Global ratings agency Standard and Poor's (S&P) on Wednesday revised up the outlook on Adani Ports to 'stable' from 'negative' on expectation of better operating performance and limiting related-party lending. "Our stable outlook reflects our expectation that Adani Ports & SEZ will maintain consistent operating performance and leverage, and limit related-party transactions over the next 12-24 months," the agency said in a note. The agency, however, affirmed its rating on the company at 'BBB-' as it expects the company, which runs the largest private sector operator port in Mundra in Gujarat, will sustain its improved operating performance supported by healthy revenue growth and strong pre-tax margins at 63-65 per cent levels. The company should also commit to maintain the funds from operations to debt ratio at 15-20 per cent, it added. "We also understand that the management is committed to prevent a recurrence of incidences such as a sharp increase in related-party loans in fiscal 2016.
This is important to ensure that the company remains insulated from the credit quality of the Adani Group," it said. It, however, warned that it will lower the rating if there is an increase in related-party loans or advances outside the normal course of business, which exposes the company to the credit quality of the Adani group. APSEZ is the flagship of the diversified group, which also has interests in some stressed sectors like power and realty. The agency said it expects a growth in container traffic with a new terminal expected to be operational this fiscal and stabilise on coal volumes, and gradually reducing though still high dependence on the Mundra Port. On reports about the company acquiring a controlling stake in Gujarat Pipavav Port, the agency said the deal is "still in the preliminary stages". "We expect APSEZ to adjust its inorganic growth or funding mix to stay within the ratio of FFO (funds from operations) to debt of about 15-20 per cent to protect its investment-grade profile," the report added. The agency said it expects APSEZ to continue to pursue growth which shall include organic and inorganic routes domestically and greenfield overseas development. It may also upgrade the rating if the FFO to debt ratio goes up to over 20 per cent on a consistent basis.