Fitch Ratings affirms Adani Ports at 'BBB-'; outlook negative

About 56% of firm's cargo is sticky, which includes contractual take-or-pay cargo, or that which is unlikely to be diverted to other ports due to infra curbs

Fitch Ratings has placed negative outlook on Gautam Adani-led Adani Ports and Special Economic Zone Limited's (APSEZ) affirming long-term foreign-currency Issuer Default Rating (IDR) at 'BBB-'.

APSEZ's underlying credit profile is assessed at 'bbb' while its rating is capped by India's Country Ceiling of 'BBB-', it said.

Shares of Adani Ports ended at 762 rupees per share today, down 1 percent from previous close on the BSE. Adani Group stocks have been on the radar after reports of National Securities Depository Ltd (NSDL) freezing 3 Foreign Portfolio Investment (FPI) accounts of Adani companies.

APSEZ's underlying credit profile reflects its status as the largest commercial port operator in the country, with best-in-class operational efficiency.

Historically, the company has experienced throughput resilience in economic cycles, including the current Covid-19-related downturn. Cargo throughput for APSEZ rose by nearly 2 percent (11 percent if including its Krishnapatnam Port Company Limited (KPCL) acquisition) in the financial year ended March 2021 (FY21), compared with the nearly five percent decrease for cargo throughput at all domestic ports.

About 56 percent of APSEZ's cargo is sticky, which includes contractual take-or-pay cargo, cargo that is unlikely to be diverted to other ports due to infrastructure restrictions, such as the lack of facilities to handle crude oil, and cargo from joint-venture (JV) partners.

Alongside, APSEZ has timing flexibility in its expansion projects. The management has budgeted about Rs 30 billion-40 billion for capex in FY22, but this could be cut down to Rs 8 billion for maintenance only, said the report.

“We believe APSEZ has adequate liquidity to weather near-term challenges. The company had a readily available cash balance of about Rs 53 billion at FY21, against operating expenses of Rs 33 billion and interest cost of about Rs 21 billion,” said the report.

APSEZ has Rs 14 billion due in FY22 to be repaid or refinanced.

Fitch's rating case projects adjusted net debt/EBITDAR will average 3.6x in FY22-FY26. The ratio can also drop below 3.0x if management is able to maintain consolidated EBITDA margins of 65 percent, it said.