Adani Ports becomes 2nd Adani company to cross ₹1 trillion in m-cap

Mumbai: Adani Ports and Special Economic Zone Ltd went beyond the Rs.1 trillion in market capitalisation after its shares hit a record high, up >34% so far this year. This is the second Adani group company after Adani Green Energy Ltd, to have achieved the milestone in the group.

In a recent note to its clients, Antique broking has explained what is working for the company. Antique says that Adani Ports boasts of high-margin & cash-generating port business and would benefit from the revival in India's Exim trade, ramp-up of newer ports, contribution from other divisions like Adani Logistics, and market share gains.

Antique says that its cargo stickiness protected it against material Industry growth disruption (like Covid) while reflecting on its ability to capitalise on the recovery in Industry growth. Antique points out the key strengths for Adani which include:

(1) Company's relentless focus on increasing market share;

2) Diversified offering across the Transportation segments;

(3) Its strong margin profile and Cash flow generating asset;

(4) Recent acquisition of KPCL, helping it balance the regional Portfolio mix;

(5) Vision to reach 500MMT throughput by 2025;

(6) Its access to capital markets to mitigate the refinancing risk, driving the progressive reduction in the cost of debt. Going forward, although near term uncertainty remains with renewed lockdowns globally, Antique expects ADSEZ to benefit the most from India's increasing contribution to global trade.

Krishnapatnam ports operations have turned out to be increasingly better. Antique says that the acquisition of Krishnapatnam Port has helped ADSEZ to balance its East-West Portfolio mix from 23%:77% earlier to 33%:67%. The company recently hosted a showcase event on KPCL to highlight the quick turnaround of the asset via plucking low hanging fruits without doing material capex - i.e.

(1) Optimally utilising existing assets and rationalization of overheads/ operations & vendor process (INR2.5 bn savings p.a.) and

(2) Increase in revenue to the tune of INR800mn by renegotiating customer contracts. Antique says that this helped EBITDA margin to expand to 70% in October 2020 vs. 54% in January 2020 and management targets further expansion to 78% by FY25. Company has aggressive targets to grow Cargo handled/Revenue/EBTIDA at the Port by 1.8x/2.2x/3.2x by FY25. ROCE at the port could touch ~20% by FY25.