Buy Adani Ports Ltd for the Target Rs 2,000 by Emkay Global Financial Services Ltd
APSEZ’s 1QFY27 print underpins the benefits of a diversified business model. Sales/EBITDA each grew 19% yoy, despite externalities impacting domestic port volumes (+2% yoy) and logistics segments (flat topline). APSEZ continues to demonstrate its execution prowess, with International Ports sustaining growth momentum on the back of NQXT consolidation and Colombo ramp-up. With majority of capacity addition focused on brownfield expansion in the domestic ports business, we expect this segment to clock 14% revenue CAGR over FY26-29E. Strong cash conversion (FY26 OCF/EBITDA of 89%) and comfortable leverage position (net debt to TTM EBITDA at 1.9x) allow APSEZ to pursue any accretive (return and earnings) M&A opportunity, in our view. Factoring in the 1Q beat, we raise FY27-28E revenue by 2%. We retain BUY and Jun-27E TP of Rs2,000 (SOTP methodology).
Operationally strong quarter driven by International Ports, Marine businesses
APSEZ reported ~19% yoy revenue growth in 1Q, to Rs108bn (+2% vs our/street estimates), driven by 12%/80%/67% growth in domestic ports/international ports/marine segments. Logistics revenue was flat yoy, while SEZ revenue came in at Rs360mn (-85% yoy) – partially offsetting revenue growth. Overall EBITDA grew 19% yoy to Rs65bn, while margin expanded marginally yoy to 60.4% (+375bps/191bps vs ours/street estimates), as strong growth in the International Ports business (owing to NQXT consolidation and Colombo ramp-up) was partially offset by contraction in Marine business margins owing to the ME crisis. In the ports business, domestic ports volume witnessed muted growth owing to the ME crisis; however, an improved cargo mix and allied services drove realization up by 10% yoy. Domestic container volumes grew 8% yoy, leading to container market share narrowing by ~40bps yoy to 44.8%. Adj PAT grew 9% yoy to Rs36bn. Net debt as of Jun-26 stood at Rs443bn
Outlook and risks
Despite a strong 1Q performance, APSEZ maintained its guidance for FY27 given the continued geopolitical uncertainty. Focus on brownfield as well as technology/equipment upgrades in the domestic ports portfolio and expansion of the CWIT to tap the growing demand for container cargo (Phase-2 beginning Oct-26, expanding to 12-13mn TEUs) provide significant visibility to the management’s target of 1bntpa throughput by FY31. A strong balance sheet and healthy cash conversion (FY26 OCF/EBITDA of 89%) give APSEZ ample headroom to pursue value-accretive M&As. APSEZ’s integrated transport platform should support deeper customer stickiness and more diversified earnings – all while preserving capital discipline (the management guides for ~400bps ROCE expansion over the next five years). Key risks: trade uncertainties due to evolving geopolitical risks, any adverse event at the group level (leverage/regulatory scrutiny), and execution risk in the timely ramp-up of new capacities
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