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Temporary volume hit in 1H; growth outlook intact

* Adani Ports & SEZ (APSEZ) handled 183mmt of cargo volumes over AprAug’24. Volumes in 1QFY25 grew 7% YoY but were affected by a worker strike at Gangavaram port during Apr-May’24, which normalized in Jun’24. Aug’24 volumes were also impacted by severe weather in Kutch, affecting operations at Mundra and Tuna. Despite these disruptions in 1HFY25, the management maintains its volume guidance of 460-480mmt for FY25.

* APSEZ continues to focus on capacity expansion. It recently signed a concession agreement with Deendayal Port Authority (DPA) to develop a berth with capacity of 5.7mmt at Kandla, Gujarat. The 300m berth is set to be operational by FY27, expanding APSEZ’s presence at Deendayal port.

* Further, APSEZ has agreed to acquire 80% of Astro for USD185m, valuing the company at USD235m with a 4.4x EV/FY25E EBITDA multiple. Founded in 2009, Singapore-headquartered Astro operates 26 vessels across the Middle East, India, Far East Asia and Africa. The acquisition increases APSEZ’s fleet size to 168 vessels, expanding its presence in key regions and enhancing its Tier-1 customer base.

* While 1HFY25 volumes were temporarily impacted by a worker strike and weather conditions, the situation is normalized now. For FY25, the volume guidance of 460-480mmt remains unchanged. APSEZ is expected to record 2-3x of India’s cargo volume growth. APSEZ targets becoming India’s largest integrated transport utility and the world’s largest private port company by 2030. 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 TP of INR1,850 (based on 20x FY26E EV/EBITDA).

Development of multipurpose berth at Kandla port

* APSEZ has signed a concession agreement with DPA to develop Berth No. 13 at Kandla, Gujarat. A new subsidiary, DPA Container and Clean Cargo Terminal Ltd (DPACCCTL), will manage operations. APSEZ received the Letter of Intent (LoI) in Jul’24 for the 30-year concession under the DBFOT model to handle clean cargo, including containers.

* The 300m berth, with a capacity of 5.7mmt, is set to be operational by FY27, expanding APSEZ’s presence at Deendayal Port and boosting service to Gujarat and north India.

APSEZ acquires majority stake in a leading OSV operator

* APSEZ has agreed to acquire an 80% stake in Astro for USD185m, valuing the company at USD235m with an EV/FY25E EBITDA multiple of 4.4x. The existing promoters of Astro will hold the remaining 20% stake.

* Founded in 2009, Astro is a leading global offshore support vessels (OSV) operator with a fleet of 26 vessels, providing services across the Middle East, India, Far East Asia, and Africa. During FY24, Astro reported USD95m in revenue and USD41m in EBITDA, and was net cash positive.

* The acquisition aligns with APSEZ’s goal to become a leading marine operator, adding Astro's fleet to its 142 tugs and dredgers, bringing the total to 168 vessels. This deal strengthens APSEZ’s presence across the Arabian Gulf, the Indian subcontinent, and far east Asia. It also expands the company’s Tier-1 customer base.

Building infrastructure for strong future 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, it offers end-to-end service to its customers, thereby capturing a higher wallet share and making the cargo sticky in nature.

* The company currently operates 12 multi-modal logistics parks (MMLPs), equipped with 131 trains, 2.9m sq. ft. of warehousing space, and 1.2mmt of grain silos. It plans to expand its footprint and build a pan-India presence with logistic parks and warehouses.

Valuation and view

* APSEZ is expected 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 port and logistics business to drive growth.

* 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 TP of INR1,850 (premised on 20x FY26E EV/EBITDA).

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