Buy Adani Ports Ltd for the Target 2,000 by Emkay Global Financial Services Ltd
Adani Ports (APSEZ) has signed a definitive agreement with Terminal Investment (TiL), the container terminal arm of Mediterranean Shipping Company (MSC), wherein TiL will acquire 49% stake in Adani Vizhinjam Port Private (AVPPL) for ~$1.4bn, valuing AVPPL at EV of ~$2.85bn subject to regulatory approvals. We expect the stake purchase to improve revenue visibility and aid the volume trajectory, as APSEZ plans ramping up the port capacity to 5.7MTEU by Dec-28, a 3.5x increase from current capacity of 1.6MTEU. Further, with its existing JVs with MSC at Mundra and Ennore, we do not expect any integration or execution issues, given the historical volume uptick at Vizhinjam (2MTEU handled within 18 months of commissioning; majority of the containers belong to MSC). Per the management, the investment enables Vizhinjam to capture incremental transshipment share of Bangladesh cargo, which is currently dependent on Southeast Asian hubs. Incorporating this transaction, we now separately value Vizhinjam port at $2.85bn per our SOTP-based methodology, and retain BUY on APSEZ. We revise Mar-27E TP to Rs2,000 from Rs1,900 earlier (+5.3%), implying 16x FY28E EV/EBITDA.
Vizhinjam port – Well positioned to capture transshipment opportunity
The Asia-Middle East corridor currently handles an estimated >80MTEU annually (per the management) across established hubs, as transshipment remains a structurally underpenetrated opportunity for India – with domestic cargo routed through Colombo and Singapore for relay rather than consolidated at a domestic deep-water hub. Vizhinjam port, being equidistant from the Gulf, Southeast Asia, and East Africa and 10 nautical miles off the East-West shipping route with a natural 18-20mtr draft capable of berthing ULCVs, increases APSEZ’s prospects to seize the transshipment opportunity. Further, the company’s partnership with MSC unlocks volume levers by way of
1) Accelerated ramp-up, driven by additional cargo volumes
2) Taking hold of higher share of Bangladesh cargo, largely dependent on Southeast Asian transshipment hubs
3) Strengthening presence on East Africa trade routes
4) Elevated relay cargo volumes. We believe the afore-mentioned levers, coupled with Vizhinjam’s structural advantages, position APSEZ to capture the gap in India’s transshipment volumes
We retain BUY with revised Mar27E TP of Rs2,000
Per the company’s latest press release, APSEZ will receive $539mn (Tranche 1) for 49% stake in AVVPL; Tranche 2 ($858mn) will be received upon completion of Phase-2 (Dec28). The upfront cash inflow improves APSEZ's near-term liquidity and funding flexibility, while the $858mn tranche reduces the incremental debt APSEZ/AVPPL would need to raise for funding Phase 2 capex ($1.75bn). This, coupled with volume visibility, unlocks the existing structural growth levers for Vizhinjam, in our view. We maintain revenue/EBITDA CAGR of 15/16% over FY26-28E, while raising our TP by 5% to Rs2,000 (SoTP-based).
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