High Conviction Idea : Buy Adani Ports & Special Economic Zone Ltd For Target Rs.920 - Centrum Broking
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Business Overview
Promoted by the diversified Adani Group and derives operational and strategic synergies from the Group.
Robust portfolio of port assets with deepened hinterland connectivity and logistics services across India
Investment thesis
Portfolio of strong assets with strong locational advantage and deepened hinterland connectivity.
Contracted cargo continues to anchor volumes and safeguards against disruptions. Tie-ups with shipping lines improves cargo stickiness.
Cargo diversification efforts have gained speed and incremental capex being committed for non-coal cargo
Ports as a business has pricing power and stable margins given locational advantages. Port handling costs are a fraction of overall logistics costs
About 55-60% of the cost structure is fixed. Dependency on raw materials is not there and on fuel is very marginal.
Triggers and Risks
Triggers
Recovery in cargo volumes
Swifter implementation of DFC
Risks
Prolonged slowdown in EXIM trade, especially in container volumes. Sharp reduction in India’s coal imports and disruption in offtake by contracted customers
Inability to get Mundra concession period extension on reasonable terms
Large related party transactions or unrelated diversifications
Valuation
We expect 18% earnings CAGR over FY22-24E. The stock trades at 14.4x/12.6x FY23/24E EBITDA
Maintain BUY, with a SOTP based PT of Rs920.
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