Buy Adani Ports and SEZ; target of Rs 1410: Motilal Oswal

Motilal Oswal's research report on Adani Ports and SEZ

Strong 3QFY24 and YTD volumes provide potential upside to FY24 volume guidance: Adani Ports & SEZ (APSEZ) reported 42% YoY growth in Oct-Dec’23 volumes, taking the total 9MFY24 volumes to 311 MMT, registering a 23% YoY growth on YTD basis. With a monthly volume run-rate of ~35MMT, management has increased volume guidance to 400 MMT in FY24 from 370-390 MMT earlier. We expect volumes for FY24 to even surpass the revised volume guidance of 400 MMT. Focused on achieving cargo volume of 500 MMT by FY25: APSEZ’s management reiterated its focus to reach its FY25 port traffic target of 500MMT vs 339MMT in FY23. Management believes volume growth is unabated and it is expected to grow at 1.5x the GDP growth rate. Two of APSEZ’s ports are in India’s top 10 ports for its annual cargo volume in FY23. Transforming into an integrated logistics solutions company: Adani Logistics (ALL) has expanded its services to cover container train operations, container handling in logistic parks, and warehouses offering storage and trucking solutions. With 10 multi-modal logistics parks, 104 trains, 2.4 million sq. ft. of warehousing space, and 1.1 million metric tons of grain silos, ALL aims to establish a nationwide presence by further developing logistic parks and warehouses.

Outlook

APSEZ has a diversified cargo mix and is looking to increase cargo share of port on east coast. The operational ramp-up at the recently acquired ports is expected to drive a 14% growth in cargo volumes over FY23-26. This would drive a revenue/EBITDA/PAT CAGR of 19%/18%/17% over FY23-26. We reiterate our BUY rating with a revised TP of INR1,410 (premised on 16x FY26E EV/EBITDA).

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