Adani Ports & SEZ's Q4FY19 results (Outperformer) - Strong cargo growth; strong guidance

Q4FY19 result highlights

• Total cargo grew by 20%yoy to 54.5mt, ahead of our estimate of 53.5mt due to higher coal cargo at Mundra (total containers: +11%yoy). Consolidated cargo grew by 15%yoy to 208mt in FY19 with container cargo growing 13%yoy to 84mt (5.8m TEUs).    
• However, Revenue for Q4FY19/FY19 declined by 4%/7%yoy to Rs30.8bn/Rs109.3bn in Q4FY19 (est Rs31.8bn)/FY19, on account of decline in SEZ revenue to Rs3.6bn/Rs7.7bn (vs Rs8bn/24.8bn in Q4FY18/FY18).  EBITDA came in at Rs20.4bn (in line with our est), a growth of 20% yoy on account of higher volume in port business. EBITDA margin (adjusted for fx) was 63% (up 200bp yoy). EBITDA for FY19 came in at Rs66bn (decline of 7% yoy)
• As a result, Adani Ports & SEZ’s (ADSEZ) Q4FY19 PAT grew by 41% to Rs13.9bn (est of Rs13.7bn) while FY19 PAT was flat at Rs40.2bn,  as higher port EBITDA was offset by decline in EBITDA from SEZ business.
• ADSEZ  has guided for i) 15% growth in cargo in FY20 (led by incremental 9mt of coal and 10mt of container) ii) EBITDA growth of 14-16% iii) 150bp increase in port EBITDA margin iv) Capex of Rs25bn (in core business),  Rs5bn in  logistics and Rs10bn in Myanmar v) Dividend pay out of more than 15% of PAT from FY20.

Key positives: Strong growth in containers and agreement to build and operate a container terminal in Myanmar of 0.8m TEU

Impact on financials: Maintain our FY20E estimates and introduce our FY21E EPS of Rs26.5/share

Valuations & view

ADSEZ is reaping benefits of diversified cargo profile and diversified geographic presence across both the coasts. Even as container cargo continues to witness sustained growth, there has been a strong improvement in coal cargo at most of its ports, which has added to both its cargo growth as well as profitability due to improved asset utilisation. ADSEZ’s earnings should also be supported by sustained water front and land monetization incomes at Mundra and Dhamra over the next 3-5 years. We expect cargo CAGR of 13.3% over FY18-20 leading to CAGR of 17.6% in port EBITDA. With capex peaking out, FCF have started to improve. ADSEZ trades at 14.8x FY20E earnings and 10.7x EV/EBITDA. Maintain Outperformer with a revised price target of Rs472, rolled over to FY21.