KRChoksey is bullish on Adani Ports and has recommended buy rating on the stock with a target of Rs 171 in its January 29, 2013 research report.
“Adani Ports, strong volume (+21.38 MT, 29% YoY) and sustainability of supreme margins (~75%) at standalone level by APSEZ displays profitability in the business. While we believe the superior asset Mundra Port with unique capabilities to handle 14,000 TEUs lines will drive volume growth in future. Further, the management has announced the significance divestment in the stake of Abbott Port and acquisition of Dhamara Port at the east coast of India, a strategic move to deleverage the balance sheet and improvement in RoCEs. Management is in line to achieve the yearly guidance of 80 MMT for Mundra Port.
Average realization grows by 4.5% to Rs 349.5.5/ ton (excl. SEZ Income). EBITDA grew to Rs 665.5 crore (+38.2%, YoY) and margins improved by 314 bps on YOY (excluding forex gain of Rs 13.5 crore) due to high efficiency in operations. However, management has indicated the sustainability of margins ~75% in future also due to mechanization of western port.”
“Management announced that a full divestment in Abott Point (except $1000) to family of Adani Group, a significant move to deleverage the balance sheet of APSEZ. At current, the consol debt of Rs 185 bn including Rs 110 debt for Abbott Point acquisition will be knock out after the divestment. Acquisition of Dhamra Port is also in pipeline, more details yet to be revealed. We believe the strategy to have focus on domestic market rather than overseas market is in favor of SEZ. APSEZ handles 21.38 MT cargo (29%, YoY) based on its unique capability to handle shipping lines like 16,000 TEUs, which we believe will drive volume growth in future. The mechanization of western port has improved and displays the sustainability in the margins up to ~75%. We revise our estimates to Rs 6.5 and Rs 9.0 from Rs 6.1 & Rs 8.3 for FY13E and FY14E due to increase in earning at standalone by 5%-10%. We recommend “BUY” on APSEZ with TP of Rs 171 (from Rs 156) based on 1.) strong operating cashflow of ~Rs 2500 crore supported by 60% fixed revenue contracts and fixed pay & take contract 2.) ramp up of new capacities on Dahej, Hazira & Mormugao 3.) better EBITDA margins in the industry," says KRChoksey research report.
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