Adani Ports & SEZ Limited - Valuable asset at premium location - Antique

Adani Ports and Special Economic Zone (APSEZ) has created diversified cargo portfolio with judicious mix of long-term contracts to cover fixed cost. The recent transfer of majority holding in Abbot Point would significantly reduce the leverage overhang on the company. The combined benefits of port + SEZ + logistics to become a revenue spinner for the company and recent correction in stock price offer attractive entry point. We maintain a BUY.

At a sweet spot

APSEZ is strategically located to serve the vast land locked in northern and western Indian hinterland, comprising 60% of the port cargo on west coast of India. The company benefited from early mover advantage with aggressive expansion plans to handle different cargo. It is adding port capacity at Hazira, Kandla with a pan India presence and is bidding for port opportunities outside India.

Diversified cargo mix blended with long-term commitment

Diversified cargo mix blended with long-term commitment APSEZ has a unique private port model with a diverse cargo base like bulk, liquid project cargo and container which diversify its business risk. It has entered into strategic long-term contractual arrangements in order to grow its operations and diversify its revenue by leveraging its experience and resources and SEZ at Mundra Port.

Capacity constrains at West coast

Most of the major ports are operating over or near the full capacity, resulting in high per-berthing detention and turnaround time of vessels. The capacity needs to be increased by ~240mtpa by FY15 at the major ports assuming demand growth of ~7% to bring down utilisation to standard level of ~75% for better service and operating performance presenting significant opportunity for non-major ports to increase their share of the total traffic.

Valuation

At CMP of INR155, the stock is trading at 16.8xFY14e and 12.9xFY15e earnings and P/BV of 4xFY13e. The company enjoys a unique combination of port and SEZ and operates one of the deepest draft ports in India with an advantageous location and high degree of scalability. We expect re-rating in valuation with de-leveraging of balance sheet and value company at 15xFY15e with target price of INR180.

Source : Equity Bulls

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