Q4 FY18 Result Update: Adani Port and SEZ - BUY - TP Rs.485 - Kotak

APZ reported a healthy quarter in terms of port volumes (+7% in FY18), adjusted port revenues (+32% YoY) with healthy EBIDTA margin. It also gave comfort with good free-cash flow generation of Rs 12.5 bn in FY18 and on its usage for debt repayments as well as dividend payout. Rebound in coal volumes and outperformance in both container and bulk segments should accelerate market share gains for APZ.

Key Highlights

- APZ has once again delivered volume outperformance versus major ports in both total cargo and containers. The performance has been well complemented by all the subsidiary ports including one in Australia. Strong growth was witnessed in container, coal and crude lead to 6% overall cargo growth in 3QFY18 (+7% in FY18), in line with our estimate of 7%.

- A combination of volume outperformance, higher-than-expected port-development income and contribution from Australian operations led to strong revenue of Rs 31.83 bn (+42.6% YoY and 18.4% QoQ), EBIDTA margin of 60.7% and recurring PAT of Rs 12.11 bn (+26% YoY) 16% ahead of estimates.

- The management targets 1.5x accelerated total cargo growth and 2x container volume growth 2X versus major ports. In order to achieve the growth objective, the company is expanding operations at several locations. The company targets Rs 20-22 bn of capex across all its subsidiary ports and diversification across product segments.

- The company expects FCF to further improve on a conservative basis FY19 allowing proportionately higher dividend payout (company targets 15% payout).

- With deleveraging efforts, the company expects net debt/EBITDA and interest cost to reduce.

Valuation and recommendation

- We believe that the company has diversified its offering product wise and geographically, making efforts to enhance non-port revenues, making operations more integrated, taking measures to bring down cost of debt and other cost and have made related party transactions completely nil. We estimate the benefits of these efforts to have already started accruing to APZ and would continue to accrue in future as well. We estimate the consolidated entity to report volume CAGR of 11% over FY18 to FY20E with the new ports of Dhamra, Hazira, Dahej, Kattupalli and the container volume at Mundra contributing the maximum.

- Our TP is based on SOTP valuation with a weighted average cost of capital (WACC) of 12.0% and book values for other investments. Maintain BUY with an unchanged TP of Rs 485.

Shares of ADANI PORTS AND SPECIAL ECONOMIC ZONE LTD. was last trading in BSE at Rs.408.2 as compared to the previous close of Rs. 396.8. The total number of shares traded during the day was 295866 in over 3430 trades.

The stock hit an intraday high of Rs. 409.85 and intraday low of 391.9. The net turnover during the day was Rs. 119930662.

Source : Equity Bulls

Keywords