Buy Adani Ports; target of Rs 385: Emkay

Emkay's research report on Adani Ports and Special Economic Zone

"We have valued APSEZ based on DCFs for individual projects, arriving at an SOTP valuation of Rs385 per share. We have valued Mundra Port (core operating asset) at Rs236 per share, constituting around 61% of the total value. Currently, we assume that Mundra Port's concession will be extended for a period of another 20 years post its expiry, and expect long-term cargo contracts too to get renewed as such provisions exist in most agreements. In case the agreement is not extended or early termination sought, all assets shall be transferred to GMB, and APSEZ shall receive compensation based on independent valuation of the assets. We have valued Hazira Port at Rs36.4/share on increasing visibility in volumes in container as well as liquid cargo segements and higher realizations."

"The container volumes at Mundra has grown significantly reported 31% CAGR from 11MT (0.76mteu) in FY10 to 25.4 mt (1.74 mteu) driven from market share gain, capacity constraints at JNPT and better port infrastructure. We believe that the volume growth at CT-1 &CT II (both having capacity of 2.5mteu reached at 70% utilisation) will now increase steadily (limited) and volume ramp up at CT-IV would be the next driver of volume growth. We expect the stock to give stable long-term returns, given the company’s attempts to reduce concerns over leverage by divestment of Abbot Point, the trending down of the peak intensity, and strong earnings growth (to be driven by container terminal III) , which would ultimately generate free cash flow. We retain our Buy rating on the stock with a revised target price of Rs 385", says Emkay Global Financial Services research report.

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