Adani Ports jumps 5% as it acquires controlling stake in Gangavaram Ports

The Adani Ports had announced acquisition of Warburg Pincus's 31.5 per cent stake in GPL on March 3, 2021 and together with today's acquisition, APSEZ would now have 89.6 per cent stake in GPL

Shares of Adani Ports and Special Economic Zone advanced 4.6 per cent to Rs 755 on the BSE in the intra-day deals on Tuesday after the company announced acquisition of controlling stake in Gangavaram Port for Rs 3,604 crore.

At 10:32 am, the stock was quoting at Rs 750 apiece, up 4 per cent on the BSE. In comparison, the benchmark S&P BSE Sensex was at 49,799.33 levels, up 28.04 points or 0.06 per cent. A combined 16.15 million equity shares had changed hands on the counter on the NSE and BSE till the time of writing of this report.

Adani Ports, in a regulatory filing, informed the exchanges that the Company signed an agreement on March 23, 2021 with DVS Raju & Family to acquire 58.1 per cent stake of GPL. "The acquisition is in line with company's strategy of East Coast to West Coast parity and will provide an access to growth from new hinterland markets as it has coverage in resource rich and industrial belt in Eastern, Central & Southern India," it added.

The Adani Ports had announced acquisition of Warburg Pincus's 31.5 per cent stake in GPL on March 3, 2021 and together with this acquisition, APSEZ would now have 89.6 per cent stake in GPL. 

APSEZ announced acquisition of 31.5 per cent stake of Warburg Pincus on March 3, 2021 for Rs 120/share and shall acquire the DVS Raju stake of nearly 30 crore shares (58.1 per cent) also at Rs 120/share which works out to a consideration of Rs 3,604 crore. The transaction implies EV/EBITDA multiple of 8.9x and P/E multiple of 12.0x (based on FY20 figures) and is a value accretive transaction for APSEZ shareholders, the firm said in its statement.

While the transaction is expected to be completed within 6 months, it will give Adani Ports access to the second largest non-major port in Andhra Pradesh with a 64 MMT capacity established under concession from Government of Andhra Pradesh that extends till 2059. 

GPL is an all-weather, deep water, multipurpose port that handles a diverse mix of dry and bulk commodities including Coal, Iron Ore, Fertilizer, Limestone, Bauxite, Sugar, Alumina, and Steel. It is capable of handling fully laden super cape size vessels of up to 200,000 DWT, and with a master plan capacity for 250 MMTPA with 31 berths, it has sufficient headroom to support future growth. 

In FY20, GPL had a cargo volume of 34.5 MMT, revenue of Rs 1,082 crore, Ebitda of Rs 634 crore (59% margin) and net proit of Rs 516 crore, GPL is debt free with a cash balance of over Rs 500 crore.

"GPL is an excellent port with robust financials, providing access to new hinterland. Growth potential is huge thereof as the businesses are yet to mature. As an aside, Warburg Pincus’s investment of Rs 800 crore in APSEZ at Rs 800/share shows its ability to raise equity," said analysts at Edelweiss Securities. 

The brokerage's revised cost of equity (CoE) stands at 11.5 per cent (beta now at 0.9x) and maintains ‘BUY/SO’ with a target price of Rs 875, implying an exit EV/EBITDA of 15x FY23E earnings.