Adani Ports and Special Economic Zones (APSEZ) Ltd, will acquire the 31.5% stake held by Windy Lakeside Investment Limited (an affiliate of private equity firm Warburg Pincus LLC) in Gangavaram Port Limited (GPL) for Rs 1,954 crore as the Ahmedabad-based firm continues its dominance over the ports sector.

APSEZ is also in discussions with the port promoter DVS Raju and family to buy their 58.1% stake in GPL, APSEZ said in a statement.

The deal expands APSEZ port market share to 30%.  

The move comes a few months after APSEZ closed the deal to buy a 75% stake in Krishnapatnam Port Co Ltd, also in Andhra Pradesh, for an enterprise value of Rs12,000 crore. 

Gangavaram Port Ltd, the entity that runs Gangavaram port, is a special purpose company promoted by D. Venkata Satyanarayana Raju, the former co-founder of IT services firm Satyam Computer Services Ltd, after he won the deal from the Andhra Pradesh government to develop and operate the new port for an initial period of 30 years and extendable by two terms of ten years each till 2059.

D.V.S Raju and family holds a majority 58.1% stake in the port company, while Andhra Pradesh government has a stake of 10.4%. Global private equity firm Warburg Pincus through Windy Lakeside Investment invested close to Rs 150 crore for a 31.5% stake in Gangavaram Port in 2008.

APSEZ is acquiring the Warburg Pincus stake at Rs120 per share, translating to a consideration of Rs1,954 crore, fetching a massive premium to Warburg on its 12-year investment of Rs150 crore. At this value, it is one of the biggest exits for a PE firm in the ports sector.

The transaction implies EV/EBITDA multiple of 8.9 times and P/E multiple of 12.0 times (based on FY20 figures). 

The APSEZ-Warburg deal values Gangavaram Port at Rs 6,204 crore.

This is higher than the Rs4,500 crore equity valuation for Krishnapatnam Port Co Ltd for which APSEZ paid Rs3,395 crores for a 75 per cent stake.

The Krishnapatnam deal, though, was closed at ten times the expected FY21 EBITDA of around Rs1,200 crore. 

In 2010, APSEZ had initiated talks with DVS Raju to acquire Gangavaram Port but the negotiations fell through over valuation sought by the promoter.

GPL, located next to Centre-owned Visakhapatnam Port Trust, is the second largest non-major port in Andhra Pradesh with a 64 million tonne (mt) capacity.

Gangavaram is a deep water, multi-purpose port capable of handling fully laden super cape size vessels. Currently, GPL operates 9 berths and has free hold land of about1,800 acres. With a master plan capacity for 250 mt with 31 berths, GPL has sufficient headroom to support future growth.

In FY20, GPL handled 34.5 mt of cargo generating revenue of Rs1,082 crore, EBITDA of Rs634 crore (margin of 59%) and profit after tax of Rs516 crore. GPL is a debt free company with cash balance of over Rs500 crore.

GPL handles a diverse mix of dry and bulk commodities including coal, iron ore, fertilizer, limestone, bauxite, sugar, alumina and steel. GPL is the gateway port for a hinterland spread over 8 states across eastern, western, southern and central India. 

State-run Rashtriya Ispat Nigam Ltd that runs the Vizag Steel Plant is the port’s biggest customer.

“The location of GPL in the north of AP is a strategic complement to our recent acquisition of the Port of Krishnapatnam that serves the south of AP,” Karan Adani, CEO and Whole Time Director of APSEZ, said.

“GPL provides us great access to an adjacent hinterland that was largely untapped by APSEZ thereby placing us in a position to serve a broader set of port customers as well as expand our overall hinterland logistics footprint for a much larger base of customers,” Karan added.

 

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