Buy Adani Ports and SEZ; target of Rs 1210: Motilal Oswal

Motilal Oswal's research report on Adani Ports and SEZ

APSEZ clocked a cargo value of 36MMT in Nov’23, recording 42% YoY growth, taking its YTDFY24 volume to 275MMT (up 21% YoY). Management had highlighted that the company is well on its path to achieve its FY24 volume guidance of 390 MMT, however, during Apr-Nov’23, APSEZ achieved more than 70% of the top-end of the company’s full-year guidance range of 390 MMT. During 1HFY24, APSEZ’s domestic cargo volume growth was over 2x India’s cargo volume growth rate. Eight of the company’s ports achieve recordbreaking half-yearly cargo volumes. With the current monthly volume run rate of ~35 MMT, we believe that APSEZ will effortlessly surpass its volume guidance for FY24. Additionally, in a positive development at Group level, Bloomberg reported that the US government deemed Hindenburg Research's accusations as irrelevant. This decision was made by International Development Finance Corporation (DFC) before approving $553m loan for container terminal project in Sri Lanka.

Outlook

With higher-than-expected cargo growth in the first eight months of FY24, we have increased our volume estimates by 2% to 410 MMT for FY24. We now expect APSEZ to register 16% volume growth over FY23-25 and revenue/EBITDA/PAT CAGR of 23%/21%/17% over the same period. Further, with positive development at the Group level related to the Hindenburg case, we expect re-rating in valuation multiples. We reiterate our BUY rating with a revised TP of INR1,210 based of 16x FY25E EV/EBITDA (against 15x assigned earlier).

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