Adani Ports and SEZ - Delivering on promises - Edelweiss

Adani Ports & SEZ's (APSEZ) standalone Q4FY13 adjusted PAT (one-off income and non-cash forex/derivative gain) of INR3.8bn was ahead of our ~INR3.6bn estimate due to 100bps higher EBITDA margin (~70%) amidst in-line ~23MT volumes. The Abbot Point asset sale was concluded (cashflow expected in Q1FY14) at par. The management is hoping to surpass 100MT cargo at Mundra in FY14. With almost all ports' capex behind us and reduction in Abbot debt, APSEZ is gearing for next phase of expansion through inorganic growth. Maintain 'BUY' with TP of INR169.

Jump in cargo volumes boosts profit

APSEZ's Q4FY13 standalone PAT of INR4.9bn was boosted by INR700mn profit from Abbot Point sale and ~INR500mn construction contract income at SEZ resulting in adj. PAT of INR3.8bn. Cargo at the Mundra port grew a robust 38% YoY (vs. 3% de-growth registered by major ports of India) to 22.9MT driven by 13% growth in container and 58% in bulk (largely crude and coal) volumes. Dahej closed the second year of operations with a robust 7.6MT of cargo (2.1MT in FY12) and FY13 PAT of INR700mn while Hazira which recently commenced operations handled 1MT during the year.

Abbot sale brings down leverage; gearing for next phase

Sale of Abbot Point terminal at a consideration of AUD235.7mn to the Adani family, led to APSEZ booking profit of INR4.2bn (INR700mn forex gain and loss write back of INR3.34bn since the transaction was concluded on March 30th). This resulted in consolidated debt reducing by ~INR100bn, significantly reducing gearing levels (from 3.6x to 1.6x). With security clearance accorded for government port projects and limited capex requirement at the flagship port, the management is focused on investing incremental cash flows for PPP projects and inorganic growth options.

Outlook and valuations: On a strong footing; maintain 'BUY'

The stake sale of Abbot Point has deleveraged the parent balance sheet and renewed focus on Indian operations. This compounded with security clearance for PPP projects should allay investor concerns. At CMP of INR152/share, the stock is trading at consolidated FY14E and FY15E EV/EBITDA of 12.7x and 10.1x, respectively. Maintain 'BUY/SO' recommendation/rating on the stock with SOTP based TP of INR169/share.

Source : Equity Bulls

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