Volume No. 1 Issue No. 1 Adani Ports & Special Economic ... · Adani Ports and Special Economic Zone Ltd (APSEZ), established in 1998, is the largest port developer in India. Previously

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Adani Ports and Special Economic Zone Ltd (APSEZ), established in 1998, is the largest port developer in India. Previously known as Mundra Port & Special Economic Zone Ltd, the company changed its name on January 6, 2012. The company is engaged in the business of developing, operating and maintaining the Mundra Port and Port based related infrastructure facilities, including Multi product Special Economic Zone. The group owns and operates six ports & terminals – Mundra, Dahej and Hazira in Gujarat, Dhamra in Orissa, Murmugao in Goa and Visakhapatnam in Andhra Pradesh, India. APSEZ is the country’s first multi-product port-based special economic zone.

Investment Rationale

Robust performance in Q3FY15: Driven by strong growth in cargo

volumes, APSEZ has reported a robust performance in Q3FY15, with the

consolidated total income increased by 38% to `17.01 bn as compared to `12.36

bn in the corresponding quarter last year. The consolidated net profit during the

quarter grew by 14% to `5.12 bn as compared to `4.51 bn in the corresponding

quarter last year. The growth in the net profit during the quarter was restricted

by higher interest costs and depreciation expenses on account of the

commissioning of assets like Dahej and Hazira.

We remain positive on the future growth prospects of the company given the

improvement in the macroeconomic scenario of the country. With the expected

revival in the economy, import and export activity is likely to pick up in the

coming quarters and hence will increase the cargo volume. APSEZ, being the

largest port player (in terms of cargo handling capacity of 112.8 MMT in 2014)

will benefit the most with this revival.

Mulling on expansion to augur well for APSEZ: Post the acquisition of

100% stake in Dhamra Port, the company is looking to ramp up the capacity of

the port by four fold to 100 MMT, which is expected to be completed in the next

30 months. Apart from expanding the cargo handling capacity, the expansion

will also include increasing berth strength to 13 from two at present at the

Dhamra port. The expansion will allow APSEZ to fulfill its stated vision of

becoming a 200 MMT ports business well before the year 2020.

Strong project pipeline, expansion on track: The recent commissioning

of a bulk terminal at Tuna Tekra, Kandla Port with an annual handling capacity of

over 20 MMT will help the company to further fortify its position in the port

business and cargo handling. The commissioning of the terminal will act as a

game-changer for Export Import trade of the Northwest hinterland of India.

Further, the company is looking big at the ports business and is planning to

invest `200 bn towards expanding the capacity of its Gujarat ports to 100 MMT

by 2020.

Rating BUY

CMP (`) 336.6

Target (`) 396

Potential Upside ~18%

Duration Long Term

Face Value (`) 2.0

52 week H/L (`) 358/167.4

Adj. all time High (`) 358

Decline from 52WH (%) 6.0

Rise from 52WL (%) 101.1

Beta 1.1

Mkt. Cap (`bn) 696.8

Enterprise Value (`bn) 810.0

Promoters 75.0 75.0 -

FII 18.5 17.9 0.6

DII 2.6 2.9 (0.3)

Others 3.9 4.2 (0.3)

Shareholding Pattern

Dec’14 Sep’14 Diff.

Market Data

Y/E FY13A FY14A FY15E FY16E

Revenue (`bn) 35.8 48.2 62.6 79.6

EBITDA (`bn) 23.8 29.2 38.7 49.8

Net Profit (`bn) 16.2 17.4 21.4 27.5

EPS (`) 8.0 8.3 10.3 13.2

P/E (x) 41.8 40.3 32.7 25.5

P/BV (x) 10.6 8.0 6.6 5.3

EV/EBITDA (x) 33.5 27.7 20.9 16.1

ROCE (%) 12.3 13.4 14.4 16.3

ROE (%) 25.4 19.8 20.1 20.9

Fiscal Year Ended

March 4, 2015

BSE Code: 532921 NSE Code: ADANIPORTS Reuters Code: APSE.NS Bloomberg Code: ADSEZ:IN CRG:IN

Volume No. 1 Issue No. 1 Adani Ports & Special Economic Zone Ltd

APSEZ - India’s largest multi-port operator

APSEZ is the only private sector port operator with presence across six ports in India. Mundra

port is the largest port in India and it has crossed the 100 MMT mark of cargo handling in FY14.

