Buy Adani Port & SEZ - CMP: Rs.146, TP: Rs.165 - Prabhudas Lilladher

Coal volumes to scale up: With the coal terminal operational since Q4FY11, volumes are likely to witness strong growth. Volumes at Adani Power plant and Tata UMPP are likely to scale up to a level of ~28m tonnes by FY15 from the current 8m tonnes in FY12. Overall, total port volumes are expected to more than double in the same period from FY11 levels of ~51m tones to ~100m tones in FY15 , largely led by coal, crude and container volumes.

Utilizations to improve at container terminal: The container terminals at Mundra are currently operating at 50% utilizations levels. With the strong growth in container traffic, we expect utilizations to improve. Besides, CT 3 shall also be operational soon which shall spur volumes.

Commencement of HMEL refinery to boost crude volumes: With the ~9mt HMEL refinery commencing operations in March 2012, crude volumes are likely to witness a strong pick-up. It has already contributed over 3mt in 9MFY13 and is likely to close the year at ~5mt.

Developing new port assets: Operations at Dahej have scaled up quite strongly. In 9MFY13, they stood at ~5.5mt. Hazira also commenced trial runs in Q2FY13 ahead of schedule. Besides, it is also developing a terminal at Mormugao and Vishakapatnam.

Divesting Abbot: In order to focus on growth in India and on account of investor criticism, the company is looking at divesting its stake in Abbot Point in favor of Adani's promoters. This would result in the consolidated debt declining by Rs112bn which is the debt on Abbot Point. Besides, the parent has invested US$235m as equity in the company which shall result in reduction of net debt at the standalone level based on valuations for Abbot Point.

Valuations: Our SOTP for the company stands at Rs165, We remain confident on the long-term fundamentals of the company despite the risk of volatility in the company's stock price on account of the issues surrounding the 'Adani' group.

Source : Equity Bulls

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