Management Speak: Adani Ports & SEZ (Outperformer) - Hazira port visit takeaways; State-of-the-art automated liquid terminal

Event

• We visited Hazira Port, 100% owned by Adani Ports & SEZ (ADSEZ). Following are the key takeaways from the visit:

Details

• Hazira is strategically located on the west coast of the Hazira peninsula and is the only multiproduct port in South Gujarat. The port is in close proximity to the highly industrialized belt of Surat and Ankleshwar (Gujarat). Hazira provides a convenient international trade gateway to Europe, Africa, America and the Middle East and has strong road connectivity to NH-6 (begins from the port and goes to Cuttack).
• Shell has the primary concession for Hazira port, which it received from Gujarat Maritime Board (GMB) in 2003 for 30 years until 2033. Shell sub-leased the concession to ADSEZ in 2010 for non-LNG portion & retained operations for LNG portion. ADSEZ commissioned Hazira port in Jul 2013.
• Hazira currently has 6 berths with a total cargo-handling capacity of 35 MT, which comprises container handling capacity of 1m TEUs (~15MT) and bulk cargo handling capacity of 20MT. The port has the bandwidth to add 7 more berths and increase cargo handling capacity to ~84MT. The port has been developed to handle bulk, break bulk, container and liquid cargo.
• Hazira port has a state-of-the-art liquid-handling terminal with all the four multi-purpose berths being connected to 169 storage tanks by set of 15 pipelines at each berth. The storage facility and jetty operations are integrated and fully automated and have the ability to handle 84 different types of liquid cargo (including crude and POL). Hazira port currently handles 2.6-2.8mt pa of liquid cargo.  
• The port lacks rail connectivity currently and is in talks with KRIBHCO and Indian Railways to connect the port to existing rail line of KRIBHCO which in turn is connected to Mumbai-Delhi line. Hazira handled 16.9mt cargo in FY18 (H1FY19: 10MT), generating revenues of Rs9.6bn and PAT of Rs2.6bn. 

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ADSEZ is striving to diversify its cargo profile by adding cargo like liquids and finished products and by aggressively scaling up the container business. Meanwhile most of its ports have seen strong improvement in coal cargo, which has added to its cargo growth and profitability on improved asset utilisation. We believe sustained water front and land monetization incomes at Mundra and Hazira would support ADSEZ’s earnings over next 3-5 years. The stock trades at 14.4x FY20E earnings and 9.9x EV/EBITDA. Maintain Outperformer with a target price of Rs460.