Analysts Corner: Hold ‘buy’ on APSEZ, company reports 11% volume growth

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In our opinion, this is a strong manifestation of internal factors such as market share gains (500 basis points in FY21 in containers), new shipping lines, diversification of cargoes, improvement hinterland and cargo rigidity, among others; & external factors such as increased trade.

By Edelweiss Securities

Despite the pandemic which wreaked havoc in FY21, Adani Ports & SEZ (APSEZ) managed to record volume growth of 11% (2% organic growth). In our opinion, this is a strong manifestation of internal factors such as market share gains (500 basis points in FY21 in containers), new shipping lines, diversification of cargoes, improvement hinterland and cargo rigidity, among others; & external factors such as increased trade.

The company acquired a 25% stake in the Port of Krishnapatnam (KPTL) for a value of INR 28 billion (20% more than the original transaction) in FY 21. This will likely add ~ INR18 / share to SoTP. We expect APSEZ’s FY22 volumes to remain robust thanks to the acquisition and strong sales momentum. Hold “BUY”.

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The fourth quarter marks one of the best quarters; container volume peaks. APSEZ reported volumes of 26MT (up 40% year-on-year) in March 21. Including KPTL, volume growth is 18-19%, albeit on a favorable basis. Nonetheless, a strong sequential recovery is encouraging. For T4FY21, volumes stood at 73MT, up 27% year-on-year (organic growth of ~ 10%). APSEZ recorded a cargo of 247 MT (up 11% year-on-year) for FY21. This follows a 27% year-over-year decline in volume in the first quarter, implying a strong volume recovery of around 25% over nine months. We estimate that KPTL recorded ~ 20MT of freight in H2FY21, which implies that APSEZ recorded organic growth of 2-3% in volume. Although the volume mix is ​​not available, container volumes (7.2 million TEU) saw strong year-on-year growth of 16%, led by Mundra volumes (5.65 million TEUs) , up 18% over one year).

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Acquisition of 25% of the capital with a slight premium, but generating value. APSEZ acquired the remaining 25% stake in KPTL; he now owns 100%. The acquisition value is 28 billion rupees, which puts the equity value of KPTL at 110 billion rupees against ~ 80 billion rupees earlier. Nonetheless, it adds Rs 18 per share to our SoTP. APSEZ turned around KPTL in less than 12 months with a strong improvement in the EBITDA margin of 1,500 bps and a reduction in the cost of debt.

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Recently, KPTL received CRZ authorization for the third phase of expansion with an investment of INR 120 billion over the next few years. This could increase KPTL’s overall capacity by around 300 tonnes of freight.

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