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Strategic MSC alliance strengthens long-term transshipment growth outlook; overall volume to remain healthy

* Adani Ports & SEZ (APSEZ) entered into a definitive agreement with MSC Group's terminal arm, Terminal Investment Limited (TiL), for the sale of a 49% stake in Vizhinjam Port at an implied valuation of USD2.85b, with TiL investing USD1.397b. The partnership is expected to accelerate the port's ramp-up through improved cargo visibility, incremental transshipment volumes, and stronger access to Bangladesh and East Africa trade routes. APSEZ will retain a 51% stake and operational control, while the transaction strengthens Vizhinjam's position as India's leading transshipment hub and provides capital to support its ongoing capacity expansion from 1.6m TEUs to 5.7m TEUs by Dec’28.

* Overall, APSEZ volumes continue to clock healthy growth despite muted industry growth. All-India major port volumes increased 6.6% YoY in May’26 and 4.6% YTD in FY27, driven by strong container traffic growth of ~10%, while POL and fertilizer volumes declined. Non-major port volumes remained broadly flat YoY, supported by healthy container growth of 6%, offset by a 15% decline in POL volumes and an 8% decline in coal volumes. APSEZ handled 48.3mt of cargo in May’26, registering strong growth of 16% YoY, driven by robust performance in liquid cargo (+33% YoY) and containers (+17% YoY). On a YTD basis, cargo volumes increased 15% YoY to 91.4mt, supported by healthy container volume growth of 17% YoY.

* APSEZ has expanded its partnership with US-based Kaleris to accelerate AI-led automation across 15 container terminals spanning nine ports, as part of its broader plan to invest USD850m in technology and decarbonization by 2031. The deployment of Kaleris’ AI-powered terminal to unlock an additional 91mt of capacity by 2030.

* With improving earnings visibility and limited downside risk from ongoing geopolitical tensions, APSEZ is well-positioned to sustain growth, aided by ongoing expansions of port capacity, marine services, and integrated end-to-end logistics. These factors reinforce APSEZ’s vision to become India’s largest integrated transport utility by 2031, with logistics and marine emerging as key growth engines alongside its core ports business. We reiterate our BUY rating with a TP of INR2,050 (based on 16x FY28E EV/EBITDA).

Scale leadership and rising market share underpin long-term growth outlook

* APSEZ operates the largest private port network in India, with 15 ports and terminals across the west, south, and east coasts. The network offers a total capacity of 653mmt. It also operates four international ports in Israel, Sri Lanka, Tanzania, and Australia.

* The company has commissioned the Haldia bulk terminal in Mar’26, with a capacity of ~4mtpa and a draft of 8.5m, supported by a dedicated rail line and integrated conveyor system.

* APSEZ’s domestic market share stood at 26% as of Mar’26. Management highlighted that its domestic port volume growth over the past decade has been more than twice the industry growth rate.

* The container market share has also expanded steadily to 45.5% from 36% during Mar’20-Mar’26. Key capacity expansions, such as the automated Colombo West International Terminal and new berths at Dhamra, along with the rapid ramp-up of Vizhinjam, are strengthening APSEZ’s growth pipeline.

* Looking forward, management retains its target of achieving 850mmt of domestic and 150mmt of international cargo volumes by 2030, with deeper integration into DFC-linked hinterland corridors and industrial clusters driving long-term growth.

Logistics business – Accelerating the shift to a unified logistics ecosystem

* As APSEZ aims to become India's largest integrated transport utility company by 2031, it is strengthening its capabilities across all logistics segments (ports, CTO, warehousing, last-mile delivery, ICDs, etc.). This enables the company to offer end-to-end services, capture a higher wallet share, and ensure cargo volumes remain sticky.

* Adani Logistics (ALL) has expanded its services to cover container train operations, container handling in logistics parks, and warehouses, offering storage and trucking solutions. With 12 multi-modal logistics parks, 132 trains, 3.1m sq. ft. of warehousing space, and 1.3mmt of grain silos, ALL aims to establish a nationwide presence by further developing logistics parks and warehouses.

* APSEZ maintains significant capital investments planned for logistics operations of INR70-90b over FY27-FY31. Further, the company maintains a hybrid model, owning 937 trucks and operating over 26,000 trucks via third parties. It is also expanding value-added services like freight forwarding to improve RoCE

Valuation and view

* APSEZ's strategic partnership with MSC Group is expected to enhance cargo visibility and accelerate volume ramp-up at Vizhinjam ahead of the planned capacity expansion, which is scheduled for completion by FY29. As the port's capacity increases from 1.6m TEUs to 5.7m TEUs, MSC's extensive global shipping network and cargo commitments should support higher asset utilization, strengthen Vizhinjam's position as a leading transshipment hub, and drive sustained growth in APSEZ's transshipment volumes over the medium term.

* With strong cash flows, a healthy cash balance of INR122b, and net debt-toEBITDA at 1.9x, APSEZ is well-positioned for further expansion. Capacity enhancements at key ports, ongoing infrastructure projects, and global port acquisitions provide visibility for stable growth in FY27 and beyond.

* APSEZ’s diversified cargo mix and ongoing infrastructure investments are expected to support its volume growth. We anticipate APSEZ to report 11% growth in cargo volumes over FY26-28. This growth is likely to drive a CAGR of 17%/18%/22% in revenue/EBITDA/PAT over FY26-28E. We reiterate our BUY rating on the stock with a TP of INR2,050 (premised on 16x FY28E EV/EBITDA) Management has outlined its FY31 targets of INR915b in consolidated revenue, EBITDA of INR520b, and CFO of INR468b. Growth is expected to be driven by the logistics and marine segments, whose combined contribution is projected to increase to ~28% of revenue by FY31 from ~18% in FY26, with logistics alone contributing ~21% of total revenue. Management expects EBITDA margins for the logistics and marine businesses to remain healthy at ~15% and ~55%, respectively, with consolidated margin of ~57%.

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