APSEZ’s aim is to increase annual cargo handling capacity from 112.8 MMT (million metric tons)

in 2014 to 200 MMT by 2020. Mundra SEZ is one of the largest operating port-based multi-

product special economic zones in India. Overall the company has developed and operates 10

terminals having 28 berths to handle bulk and container cargo; and 2 single point mooring

facilities at the ports of Mundra, Dahej and Hazira. The company’s Mundra port has 4 bulk

terminals having 15 berths to handle dry as well as liquid bulk cargo, 3 container terminals

having 6 berths and 2 offshore single point mooring facilities for handling crude cargo. At the

port of Dahej, the company has developed and operates a dry bulk cargo terminal having 2

berths. The company has also developed and operates 1 bulk terminal having 3 berths to handle

dry as well as liquid bulk cargo and 1 container terminal having 2 berths to handle container

cargo at the port of Hazira.

Mundra port is the largest

port in India and it has

crossed the 100 MMT mark of

cargo handling in FY14.

Indian ports & Terminals

Addition of Dhamra port – a strategic fit for the company

APSEZ in the recent past has completed the acquisition of 100% stake in the Dhamra Port

Company Limited (DPCL). With the acquisition of Dhamra Port, the company further enhanced

its portfolio and has now forayed into the Eastern Coast of India. The Dhamra port has a

capacity to handle 25 MMT (Phase-1) of cargo and it handled 14.3 MMT of cargo in FY14. After

completing the acquisition of the Dhamra Port, the company is looking to ramp up the capacity

of the port by four fold to 100 MMT, which is expected to be completed in the next 30 months.

Apart from expanding the cargo handling capacity, the expansion will also include increasing

berth strength to 13 from two at present at the Dhamra port. The expansion will bode well for

the company.

The company is looking to

ramp up the capacity of the

Dhamra port by four fold to

to 100 MMT, which is

expected to be completed in

the next 30 months.

Healthy numbers in Q3FY15

Strong topline growth on improvement in volumes: APSEZ has reported a robust performance

in Q3FY15, with the consolidated total income increased by 38% to `17.01 bn as compared to

`12.36 bn in the corresponding quarter last year driven by significant growth in cargo. The total

cargo handled by the company on a consolidated basis stood at 39 MMT in Q3FY15, an

increase of 33%, over the corresponding quarter last year. Out of which, the Mundra port

alone has handled 29 MMT cargo in Q3FY15 there by continuing its leadership as the single

largest commercial port in India. In line with strong revenue growth, the EBITDA also remain

buyout with the consolidated EBITDA surged by 34% to `10.9 bn as compared to `8.12 bn in

the corresponding quarter last year.

Higher interest and depreciation costs slowed the growth in net profit: Tracking better

performance on the revenue and EBITDA front, the consolidated net profit during the quarter

grew by 14% to `5.12 bn as compared to `4.51 bn in the corresponding quarter last year. The

growth in the net profit during the quarter was restricted by higher interest costs and

depreciation expenses on account of the commissioning of assets like Dahej and Hazira.

Q3FY15 performance stays

robust with the consolidated

total income increased by 38%

YoY to `17.01 bn.

According to the company’s management, the company has delivered another record quarter

and nine months performance on all fronts of cargo, revenue and EBIDTA growth and it

remains committed towards maintaining its growth momentum in the future by further

enhancing its focus on sales & operational excellence.

Nine monthly performance also stays robust

APSEZ has reported 19% growth in its consolidated total income to `49.97 bn in 9MFY15 as

compared to `42.07 bn in the corresponding period last year on the back of sturdy growth in

volumes. The consolidated cargo handled by the company during 9MFY15 increased by 29%

YoY to 108 MMT. The EBITDA performance also stays robust with the consolidated EBITDA

surged by 21% to `33.41 bn as compared to `27.68 bn in the corresponding period last year.

Sturdy growth in volumes

triggered 19% YoY growth in

consolidated total income in

9MFY15.

12.4 12.9 14.3

18.7

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Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15

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Total Income Net Profit

Performance trend

For private circulation only

In line with strong revenue and EBITDA performance, the consolidated net profit during the

period witnessed a significant growth of 37% to `16.54 bn as compared to `12.1 bn in the

corresponding quarter last year.

