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Sailing towards new horizons

Well placed to post 12% volume CAGR over FY23-25; initiate with BUY Adani Ports & SEZ (APSEZ) is India’s largest private port operator with more than 24% market share in cargo handling. APSEZ has evolved from operating just two ports (Mundra and Dahej) in FY11 to a portfolio spanning 14 ports across the country. Improved reach, strategic port locations, operational efficiencies, and a comprehensive range of integrated service offerings (logistics, SEZs, etc.) have contributed to APSEZ’s remarkable growth, with volumes soaring to more than four times the levels recorded in FY11. With continued growth levers at its existing ports and an expanding portfolio, we expect APSEZ to strengthen its market dominance, achieving a 12% volume CAGR over FY23–25. This would, in turn, propel a corresponding 15% CAGR in both revenue and EBITDA. Cash flow generation should remain strong and help keep debt in check despite the acquisitions. We initiate coverage on the stock with a BUY rating and a TP of INR1,010 (premised on 15x FY25E EV/EBITDA, in line with its historical average of 14x). The company’s: a) market leadership in the ports segment, b) focus on value-added areas such as logistics, and c) focus on strategic acquisitions place it in a sweet spot.

Diversified portfolio with market leadership 

India’s 13 major ports and 205 minor ports facilitate the handing of ~1,600mmt of cargo annually. They are the key gateways to India’s EXIM and economic story – industry volumes reported a 4% CAGR over FY13–23. APSEZ has been at the heart of this facilitation, with the company handling 339mmt of cargo in FY23 (312mmt in FY22). Over FY13–23, APSEZ clocked a 14% CAGR in its volumes, far outpacing industry growth rates. This is attributable to: a) expansions at Mundra, b) the commissioning of Hazira, and c) acquisitions of ports such as Dhamra, Krishnapatnam, and Gangavaram. APSEZ’s reach has increased from just two ports in Gujarat in FY11 to a well-diversified portfolio of 14 ports across the western and eastern coasts of the country. In FY23, APSEZ has acquired 70% stake in Israel’s Haifa Port in consortium with Israel’s Gadot Group for a consideration of USD1.2b. Haifa is one of Israel’s two biggest commercial ports and handles nearly half of Israel’s container cargo.

Expanding size but with a focused approach

APSEZ has adopted a largely focused approach to growth – it aims to deliver continued and steady cargo volumes. APSEZ was quick to spot the containerization trend in cargo and strategically expanded its container capacities at regular intervals. Notably, APSEZ has achieved this through JVs with some of the largest shipping liners, which have also ensured long-term tie-ups. Over FY16–23, the number of containers handled by APSEZ posted a 15% CAGR vs. an 11% CAGR for other cargo types. This expansion in container handling has not only aided volume growth but also reduced dependence on commodities such as coal, leading to cargo diversification. The share of coal in APSEZ’s cargo reduced to 36% in FY23 from 41% in FY16.

Prioritizing growth aided by continued growth levers at existing ports

APSEZ has headroom for growth at its older port portfolio (FY23 utilization – Mundra: 59%, Dhamra: 70%, Hazira: 84%). It has undertaken various measures, such as: 1) optimizing existing berths at Mundra to handle higher containers, 2) improving evacuation infra at Dhamra, and 3) adding LNG/LPG terminals at Mundra and Dhamra to raise its volume and utilization levels. As a result, we expect APSEZ’s utilization levels to improve and we build in a ~10% volume CAGR for its older ports of Mundra, Hazira, Dahej, and Dhamra over FY23–25. 

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