Buy Adani Ports & SEZ; target of Rs 321: Edelweiss

Edelweiss's research report on Adani Ports & SEZ

Adani Ports and SEZ’s (APSEZ) stock was up 9% post the Q2FY17 result due to: a) healthy volume spurt of 17% (container growth of 30%), in a weak trade environment, riding market share gains; b) robust 66% EBITDA margin driven by better cargo mix and operating leverage benefits; and c) reduction in net debt (by INR13bn) on trimming exposure to related parties. Despite the recent stock outperformance we believe APSEZ is structurally well positioned to capitalise on revival in trade even as concerns on related-parties exposure ebb as Adani Power moves closer to resolution of compensatory tariff. We revise up our FY17/18E EPS 14% each and maintain ‘BUY’ with revised TP of INR 321.

Q2FY17 performance underscores the fact that APSEZ’s portfolio of port assets continues to outperform industry. Despite the strong outperformance of the stock, we believe, the company is structurally well positioned to capitalise on revival in trade (peak capex behind us with current utilisation level of 50-55%). Factoring in better margins/volumes we have revised up our FY17/FY18E EPS 14% each and SoTP-based TP to INR 321/share (INR269 earlier). At CMP, the stock trades at 16.8x FY17E and 14.7x FY18E EV/EBITDA. We maintain ‘BUY/SO’.