Adani Ports Is One Of The Best Infra Plays: Edelweiss Research Report

Good show; a year of consolidation

Adani Ports’ (APSEZ) Q4FY21 numbers came on expected lines with INR427/tonne realisation and port margin at 69.5%. Improvement in working capital cycle and 50% jump in FCF (excluding acquisitions) were pleasant surprises on the balance sheet front.

Management’s FY22 revenue guidance of 35% growth is 4% lower than our forecast, perhaps as it factors some uncertainty due to the second covid wave.

APSEZ’s strategy to achieve East-West coast parity, diversified cargo mix and special focus on the logistics business through railways and warehouses puts it on course to achieve its FY25 volume target of 500MT. Currency risk and potential write-off of INR9.5bn on Myanmar Port are key risks. Maintain ‘BUY’ with TP of INR875.

Strong show across ports; port margin touches 70%

APSEZ’s Q4FY21 volume jumped 40% (9% on organic basis) led by 25% spurt in container volumes. All ports registered high single-digit growth, except Kattupali Port, which declined 10% (covid impact on Chennai cluster). Port margin touched 70% and there is further upside of 200bps During FY21, APSEZ added 10 new container services (11MT additional cargo), which could further increase its market share in FY22/23 from current 41%, in our view. It took regular tariff hike of 2.5% in April 2021, signifying strong control over the market. In the logistics business, it clocked 24% EBITDA margin. Going forward, APSEZ has planned to sharpen focus on the warehousing (targets 3mn sq ft space) and railways rolling stock businesses. It is targeting ALL ltd. to account for 25% of revenue mix over next five years.

Tight leash on balance sheet; geographical diversification continues
FY21 balance sheet saw good improvements: 1) 13 days reduction in debtor days and 37% dip in Adani Power’s receivables to INR3bn. 2) FCF improved to INR58bn (excluding acquisitions) primarily due to INR16bn capex decline. Management indicated that if Myanmar is classified as sanctioned under the OFAC, then it will take investment write-offs worth INR9.5bn. Diversification into Sri Lanka will enable APSEZ to have better pricing control and add new cargo services.

Outlook & valuations : One of the best infra plays; maintain ‘BUY’

APSEZ has navigated the pandemic year with strong market share gains and new acquisitions, thereby further fortifying its numero uno position in the ports space. Its aspiration to become an integrated transport and logistics utility is gathering steam with four acquisitions in FY21 worth INR250bn. We maintain ‘BUY/SO’.