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Strong volume growth to boost performance

Well positioned to surpass volume guidance of FY24

* Strong 3QFY24 and YTD volumes provide potential upside to FY24 volume guidance: Adani Ports & SEZ (APSEZ) reported 42% YoY growth in Oct-Dec’23 volumes, taking the total 9MFY24 volumes to 311 MMT, registering a 23% YoY growth on YTD basis. With a monthly volume run-rate of ~35MMT, management has increased volume guidance to 400 MMT in FY24 from 370-390 MMT earlier. We expect volumes for FY24 to even surpass the revised volume guidance of 400 MMT.

* Focused on achieving cargo volume of 500 MMT by FY25: APSEZ’s management reiterated its focus to reach its FY25 port traffic target of 500MMT vs 339MMT in FY23. Management believes volume growth is unabated and it is expected to grow at 1.5x the GDP growth rate. Two of APSEZ’s ports are in India’s top 10 ports for its annual cargo volume in FY23.

* Transforming into an integrated logistics solutions company: Adani Logistics (ALL) has expanded its services to cover container train operations, container handling in logistic parks, and warehouses offering storage and trucking solutions. With 10 multi-modal logistics parks, 104 trains, 2.4 million sq. ft. of warehousing space, and 1.1 million metric tons of grain silos, ALL aims to establish a nationwide presence by further developing logistic parks and warehouses.

* Strong operational cash flow generation: APSEZ has consistently generated strong cash flow from operations (CFO) over FY18-23 (cumulative CFO of ~INR433b at a CAGR of 16%). During this period, APSEZ had embarked on an acquisition spree. Going ahead, APSEZ is expected to concentrate on optimizing the assets it has acquired, ensuring consistent robust cash flows in the upcoming years. We estimate CFO to register a CAGR of 14% over FY23-26. This, we believe, will be used to fund capex and reduce debt. APSEZ continues to be on the lookout for opportunities outside India via the joint venture (JV) mode with a strong local partner, either in South Asia, Southeast Asia, Middle East, and Africa.

* Largest private port operator in India: 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 India. We expect it to maintain its strong positioning.

* On track to deliver robust performance; reiterate BUY: Going forward, APSEZ targets to become India’s largest integrated transport utility and world’s largest private port company by 2030. APSEZ has a diversified cargo mix and is looking to increase cargo share of port on east coast. The operational ramp-up at the recently acquired ports is expected to drive a 14% growth in cargo volumes over FY23-26. This would drive a revenue/EBITDA/PAT CAGR of 19%/18%/17% over FY23-26. We reiterate our BUY rating with a revised TP of INR1,410 (premised on 16x FY26E EV/EBITDA).

* Key downside risks: slowdown in global trade

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