Robust volume growth across ports in Q3FY15

APSEZ has handled a record volume during Q3FY15, with the performance across all the ports

continues to be robust. The total cargo handled by the company during the quarter under

consideration on a consolidated basis stood at 39 MT, an increase of 33%, over the

corresponding quarter last year. Adani ports at Mundra handled 29 MMT cargo in Q3FY15

thereby further strengthening its dominant position as the single largest commercial port in

India. Further, the cargo handling at Hazira, Dahej and Dhamra ports improved to 1.6 MMT,

3.47 MMT and 4.4 MMT respectively in Q3FY15, according to reports. With an improving

macro-economic environment coupled with signs of improvement in cargo handling across rest

all ports should trigger volume growth ahead and would aid to the revenue growth.

Mundra port continues to witness strong volume growth

Mundra port alone has achieved a milestone in cargo handling that has crossed 100 MMT mark

by handling 101.1 MMT of cargo in FY14. The trend continues in FY15 also with the company at

Mundra handled 84 MMT cargo in 9MFY15, thereby continuing its leadership as the largest

commercial port business in India. The cargo handled by the company at the Mundra port

registered a 13% growth in 9MFY15 compared to 5% aggregate cargo growth at all major ports.

Also, in case of containers, the Mundra port handled 2.02 Million TEUs in 9MFY15 as against

1.68 Million TEU’s in corresponding to the same period last year. The containers handled at the

Mudra port witnessed a 20% growth as compared to growth of 8% aggregate growth in

container volumes at all the major ports.

Besides, in the recent past APSEZ has signed an agreement (50:50 JV) with France’s CMA CGM

Group (the world’s third largest container shipping company) to develop the fourth container

terminal at Mundra, in Gujarat, with a capacity to handle 1.3 mn TEUs (20-ft equivalent units)

annually. It will allow Adani Ports to fulfill its stated vision of handling 200 MMT of cargo well

before the year 2020. This project is expected to be completed in the next 24 months and take

Mundra’s total container handling capacity to 5.5 mn TEUs.

39.7

52.3

77.5

90.7

112.8 108.0

0.0

20.0

40.0

60.0

80.0

100.0

120.0

2010 2011 2012 2013 2014 9MFY15

APSEZ has handled a record

volume during Q3FY15 and we

expect the company continue to

see improvement in cargo

handling on the back of

improving macro-economic

environment that may boost

import-export activity.

Mundra port, the largest port in

India has handled 84 MMT cargo

in 9MFY15, thereby continuing

its leadership as the largest

commercial port business in

India.

Consolidated cargo volumes trend (MMT)

Eyeing big in the container business

The company is on an expansion spree and in order to further consolidate its leadership

position in the port infrastructure sector in India. APSEZ, India's largest port developer and

part of Adani Group, has recently commissioned a bulk terminal at Tuna Tekra, Kandla Port,

further fortify its position in the port business and cargo handling. The bulk terminal at Tuna

Tekra will have handling capacity of over 20 MMT of cargo annually, with 4 berths and a

draft of 16.5 meter, which will enable larger vessels calling the port. The commissioning of

the terminal will act as a game-changer for Export Import trade of the Northwest hinterland

of India. The company said it has commissioned Tuna Tekra bulk terminal in a record time of

24 months. Apart from this, the company is also developing a Container Handing Terminal

at Ennore Port, Tamil Nadu and remains confident to complete the container terminal

project in a record time frame. APSEZ now operates in four locations in Gujarat and

operates seven port facilities across India.

Container cargo to grow at a faster pace

The container cargo growth continues to remain robust over the years for the company that

has grown at a CAGR of 24.9% during FY11-14 and the company is confident of the growth

trend to continue in the coming years. Container cargo traffic, largely dependent on

economic activity and has increased significantly in India over the past couple of years. In

order to further fortify its presence in the port industry and to make Mundra the largest

container port in the country, APSEZ recently has entered into a 50:50 Joint Venture (JV)

agreement with France’s CMA CGM Group (the world’s third largest container shipping

company) to develop a new “common user” Container Terminal, which will have an annual

capacity of handling 1.3 million TEUs. The terminal will be set up at an estimated cost of

`21,000 mn at Mundra port in Gujarat and will be the fourth container terminal at Mundra

that will add 30% to the port’s capacity. The new terminal is expected to be completed in

the next 24 months, which will take Mundra’s total container handling capacity to 5.5 mn

TEUs and will make Mundra become India’s largest container port.

Key Risks

Any unexpected decline in traffic at ports: Since cargo at ports is contingent on

international trade (Imports & Exports), any slowdown in it could affect Mundra

Port as well.

Lower cargo volume growth: Slower-than-expected volume growth or any

slowdown in container cargo growth due to a decline in the economic activity could

have a negative impact on sales and profitability.

