Adani Ports & SEZ's Q2FY18 results (Outperformer) - Cargo growth poised to recover in H2
Q2FY18 result highlights
- Adani Ports & SEZ’s (ADSEZ) results were marginally weaker than estimate in operational terms but adjusted PAT of Rs10.6bn (-5.0%yoy) was sharply ahead of estimate of Rs7.3bn due to pre-tax profit of Rs5.5bn on transfer of CT-4 to CMA CGM JV. Reported PAT after derivative MTM loss of Rs683m declined 7.7%yoy to Rs9.9bn.
- Cargo was flat yoy at 43mt (est 44mt) with coal and crude volumes remaining weak and container volumes growing by 16.3% yoy to 17.9mt. Crude volumes were impacted due to shut-down in HMEL refinery for part of the quarter (0.25mt impact). Coal volumes declined 15.2%yoy to 13.4mt led by overall weakness in coal imports (0.5mt impact at Dhamra due to shutdown of a berth at Dhamra. Cargo mix: Containers; 42%, Coal; 33%, Crude and others; 25%.
- Core port Revenue/EBITDA grew 3.4%/5% to Rs18.1bn/Rs12.6bn and EBITDA margin grew 110bp yoy to 69.5%. Net debt declined Rs7.4bn in H1FY18 to Rs179bn.
- Cargo growth has improved in Oct/Nov with likely growth of +10%yoy. ADSEZ guided for i) an overall cargo growth of 1.5x industry growth in FY18, which implies 8-9% volume growth in FY18 ii) 100bp increase in port EBITDA margin and iv) Capex of Rs25-28bn (ex-Kattupalli).
Key positives: Strong growth in container cargo and new cargo tie-ups.
Key negatives: Weakness in coal cargo volumes.
Impact on financials: Raised FY18E/FY19E earnings by 6.5%/6.7% to account for profit on CT-4 transfer and higher other income.
Valuations & view
Addition of new cargo streams and new volume guarantee contracts with clients like JSW Cement, Tata Steel & SAIL improves volume visibility for ADSEZ. Management’s commentary on raising dividends/shareholder distribution in future is an added positive. Maintain Outperformer with a revised FY19 based price target of Rs470 with revision led by improved visibility on water front/land monetization and improved volume visibility/guidance for Vizhinjam & Kattupalli.
Adani Ports and Special Economic Zone Limited is an India-based port infrastructure company. The Company is engaged in the business of developing, operating and maintaining the Port and Port-based related infrastructure facilities, including Multi product Special Economic Zone (SEZ). Its segments include Port and SEZ Activities, and Others. Its Others Segment mainly includes Aircraft Operating Income and Services. The Company also provides logistics and infrastructure that moves goods from the port to customers. Its port services include marine, handling intra-port transport, storage, other value-added and evacuation services for a range of customers, primarily terminal operators, shipping lines and agents, exporters, importers and other port users. The categories of cargo handled at the Company's ports are bulk, containers and crude oil. It operates approximately 10 ports/terminals spread across over five states of India, including Gujarat, Goa, Andhra Pradesh, Tamil Nadu and Odisha.
IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.
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