 25.90 | 21.80 | 16.40 | 13.10 |
| ROE (%) | 29.40 | 26.10 | 21.70 | 25.40 |
| ROCE (%) | 9.40 | 12.00 | 13.80 | 15.00 |
I would buy ADANI PORTS & SEZ LTD for Medium to Long term for target of Rs. 285.00. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of ₹ 238.50 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here
*As the author of this blog I disclose that I do hold ADANI PORT AND SEZ LTD in my investment portfolio.
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