Adani Ports banks on growth containers, gas to double volume; stock up 5.3%

Delay in freight corridor, muted near-term volumes, and a weak rupee are worries

The stock of Adani Ports and Special Economic Zone (APSEZ) was up 5.3 per cent in trade after the company announced buyback details and outlined its five-year growth plan. While the buyback — which is expected to start on September 5 — is a near-term trigger, the Street will look at the prospects for the business over the medium term. 

The company aims to double its volume, revenue, and profit over the next five years (FY19-24). It expects volume growth to be driven by containers, led by India’s gross domestic product growth and containerisation of cargo, from the current 65 per cent to 90 per cent. Containers are expected to grow by 14 per cent annually over the five-year period.  

APSEZ is also aiming to increase its market share by 300 basis points to 25 per cent by 2024-25. This will be led by change in the product mix and inclusion of gas (liquefied petroleum gas or LPG and liquefied natural gas or LNG) to its portfolio. While incremental growth will come from a change in the product mix, over 70 per cent of the cargo by volume will continue to be containers and coal. 

Analysts at CLSA believe that the conclusion of the group’s joint venture with Total of France and the start of LNG/LPG terminals at Mundra are key to improving visibility.

 

While the medium-term targets indicate a positive outlook, analysts highlight key concerns, including debt. The company, which recently raised debt of $1.3 billion, has extended debt maturity profile from four to six years. However, of the long-term debt of Rs 21,000 crore, three-fourths are in foreign currencies. 

Given forex debt is three-fourths of APSEZ’s total debt, rupee depreciation results in notional mark-to-market losses. This leads to volatility at the net profit level, say analysts at IIFL Institutional Equities. In the September quarter, they estimate a 4-per cent depreciation could lead to Rs 350-400 crore mark-to-market losses. 

Though CLSA has a ‘buy’ call on the stock, it has cut its target price from Rs 510 to Rs 500 on the delay in the rail link as well as the freight corridor to the Hazira port by about three years. 

At current valuations, the stock trades at a 34 per cent discount to the Container Corporation of India (Concor) stock.