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In-line performance; outlook remains bright

* Adani Ports & SEZ (APSEZ) reported a revenue growth of 11% YoY to INR69.6b in 1QFY25 (in line). Cargo volumes grew 8% YoY to 109mmt. Volumes at Gangavaram port were affected by a worker strike in AprMay’24; however, the operations returned to normalcy in Jun’24.

* EBITDA margin came in at 61% (est. 58.7%), up 90bp YoY/240bp QoQ. EBITDA grew 13% YoY to INR42.4b (in line).

* APAT rose 29% YoY to INR26.3b (13% beat), aided by a lower tax outgo.

* Port revenues grew 13% YoY to INR55.4b and EBITDA margins stood at 72% (flat YoY). Logistics revenues grew 13% YoY to INR5.6b and EBITDA margins stood at 25% (vs. 28% in 1QFY24).

* In 1Q FY25, APSEZ managed ~27% of the country’s total cargo and ~46% of container cargo. APSEZ's domestic cargo volumes grew by 9% YoY, compared to 4% YoY growth in India's overall cargo volumes.

* The 1Q performance was largely in line with our estimates. APSEZ is expected to record 2-3x of India’s cargo volume growth, driven by a balanced port mix on the western and eastern coastlines of India. Further, the logistics business will serve as a value addition to the domestic port business, with a focus on enhancing last-mile connectivity. We largely retain our estimates for FY25/FY26. We expect APSEZ to report 11% growth in cargo volumes over FY24-26. This would drive a CAGR of 14%/15%/22% in revenue/ EBITDA/PAT over FY24-26. We reiterate our BUY rating with a revised TP of INR1,850 (based on 20x FY26E EV/EBITDA).

APSEZ delivers in-line performance led by growth across ports; volumes grow 2x of industry

* During the quarter, APSEZ clocked cargo volume of 109mmt (up 8% YoY), primarily driven by Containers (up 18% YoY) and Liquids & Gas (up 11% YoY). APSEZ recorded a volume loss of 5.7mmt at the Gangavaram Port due to a worker strike in Apr-May’24, which returned to normalcy in Jun’24.

* APSEZ's domestic cargo volumes grew by 9% YoY compared to 4% YoY growth in India's overall cargo volumes. The proportion of non-Mundra domestic ports in the overall cargo distribution increased to 47% in 1QFY25 from 41% in 1QFY24.

* The company has secured two new port concessions and a port O&M contract in 1Q. It targets cargo volumes of 460-480mmt in FY25.

Last-mile connectivity to bolster growth in the Logistics business

* In 1QFY25, Adani Logistics (ALL) posted ~13% YoY growth in revenue and EBITDA margins of 25% (28% in 1QFY24).

* ALL recorded its highest-ever quarterly rail cargo volumes in 1Q, with container volumes reaching 0.16m TEUs (up 19% YoY) and bulk cargo exceeding 5.56mmt (up 28% YoY).

* 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, 131 trains, 2.9m 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.

Highlights from the management commentary

* The proportion of non-Mundra domestic ports in the overall cargo distribution increased to 47% in 1QFY25 from 41% in 1Q FY24.

* Gopalpur Port will start contributing to volumes in 2QFY25. Vizhinjam Port will start contributing in Oct’24, with full capacity utilization expected only from FY26 onward.

* A concession agreement was signed in Tanzania. The company has been operating there for 1.5 years, with plans to continue long-term terminal operations without requiring incremental capex.

* Tension in the Middle East and its impact on Haifa: APSEZ teams are highly engaged, and ports are running 24/7. The challenges at Haifa Port are due to geopolitical sanctions on Israel. Some countries have stopped cargo shipments to Haifa, but car imports into Israel have increased significantly, allowing the company to capture car cargo volumes.

* As per the management, cargo volumes are expected to range from 460mmt to 480mmt in FY25, with revenue projected to be ~INR300b.

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 Vizinjham Ports 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%/22% in revenue/EBITDA/PAT over FY24-26. We reiterate our BUY rating with a revised TP of INR1,850 (premised on 20x FY26E EV/EBITDA)

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