Adani Ports and Special Economic Zone: First port of call

The stock price of Adani Ports and Special Economic Zone (APSEZ) has run up by 78 per cent in the last year. However, at the current market price of ₹359, its valuation is still reasonable. Its price to earnings ratio of 19 times is lower than the three year average of 23 times.

The company has shown consistent growth in revenue and profit in the last five years, aided by 20 per cent annualised growth in cargo volumes. Regular expansion coupled with diversification of product handling capabilities at its existing ports have aided volumes growth over the years. When coal volumes took a beating, it successfully changed gear to concentrate on the container segment to prop up volumes. Moreover, healthy operational metrics have translated into its market share improving over the years. Investors with a long-term perspective can buy the stock,as the company seems poised to benefit from the government initiatives to prop up waterways.

APSEZ is into the business of ports, SEZ (Special Economic Zone) and logistics. About 83 per cent of its revenue comes from ports, while logistics and SEZ contribute another 5 and 9 per cent respectively. The company is the largest private port player operating 10 ports in the country with an annual cargo handling capacity of 300 mmt (million metric tonne). It accounts for 14 per cent of India’s overall cargo volumes and has footprint in the East, West and South of India. Mundra port (Gujarat) is its largest port, contributing to 53 per cent of overall company revenue. It also operates ports in Gujarat (Dahej, Hazira), Odisha (Dhamra) and Tamil Nadu (Kattupalli). Ennore Container Terminal (Tamil Nadu) and Vizinjam port (Kerala) is currently under construction. Moreover, it is also developing port-linked SEZ contiguous to Mundra port and managing logistic business connecting its ports to hinterland.

In the last five years, the company’s volumes have grown at an annual average of 20 per cent . In 2016-17, the company managed to grow cargo volumes by 11.2 per cent to 169 mmt as against the industry’s 8 per cent growth.

While volumes at Mundra (114 mmt) were up by 5 per cent in 2016-17, it was up by 24 per cent, 40 per cent and 600 per cent for Hazira (15 mmt), Dhamra (21 mmt) and Kattupalli (6 mmt) respectively.

While coal volumes fell 4 per cent during the year due to poor demand from power producers, container volumes were up by 27 per cent on a y-o-y basis to 4.24 million TEUs (Twenty-foot Equivalent Unit). Container volume growth for the industry was relatively lower at 10 per cent. During the year, crude and other cargo for APSEZ were up 11 per cent and 20 per cent respectively.

At Kattupalli, container volumes were strong with the port attracting a portion of the cargo from the busy Chennai port. Moreover, it also gets dry bulk cargo from steel manufacturers, which along with liquids, agri products, iron and steel, minerals and chemicals have been major volume drivers.

During 2016-17, the share of container cargo in overall volumes of the company improved from 32 per cent to 37 per cent. While that of crude remained constant at 13 per cent, that of coal fell from 42 per cent to 36 per cent.

The company expects the cargo mix to move in favour of containers in 2017-18 with its volume share increasing to 39 per cent, while that of coal falling to 34 per cent.

To drive growth, the company is increasingly looking at expansion and diversification of port handling capabilities. At Vizhinjam, it is tapping the one million-plus TEUs of Indian cargo transhipped through foreign ports such as Colombo. Moreover, the proximity of the company’s ports to coastal economic zones proposed under the Sagarmala project is expected to boost its cargo volumes. Last year, it bought Abbot Point Bulkcoal (Australia) with plans to ship coal to power plants in India, including to its group company Adani Power.

By 2021, the management plans to achieve 330 mmt in volumes — with target volume growth 50 per cent more than that of the industry. In 2017-18, the management expects to keep the momentum going by growing its cargo volumes by 12-14 per cent, largely led by Hazira, Dhamra and Kattupalli.

The company is looking for expansion into the States of Andhra Pradesh, Maharashtra and Karnataka. It is also seeking strategic opportunities in South East Asia, East Africa, West Asia and Bangladesh. As part of its diversification plans, it plans to add LPG and LNG terminals at Mundra (in 2017-18) and at Dhamra (in 2018-19).

APSEZ bought Dhamra port in 2014 and managed to turnaround its operations in 2015-16. Some of its ports have best-in class operational metrics. For instance, the average turnaround time in Mundra port is 1.4 days as against four days for major ports in Western India. Also, the average pre-berthing time was 0.3 days for Mundra as against 1.6 days for major ports in Western India.

The company’s revenue was up 19 per cent to ₹8,439 crore in 2016-17 as compared to the previous year. . The company’s profit was up 37 per cent to ₹3,901 crore in 2016-17, and the annual average growth was 28 per cent over the last five years.

During 2016-17, operating margin increased from about 64 per cent to about 68 per cent, aided by forex gains and containerisation of cargo. The debt-to-equity ratio was 1.2 times as of March 2017. With increasing cash flows, the management plans to reduce debt in the coming years.