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Logistics: Just a start, long tail ahead

Logistics segment revenue at INR 29bn contributes 9% to consolidated number as on FY25 but is set to increase 5x to INR 140bn by FY29, gaining share to 20%, led by capacity expansion (across rakes, multi-modal logistics parks [MMLP], warehouses, agri silos & trucks) and increase in group cargo. With focus on technology, scale, improvement in turnaround time, EBITDA also targeted to rise from INR 6bn to INR 35bn with a margin of 25%. Efficient capital allocation remains at the center of management’s growth strategy as the current ROCE of 6% is set to rise to 10% with focus on the B2B where competition has limited scale and capability. As highlighted in our 4Q note, Three-pronged growth strategy at play released on 3 May 2025, we believe logistics will help capture the value chain from cargo originating at ports up to delivery at the customer’s gate. We retain our estimates. We reiterate Buy with a TP of INR 1,700, valuing the ports business at 19x FY27E EV/EBITDA and the logistics business at 8x FY27E EV/EBITDA.

ICD Tumb, unique locational advantage: We recently visited Inland Container Depot(ICD) Tumb at Gujarat,, which was acquired from Navkar Corporation in CY22 for INR 8bn, contributing 17% to total logistics revenue with an EBITDA margin of 50% (higher than overall segment margin at 22%). It is among the Top 3 MMLP in the country with capacity of 500,000 TEUs ( 65% utilized) catering to the JNPT & Hazira ports and container cargo from 60 shipping lines. The facility has huge potential for growth, due to: 1) capacity expandable up to 600,000 TEU in the medium term, 2) no competing ICD in up to 300km, 3) market share of 70% in catchment areas of Gujarat, Maharashtra and Daman, which are growing faster-than-industry average, 4) the Top 3 clients growing in the strong double digits, and 5) highly tech-enabled operations. The dedicated freight corridor (DFC) connectivity to JNPT will also be positive as 95% of the current cargo mix at the ICD is of JNPT with a 30% market share in total rail traffic at JNPT.

Four drivers of “Push & Pull” strategy: Logistics offerings are aligned with integrated transport utility preposition by “pushing” standalone customers to leverage value chain and “pulling up” asset scalability through proximity to port network and industrial hubs. Four areas of asset creation: 1) trucking: leveraging the Group and third-party business, 2) MMLP and warehouses: monetizing land bank near ports, industrial clusters & DFC, 3) freight forwarding: leveraging relationship with shipping lines, and 4) rakes: providing scheduled services in defined circuits

Capex-led asset creation to differentiate from peers: The FY25-29 planned capex of INR 200bn in the logistics segment is targeted to result in significant asset creation across rakes, MMLP, warehouses, agri silos and trucks, providing scale and capability, which differentiates them from other organized peers. The current healthy balance sheet with net debt-EBITDA of 2.2x further leaves scope for acquisitions for inorganic growth. Segment ROCE targeted to increase to 10% from 6% is aided by integrated technology across value chain and efficiency.

Reiterate Buy with a TP of INR 1,700: Amid three growth drivers -- ports, logistics and marine – logistics is growing at 11% (faster than major ports in India) with high fragmentation and inefficiency, limited number of organized firms and technology integration. This provides a huge opportunity to ADSEZ with access to the port network, land bank and strategic assets. We remain optimistic and reiterate Buy with unchanged TP of INR 1,700 valuing ports business at 19x and logistics at 8x on EV/EBIDA for FY27E.

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