Buy Adani Ports & SEZ Ltd For Target Rs. 1,400 by Motilal Oswal Financial Services Ltd
Volume growth driven by containers; focus on capacity expansion
* Adani Ports & SEZ (APSEZ) handled 408.7mmt (+7% YoY) of cargo volumes over Ap’24-Feb’25 (11 months of FY25). During the same period, cargo volume handled at major ports in India grew ~3% YoY. Hence, APSEZ continues to grow over 2x the industry rate, driven by higher efficiency at existing ports and inorganic expansion along the eastern coastline of India.
* The management highlighted its focus on doubling handled volumes over the next five years. This growth will be driven by domestic ports, with volume guidance excluding any potential inorganic opportunities that may arise.
* The logistics business is set to drive port volume growth, as the company expands end-to-end services and adopts advanced technology to boost efficiency and reduce turnaround time.
* APSEZ has a capex target of INR115b in FY25 (INR40b spent in 1HFY25). Of this, ~INR74b will be allocated to the port business (incl. marine services capex), INR23b to the logistics business, and ~INR15b to renewables (for decarburization), under which the company plans to build 1,000MW of renewable power sources with a combination of both solar and wind.
* We believe the company is well placed to continue outpacing industry growth and gaining market share. Further, the logistics business will serve as a value addition to the domestic port business, with a focus on enhancing last-mile connectivity. We expect APSEZ to report 10% growth in cargo volumes over FY24-27. This would drive a CAGR of 14%/15%/19% in revenue/EBITDA/PAT over FY24-27. We reiterate our BUY rating with a TP of INR1,400 (premised on 15x Sep’26E EV/EBITDA).
Port volumes grow over 2x of volumes at major ports; management targets doubling volumes by 2029
* APSEZ handled 408.7mmt (+7% YoY) of cargo volumes over Ap’24-Feb’25 (11 months of FY25), with container volumes up 20% YoY and liquid and gas cargo rising 9% YoY.
* APSEZ aims to double its handled volumes to 1b tons by 2029, primarily driven by domestic port volumes of 850mt, excluding inorganic growth. Volume growth is expected from market share gains and expanded capacity at existing ports, with the logistics business enhancing last-mile connectivity as a value addition to the domestic port operations.
Recent acquisitions & development of ports to aid volume growth in 2H
* The Gopalpur Port began contributing to volumes in Oct’24, following the completion of its acquisition in the same month. Management sees considerable potential in Gopalpur, with Oct’24 volume figures showing strong initial results. This solid cargo flow positions Gopalpur as a valuable addition to the portfolio, providing better access to natural resource opportunities along the East Coast.
* Similarly, the Vizhinjam Port Phase 1 has started contributing to volumes since Oct’24, with full capacity utilization projected by FY26. The centrally located port is close to international shipping routes with a draft of 20-24 meters. Additionally, the second and final phase of capex at the port has commenced, with ~INR200b earmarked for investment. As APSEZ scales up and operates the automated terminal, the company’s efficiency is likely to improve, allowing it to accommodate more vessels.
Building infrastructure for strong growth in the logistics business
* As APSEZ aims to become India's largest integrated transport utility company by 2030, it is strengthening its capabilities in all logistics segments (ports, CTO, warehousing, last-mile delivery, ICDs, etc.). Hence, by offering end-to-end services to its customers, the company captures a larger wallet share and ensures the cargo remains sticky.
* ALL expanded its services to cover container train operations, container handling in logistic parks, and warehouses offering storage and trucking solutions. With 12 multi-modal logistics parks, 132 trains, 3.1m sq. ft. of warehousing space, and 1.2mmt of grain silos, ALL aims to establish a nationwide presence by further developing logistic parks and warehouses.
Valuation and view
* APSEZ is anticipated to outpace India's overall growth, driven by a balanced port mix along India's western and eastern coastlines and a diversified cargo mix. The company continues to invest heavily in the ports and logistics business to drive growth. The commencement of operations at Gopalpur and Vizhinjham Ports will enable the company to further boost volumes.
* We expect APSEZ to report 10% growth in cargo volumes over FY24-27. This will drive a revenue/EBITDA/PAT CAGR of 14%/15%/19% over FY24-27. We reiterate our BUY rating with a TP of INR1,400 (premised on 15x Sep-26 EV/EBITDA).
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