Adani Ports delivered strong topline sales growth at 33% year-on-year (YoY) at Rs 5,210 crore, which was 8%/13% higher than Nomura/consensus estimates. EBITDA at Rs 2891 crore (+14% YoY) was also ahead of the Nomura estimate. EBITDA margin at 63% is also stable with a turnaround in logistics segment profitability.
Adani Logistics’ ROCE improved to 7% in 1HFY23 (vs 2-3% over FY21-22) but is below the Group threshold of 16%+ for mature assets. Management expects ROCE improvement over the next 2-3 years, closing the gap to 16% with the deployment of more bulk rail rakes, commissioning of agri-logistics warehouses and development of 10 mn sqft of warehouse space, said Nomura.
“Management highlighted that Adani Ports possess 14,000 acres of SEZ land at Mundra and a further 6,000 acres at East coast ports of Dhamra and Krishnapatnam. These lands have significant development potential, in our view, with management confirming that SEZ’s annual revenue guidance of Rs 8-10 billion does not include large land monetization,” the brokerage said in its report.
However, management did highlight that land sales prospects are improving, and there exists the potential for significant land sales over the next 2-3 years, though the timing of such sales is uncertain, it added. We view this as a source of upside to our EBITDA estimates with a significant government push to set up manufacturing facilities, said the global brokerage.
Nomura further said that the company also expects to exit the controversial Myanmar project (due to a military coup) by end-FY23 which could be viewed as a positive by investors from a governance standpoint.
“We continue to value Adani Ports on a DCF basis for its port assets as they are limited-life concessions, and a multiple-based approach (EV/EBITDA) may not be completely appropriate. We maintain the cost of equity at 10.5% as we factor in equity beta at 0.7x, considering declining investor risk perception on corporate governance concerns, resulting in WACC of 8.9%,” Nomura said while setting a target price of Rs 1,025.
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