Adani Ports and Special Economic Zone (APSEZ) share price fell 1 percent in early trade on January 6 after the company said it is going to buy controlling stake in the Krishnapatnam Port Co.
The company intends to acquire 75 percent stake of Krishnapatnam Port Company Limited (KPCL) from the existing shareholders of KPCL, company said in its press release dated January 3.
The acquisition is subject to approvals under applicable laws, including approval of the Competition Commission of India.
The Investment is in line with the company's strategy to increase its footprint in Andhra Pradesh, company said.
The estimated enterprise value for the proposed acquisition is Rs 13,572 crore and the transaction is expected to be completed within 120 days.
KPCL is located in the southern part of Andhra Pradesh, the state with the second largest coastline of in India, and is a multi-cargo facility which handled 54 MMT in FY19.
"Given the best-in-class infrastructure and the distinct hinterland catered by KPCL, this acquisition will not just increase our market share to 27% but also add remarkable value to our pan-India footprint," said Karan Adani, Chief Executive Officer and Whole Time Director of APSEZ.
CLSA | Rating: Buy | Target: Rs 485 per share
According to CLSA, the value-accretive M&A of Krishnapatnam Port is likely to drive scale. The said acquisition at attractive valuation is going to solidify its hold over eastern India coast and is likely to improve its earnings quality.
The yield on this acquisition is likely to be 11.4 percent in FY21. The strategic asset to deliver 14 percent growth in port EBITDA over FY19-21, while Krishnapatnam port adds 14 percent to revenue and 14 percent to FY21 EBITDA, it added.
JPMorgan | Rating: Overweight | Target: Rs 475 per share
The research house sees room to scale up margins with company’s operating efficiency.
It believes that the cash resources are sufficient to fund the deal equity, while the deal is EPS and RoE accretive.
It implying return of 11 percent on equity in year 1 of the acquisition, however the deal will temporarily lift net debt-to-equity ratio to 4x, it said.
Credit Suisse | Rating: Outperform
The company has good track record of scaling up acquisitions and see capacity scale-up opportunity with marginal capex, said Credit Suisse.
The dependence on coal is the key underlying risk, it added.
Axis Capital | Rating: Buy | Target: Rs 490 per share
Krishnapatnam Port acquisition is likely to drive synergy benefits and expect company to grow ahead of the industry given its network benefits.
Management expects overall volumes to grow at 15 percent CAGR over FY20-25, Axis Capital said.
Morgan Stanley | Rating: Overweight | Target: Rs 433 per share
Research house feels that the company's market share would improve from to 27 percent from 22 percent. The management targets volume CAGR of 7.5 percent over FY19-25.At 09:24 hrs Adani Ports and Special Economic Zone was quoting at Rs 378.20, down Rs 4.50, or 1.18 percen on the BSE.
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