Buy Adani Port and Special Economic Zone - Kotak

Volumes disappoint - operational performance continues to be strong

Q4FY12 standalone volumes for the port were up only a small 7% YoY and down 7% QoQ at 15.53 mn tonnes. This is second consecutive quarter of fall in volumes QoQ for Adani Port. Volumes were disappointing for coal which has fallen more than 20% YoY to 4.07 mn tonnes for the quarter primarily due to structural issues in the coal segment which has led to poor import of coal for power projects in and around Mundra. Infact the entire bulk volumes has reported negative growth of ~10% in the quarter. However, volumes were healthy for containers (+34% YoY) and crude (33% YoY).

As a result the company has reported a tad disappointing revenues of Rs 6.4 bn in 4QFY12, recording a strong growth of 24% YoY, but falling 7% QoQ. Disappointing volumes and flat realisation of Rs 413/ tonne (previous quarter = Rs 416 per tonne) led to the fall in revenues. EBITDA margin expanded about 50 bps QoQ (360 bps YoY) to ~71%. PAT was reported at Rs 3.39 bn in 4QFY12, up 1% YoY and 9% QoQ, ahead of our estimates of Rs 3.2 bn (consensus of Rs 3.26 bn). The stock has fallen by 7% in the last one month and 14% in the last one year on the back of negative news flow at the group level and structural issues in the coal sector.

We are now lowering the coal volumes for Adani Power and Tata Power UMPP from 22.5 mn tonnes to 15.8 mn tonnes in FY13E and from 31.5 mn tonnes in FY14E to 20.3 mn tonnes as we believe the structural problem of coal sector would continue atleast for another 2 years. Retain BUY with a reduced price target of Rs 164 (earlier Rs 166) on attractive valuations, strong asset base and healthy cash flow generation.

Source : Equity Bulls

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