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Robust volume growth aided by ramp up and expansion

In this note, we present the key takeaways from Adani Ports & SEZ (APSEZ)’s FY24 Annual Report.

On track to become India’s largest transport utility company

*  APSEZ ended FY24 with 24% volume growth, taking the total volumes to 420 MMT, well surpassing even its guidance. This was supported by a network of 15 ports across the country’s coastline, including India’s largest port at Mundra that handled ~180MMT of cargo in FY24.

*  In India, APSEZ handled 408.4MMT cargo, through its 12 operating ports/terminals. APSEZ India ports portfolio witnessed ~21% YoY volume growth, which was ~3x of India’s cargo growth rate in FY24.

* In FY24, ~27% of all-India cargo volumes was routed through APSEZ ports. For FY25, the company is targeting cargo volumes of 470 MMT.

*  Revenue grew 28% YoY to INR267b, supported by 30% YoY jump in the ports business revenue and 19% in logistics business. APSEZ recorded the highestever EBITDA of INR829b (~USD10b, +45% YoY). The company’s net debt to EBITDA further reduced to 2.1x from 2.8x over Mar’23, giving APSEZ additional headroom for future growth.

*  APSEZ targets becoming India’s largest integrated transport utility and the world’s largest private port company by 2030. APSEZ has a diversified cargo mix and is looking to increase the cargo share of ports on the east coast. We expect APSEZ to report 11% growth in cargo volumes over FY24-26. This would drive a revenue/EBITDA/PAT CAGR of 14%/15%/19% over FY24-26. We reiterate our BUY rating with a TP of INR1,790 (premised on 20x FY26E EV/EBITDA).

Market share gains driven by operational efficiencies; expansion across business segments has remained the focus area in FY24

*  APSEZ achieved a notable 3x industry growth, elevating its market share to ~27% in FY24 from 10% in FY13. The incorporation of new cargo classes at Mundra and Dhamra ports, a pickup in coal & coastal coal cargo at Gangavaram and Dhamra, aided by robust economic growth contributed to this growth.

*  Additionally, the advantages of an integrated port-cum-logistics service have significantly helped gain market share.

*  Further, the company's strategic sensitivity to specific cargo classes, such as thermal coal and iron ore, is proving beneficial as volume levels normalize in select ports such as Mundra, Gangavaram, and Krishnapatnam.

Building infrastructure for strong future growth in the logistics business

*  As APSEZ embarks on becoming 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, it offers end-toend service to its customers, thereby capturing a higher wallet share and also making the cargo sticky in nature.

*  Adani Logistics (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, 127 trains, 2.4m sq. ft. of warehousing space, and 1.2 million metric tons of grain silos, ALL aims to establish a nationwide presence by further developing logistic parks and warehouses.

Improving balance sheet position

*  Despite raising INR200b via FPO, the Board returned the proceeds to investors amid accusations.

* To improve its leverage position, APSEZ focused on debt optimization, repurchasing USD325m in bonds, bringing down net debt-to-EBITDA to 2.1x in Mar’23 from 2.8x in Mar’23.

*  The US Development Finance Corporation (USDFC) injected USD553m into CWIT, Adani’s joint venture in Sri Lanka, to develop a deep-water shipping container terminal at Colombo Port. This investment is a strategic step showcasing the confidence of the USDFC on Adani’s capabilities.

Focus on ESG initiatives

*  Through the Adani Saksham (skill development) initiative, the company empowered 0.17m young individuals with essential skills, helping them secure a brighter future and potentially become entrepreneurs.

*  Agricultural programs revitalized 26,000 acres of land, introducing sustainable practices and natural farming techniques that promise a greener tomorrow.

* Health outreach programs, including mobile health care units and camps, touched 2 million lives, ensuring that essential services reach the most remote communities.

* The company’s water conservation initiatives created a staggering 13.8 million cubic meters of storage capacity, ensuring water security and supporting the ecological balance of its ecosystems.

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 the transshipment hubs will enable the company to further boost volumes.

*  We expect APSEZ to report 11% growth in cargo volumes over FY24-26. This would drive a CAGR of 14%/15%/19% in revenue/EBITDA/PAT over FY24-26. We reiterate our BUY rating with a TP of INR1,790 (premised on 20x FY26E EV/EBITDA).

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