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Ready for another acquisition (Concor)…

About the stock: Adani Ports and Special Economic Zone (APSEZ) is the largest commercial port operator with 25% share of India’s port cargo movement. The company has evolved from a single port dealing in a single commodity to an integrated logistics platform.

* Total ~70% of APSEZ revenues is contributed by its port operations, rest led by harbour (11%), logistics (7%) and others

* Of the total 247 MT cargo volume in FY21, container volumes were at 105 MT (43%), bulk at 110 MT (44%) and rest by liquid at 32 MT (13%)

Q2FY22 Results: Lower coal offtake impacted performance vis-à-vis estimates.

* Revenues grew 22% YoY to | 3532 crore, led by volume growth of 22%

* EBITDA margins remained range-bound at 62-63%. Subsequently, absolute EBITDA grew 19% to | 2207 crore

* However, PAT de-grew 33% to | 933 crore due to an exceptional expense of | 405 crore (relates to retrospective capping of SEIS income by DGFT)

What should investors do? APSEZ, with its strong FCF generating assets, diversified cargo mix and overall leadership in Indian ports, continues to build its strength in other verticals such as rail logistics and warehousing, thereby building a complete integrated logistics solution for Exim and domestic customers

* We remain positive on the long term growth prospects of the stock and maintain our BUY recommendation

Target Price and Valuation: We value the stock at | 900 on SOTP basis

Key triggers for future price performance: DFC connectivity to Mundra (normalised in three to four quarters) is likely to provide faster port evacuation, quicker transit time (logistics vertical). APSEZ is also developing eight freight terminals on DFC route, thereby providing greater hinterland reach to its customers

* Aggressive investments into logistics space by APSEZ (to grow rakes, MMLPs, Rail Tracks by 3x to 200+ rakes, 15 MMLPs, 2000 km tracks by FY25 respectively and warehousing by 75x to 30 million sq ft)

* Inorganic opportunities such as acquisition of Concor (~67% market share in CTO business)

Alternate Stock Idea: Apart from Adani Ports, we remain positive on GPPL

* Gujarat Pipavav is a South-West Gujarat based port with an MNC promoter (Maersk Group). The port container capacity is at 1.35 million TeUs

* We have a BUY rating on the stock, with a target price of | 120

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