Adani Ports & SEZ's Q3FY18 results (Outperformer) - Strong rebound in cargo growth
Q3FY18 result highlights
- Adani Ports & SEZ’s (ADSEZ) reported above estimate earnings led by higher than estimated water front monetization income of Rs4bn and net forex MTM gain of Rs1.8bn on current assets and liabilities. Adjusted PAT grew 28.8%yoy to Rs10.9bn and reported PAT grew 17.3%yoy to Rs9.9bn (above estimate of Rs7.6bn).
- After a tepid 2.3%yoy growth in H1, cargo growth bounced back to 16.1%yoy in Q3FY18 (47.6mt), ahead of estimate of 46.7mt. This was led by a 29%yoy growth in containers to 19mt, 10%yoy growth in crude to 5.6mt and 13%yoy growth in coal to 16.2mt (down 9%yoy in H1). Cargo mix: Containers; 40%, Coal; 34%, Crude and others; 26%. Container transhipment volume grew 40%yoy led by vessel upsizing by MSC. Improved coal volumes were led by higher imports.
- ADSEZ expects to start handling container cargo at Dhamra in Q4FY18 (@ 30-40k TEUs pa initially) and add 3mt to crude cargo at Mundra in FY19 due to capacity addition at HMEL refinery.
- Core port Revenue/EBITDA grew 14.5%/19.3% yoy to Rs19.4bn/ Rs13.7bn and port EBITDA margin grew 280bp yoy to 70.5%. Overall revenue and EBITDA grew 21.7%/46.4%yoy to Rs26.9bn/Rs19.7bn.
- Cargo continues to post +10% growth in January 2018 and ADSEZ maintained its guidance of i) an overall cargo growth of 1.5x industry growth in FY18, which implies 8-9% volume growth ii) 100bp increase in port EBITDA margin and iv) Capex of Rs25-28bn.
Key positives: Strong container volumes and recovery in coal cargo.
Key negatives: Impairment of Rs830m of investments in Vizag terminal.
Impact on financials: Raised FY18E earnings by 10% to account for higher water front monetization income. Introduced FY20E earnings.
Valuations & view
Addition of new cargo streams and new volume guarantee contracts improves volume visibility for ADSEZ. Free cash generation should continue to improve going forward and management’s commentary on increasing dividend distribution is an added positive. Maintain Outperformer with a price target of Rs479.
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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