 "Near-term volume woes for Adani Ports")
After marking strong gains in the past two years, the Adani Ports and Special Economic Zone (APSEZ) scrip has come under pressure. It has lost about 12 per cent in the past month, scaling lower to its 52-week low on Wednesday, taking the total decline to 30 per cent since September this year.
For the September quarter, APSEZ posted an 11 per cent growth in total consolidated income (Rs 1,842 crore), translating into a 16.4 per cent rise in net profit (Rs 667 crore), while margins were up slightly at 65.4 per cent, year-on-year. While earnings were in line with market estimates, the overall shipment volumes handled in the second quarter of FY16 grew a paltry four per cent year-on-year to 36.5 million tonnes (mt), versus expectations of 40 mt.
For the September quarter, APSEZ posted an 11 per cent growth in total consolidated income (Rs 1,842 crore), translating into a 16.4 per cent rise in net profit (Rs 667 crore), while margins were up slightly at 65.4 per cent, year-on-year. While earnings were in line with market estimates, the overall shipment volumes handled in the second quarter of FY16 grew a paltry four per cent year-on-year to 36.5 million tonnes (mt), versus expectations of 40 mt.
About 80 per cent of bulk cargo is contributed by coal. With India’s annual coal production set to increase from 494 mt in FY15 to 908 mt by FY20, the bulk cargo (mainly coal) segment could see muted growth.
To counter this, APSEZ is working to increase its share in liquid and container cargos. Also, as it expands into other geographies in the country, the cargo mix will improve. Some of the recent acquisitions such as Vizhinjam and Kattupalli should also help APSEZ partially reduce the dependence on Mundra (75 per cent of the operations). Though these would entail increase in capex of Rs 7,500 crore in three years, funding should not be a major worry given APSEZ’s cash flows.
Analysts expect the pressure on volumes to continue for a few quarters. “The transient pain of bulk volumes to be replaced by increasing share of liquid and container cargo in the overall mix, however, we believe will take time, given the weakness in overall trade,” says Nitin Arora of Emkay Global.
The APSEZ stock has factored in for a possible 12-24 months depressed earnings scenario, say analysts. According to a Bloomberg poll, 15 of 21 analysts have a ‘buy’ rating on the stock, four have ‘hold’ and only two have a ‘sell’ rating. Their average target price is Rs 339 a share. However, given the weak economic outlook in China and Europe, and slow growth in India’s trade and economy, the outlook isn’t exciting. So, the stock could remain range-bound. “The risk is if earnings continue to remain depressed after 36 months. That would be of concern to the stock,” says Arora.
To counter this, APSEZ is working to increase its share in liquid and container cargos. Also, as it expands into other geographies in the country, the cargo mix will improve. Some of the recent acquisitions such as Vizhinjam and Kattupalli should also help APSEZ partially reduce the dependence on Mundra (75 per cent of the operations). Though these would entail increase in capex of Rs 7,500 crore in three years, funding should not be a major worry given APSEZ’s cash flows.
Analysts expect the pressure on volumes to continue for a few quarters. “The transient pain of bulk volumes to be replaced by increasing share of liquid and container cargo in the overall mix, however, we believe will take time, given the weakness in overall trade,” says Nitin Arora of Emkay Global.
The APSEZ stock has factored in for a possible 12-24 months depressed earnings scenario, say analysts. According to a Bloomberg poll, 15 of 21 analysts have a ‘buy’ rating on the stock, four have ‘hold’ and only two have a ‘sell’ rating. Their average target price is Rs 339 a share. However, given the weak economic outlook in China and Europe, and slow growth in India’s trade and economy, the outlook isn’t exciting. So, the stock could remain range-bound. “The risk is if earnings continue to remain depressed after 36 months. That would be of concern to the stock,” says Arora.