Adani Ports is an integrated play to transform Indian logistics sector: ICICI Direct

Integrated play to transform Indian logistics sector…

About the stock: Adani Ports and Special Economic Zone (APSEZ) is the largest commercial port operator with 25% share of India’s port cargo movement. The company has evolved from a single port dealing in a single commodity to an integrated logistics platform.

 Total ~70% of APSEZ’s revenues are contributed by its port operations, rest led by harbour (11%), logistics (7%) and other activities

 Of the total 247 MT cargo volume in FY21, container volumes were at 105 MT (43%), bulk at 110 MT (44%) and rest by liquid at 32 MT (13%)

Key triggers for future price performance:

 Acquisition of new ports such as Krishnapatnam, Gangavaram and Dighi to help APSEZ create more inroads into hinterlands

 The management expects to reach 500 MT volumes and 40% of India’s trade market share, well ahead of prescribed timeline (FY25)

 Aggressive investments into logistics space by APSEZ (to grow rakes, MMLPs, rail tracks by 3x to 200+ rakes, 15 MMLPs, 2000 km tracks by FY25, respectively, and warehousing by 75x to 30 million sq ft ), to help create integrated logistic solution for customers. It would improve the existing customer stickiness, capture higher wallet share and also enable it to acquire new customers, thereby providing impetus to overall revenues

 Continued diversification of cargo mix (higher liquid and finished good portfolio), higher share of sticky cargo (56%), parity between east and west coast (26-74%), would help APSEZ to better deal with cash flow volatility

 APSEZ’s strategy of “increasing investment in cutting edge technologies”, “partnering with large shipping lines through JVs” and “evolve and emerge as logistics partner of reference” remains key pillars, which is expected to support higher market share and strong topline and bottomline growth

 Medium to long term triggers: DFC connectivity to Mundra (expected next year) leading to greater certainty for shippers (time-tabled trains, faster cargo evacuation from ports, etc), development of eight freight terminals on the DFC route and inorganic opportunities such as acquisition of Concor (~67% market share in CTO business)

What should investors do? Resilience of APSEZ model was more prominent during the volatile period, where the company accelerated its rate of expansion and gained market share, while others took a cautious stance

 With its several cash generating assets, diversified cargo mix and overall leadership in Indian ports, we initiate coverage under Stock Tales format with a BUY recommendation

Target Price and Valuation: On a SOTP basis, we value the stock at Rs 900 per share