Adani Ports and SEZ stands out in the transportation space with business leverage from major ports, pricing power and cost elements in one’s control.
Chirag Batavia • 17 August 2020
Adani Ports and SEZ (ADSEZ)
Improved cargo mix restricted YoY decline in revenues to 18% despite sharp fall of 27% in volumes. In 1QFY21, ADSEZ was able to take its usual price increase in key cargo classes and meaningfully alter cost structure to maintain port margins despite volume decline.
The share of long-term cargo in volume mix is significant at ~60%, helping realisation. We expect a decline in coal/bulk volumes of 20% in FY2021 and 10% yoy volumes for non-bulk classes in FY21.
We take comfort in ADSEZ acquiring Krishnapatnam port asset (to be closed in 2QFY21) and Dighi Port asset (to be closed in 3QFY21). These two will open up the ~25% of market for port volumes in Andhra Pradesh and Maharashtra where ADSEZ currently lacks presence.
ADSEZ has an unutilized land bank at Mundra, Dhamra and Kattupalli and it expects to capitalize on the upcoming opportunities related to shift of trade from China to India.
ADSEZ stands out in the transportation space with business leverage from major ports, pricing power and cost elements in one’s control. We arrive at an Sum-of-The-Parts (SoTP) based Fair Value of Rs400/share for ADSEZ.
Adani Ports and SEZ (ADSEZ): BUY
Dated: 17th August 2020
CMP: Rs.349
Fair Value: Rs.400
Potential Upside: 14.6%
Market Cap: Rs.70,868 Cr
Time Frame: 12 months
Note: The above is a brief note on the company, based on the inputs of KIE research report dated 11th August, 2020, which is available on their website at: https://www.kotaksecurities.com/ksweb/ResearchCall/Fundamental.
Disclaimer: http://bit.ly/2n5AxIE
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