Regulatory risk regarding SEZs: The existing SEZ policies and benefits outlined by

the government that aims to promote exports are being continually reviewed. Any

changes in the form of reversal of current tax benefits to units under the SEZ

territory will significantly undermine the incentives for industries to set up units in

the SEZ.

The bulk terminal at Tuna Tekra

will have handling capacity of

over 20 MMT of cargo annually.

In order to further fortify its

presence in the port industry and

to make Mundra the largest

container port in the country,

APSEZ recently has entered into

a 50:50 Joint Venture (JV)

agreement with France’s CMA

CGM Group.

Profit & Loss Account (Consolidated)

Y/E (`mn) FY13A FY14A FY15E FY16E

Share Capital 4,035 4,168 4,168 4,168

Reserve and surplus

59,928 83,513 102,530 127,602

Minority Interest 1,423 1,437 1,465 1,495

Loans 106,622 116,940 130,142 134,132

Other long term liabilities

5,939 7,336 8,069 8,876

Deferred tax Liability

5,530 6,745 6,745 6,745

Provisions 4,043 6,943 8,501 9,991

Current Liabilities 23,077 19,690 22,776 26,352

Capital Employed 210,596 246,771 284,397 319,360

Fixed assets 142,933 151,475 160,563 170,197

Goodwill on consolidation

404 404 404 404

Long term loans & advances

11,511 30,928 32,165 34,095

Non-current Investments

771 575 575 575

Deferred tax Assets

244 - - -

Current Assets 50,235 54,440 80,087 102,113

Other non-current assets

4,499 8,950 10,604 11,977

Capital Deployed 210,596 246,771 284,397 319,360

Y/E (`mn) FY13A FY14A FY15E FY16E

Total Income 35,766 48,240 62,619 79,652

Operating Expenses

12,007 19,036 23,921 29,869

EBITDA 23,760 29,204 38,699 49,782

Other Income 2,644 6,836 5,736 5,966

Depreciation 4,220 6,495 7,794 9,353

EBIT 22,185 29,545 36,641 46,396

Interest 5,418 9,768 11,721 14,065

PBT 16,766 19,777 24,920 32,330

Tax 1,231 2,367 3,468 4,821

Loss/gain on account of discontinued operations

853 - - -

PAT 16,388 17,410 21,453 27,509

Minority Interest

156 14 14 15

Net Profit 16,232 17,396 21,439 27,494

Y/E FY13A FY14A FY15E FY16E

EBITDA Margin (%) 66.4 60.5 61.8 62.5

EBIT Margin (%) 62.0 61.2 58.5 58.2

NPM (%) 45.4 36.1 34.2 34.5

ROCE (%) 12.3 13.4 14.4 16.3

ROE (%) 25.4 19.8 20.1 20.9

EPS (`) 8.0 8.3 10.3 13.2

P/E (x) 41.8 40.3 32.7 25.5

BVPS(`) 31.7 42.1 51.2 63.2

P/BVPS (x) 10.6 8.0 6.6 5.3

EV/Operating Income (x) 22.3 16.8 12.9 10.1

EV/EBITDA (x) 33.5 27.7 20.9 16.1

Key Ratios (Consolidated)

Balance Sheet (Consolidated)

Valuation and view

We believe APSEZ will sustain its growth momentum on the

back of its strong fundamentals, unique asset profile, robust

cargo volume growth, strategic customer relations and

increasing traction in the domestic market. The contribution

from the Dhamra port and the pick-up of volume from Dahej

and Hazira ports will further boost its market share (in terms of

cargo handled). The revival in the domestic economy would

provide further fillip to the import and export activity in the

coming quarters that would result in an increase in the cargo

volume. With APSEZ, being the largest port player (with cargo

handling capacity of 112.8 MMT in FY14), we expect the

company to benefit the most with this revival. Further, the

capacity expansion at both – Mundra and Dhamra is likely to

aid volume and profitability going ahead.

At a CMP of `336.6, APSEZ is currently trading at EV/EBITDA of

20.9x FY15E and 16.1x FY16E. Considering the company’s

strong fundamentals, we recommend ‘BUY’ with a target price

of `396, which implies potential upside of ~18% to the CMP

from 1 year perspective.

For private circulation only

Disclaimer : This document has been prepared by Funds India Ltd and Dion Global Solution Ltd. (the company) and is being distributed

in India by Funds India. The information in the document has been compiled by the research department. Due care has been taken in

preparing the above document. However, this document is not, and should not be construed, as an offer to sell or solicitation to buy any

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Company.

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