Buy Adani Ports; target of Rs 174: KRChoksey

KRChoksey`s research report on Adani Ports

“Adani Ports, APSEZ has fully divested stake in Abbott Point while keeping the care of minority shareholders, the promoters bought it at AUD 235.7 mn that led to gain of Rs 70 crore to APSEZ in a transaction. After the knock out of Abbott Point from consolidation, there is reverse of Rs 361 crore cash at PAT level. As per management, APSEZ already has received AUD 25 mn and rest will be received in next 3-4 months. Post deal, the consolidated D/E will be 1.4x & 1.1x and RoCE will be 14.6 percent & 19.4 percent for FY14E & FY15E respectively.”

“Standalone Adj PAT Rs 426 crore (vs est Rs 440 crore) is in line primarily led by handling of cargo 22.89 MT (+47.4 percent, YoY). In FY13, cargo handled 82.19 MT (+28 percent, YoY) with 1.7 Mn TEUs (+14 percent, YoY), a strong performance as compare to negative performance shown by major ports. Other operating income contains Rs 95 crore for port service from Tata Mundra UMPP. In adjustment of SEZ income Rs 49.73 crore, the realizations are Rs 315 as compare to Rs 350 due to change in cargo mix. However margins fell by 135 bps (YoY) due to increase in operating expenses Rs 204 crore. Management expected to handle 100+ MT cargo at Mundra, 13-14 MT at Dahej and 5-10 MT at Hazira, an overall 33 percent growth for FY14E. Mormugao Port will commence operations in Dec-14E. This volume is enough to generate annual ~Rs 20 bn operating cash flow for FY14E. However, capex Rs 10 bn is at higher side includes verticals like dredging, mechanization, O&M, equipment procurements etc.”

“Abbott Point is knocked out in consolidated financials for FY14E & FY15E. We revise our estimates to Rs 9.2 and Rs 12.3 (excl. Abbot) for FY14E and FY15E due to increase cargo volume at Mundra, Dahej & Hazira. We recommend “BUY” on APSEZ with TP of Rs 174 (from Rs 171) based on 1.) strong operating cashflow of ~Rs 2500 crore supported by 60 percent 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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