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Ports, a key growth enabler for India

Given that Indian ports handle 95%/70% of seaborne trade by volume/value, the recent announcement by the government to up India’s port capacity to 10,000mtpa by 2047 from 2,600mtpa (at implied CAGR of 5-6%) takes center stage. And current capacity utilization is at 57%, with all-India cargo volume likely posting a CAGR of 3% in FY19-24E to 1,487mt. The target is to increase it to 1,750mt by FY28E at a CAGR of 4%, per Indian Ports Association. Also, per historical data, a 1% rise in India’s GDP may lead to 0.6% rise in India’s port volumes.

ADSEZ: Setting sight on 1,000mt by 2030; volume growth of 16%

Adani Ports & SEZ (ADSEZ IN), with a portfolio of 14 ports, 607mt capacity (23% of India’s capacity), cargo diversification, East-West coast parity, operational excellence and integrated logistics services, has seen volume growth faster than pan-India average, commanding a 26% market share Over FY19-24E, expect ADSEZ’s cargo volume to grow at 13% versus all-India cargo volumes at 3%. From 400mt in FY24, ADSEZ is targeting to achieve 500mt/1,000mt by FY26/30. Within Logistics also, continued capex-led organic expansion and new customer addition may lead growth at even higher rate versus ports.  

Change in mix could keep EBITDA margin stable

The domestic port segment contributed 78% to H1FY24 revenue, with ~70% port EBITDA margin. Recent addition of international ports is yet to scale up to the efficiency level of domestic ports. Logistics yield an EBITDA margin of 28-30%. And expect the share of Logistics to rise to 13% by FY26E from 8% of revenues in FY23. Diversification is critical to fuel overall growth. Besides inorganic opportunities, the focus is on expanding organically by adding port capacities, digitalization and debottlenecking trade (leading to optimization).

Valuation: Reiterate Buy; on track to post growth in return ratios

High entry barriers due to capital employed and regulations have led to concentration of players (these are set to benefit from the pick-up in trade). With focus on capacity utilization and efficiency, ports’ ROCE is targeted to increase to 20% in the medium term from 17% currently. Leverage is comfortable at below 3x net debt/EBITDA.

The recent appointment of Mr. Ashwani Gupta as the new CEO will hone execution. This with sustained leadership of Mr. Karan Adani (elevated to Managing Director) will fortify continuity. We remain optimistic on growth prospects and up target EV/EBITDA to 17x on FY26E, to arrive at raised SOTP-TP of INR 1,407 (from 1,043 earlier). Expect FY23-26E revenue/EBITDA/adjusted PAT CAGRs of 14%/13%/12% – Buy.

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