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 • Aug 17, 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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