ADANI PORTS AND SEZ Another feather in the cap

Transcription

1 EVENT UPDATE ADANI PORTS AND SEZ Another feather in the cap India Equity Research Infrastructure - Ports Adani Ports and SEZ (Adani Ports) will be setting up its fourth container terminal in 50:50 joint venture (JV) with France s CMA CGM with capacity of mn TEUs and entailing capex of INR21bn. While we had already factored in container capacity addition, we now revise our non-tied up cargo growth rate to 10% (7% earlier) and also incorporate the revised Ke estimates translating into higher TP of INR281 (INR229). Maintain BUY. JV with CMA CGM, France, for fourth container terminal at Mundra Adani Ports will be setting up its fourth container terminal at Mundra in 50:50 JV with the France-based CMA CGM Group, the world s third largest liner (after Maersk and MSC). The terminal will have berth length of 650mtrs, draft of 16.5mtrs, capable of handling 18,000 TEU vessels and a 27 hectare container yard. The project entails additional dredging, high-end handling equipment and construction period of 24 months at an investment of INR21bn. The terminal will have capacity of ~1.3m TEUs which will make Mundra India s largest container port with 5.3m TEU capacity JNPT currently has 4.5m TEU capacity, to double post completion of its fourth terminal). Strategic partnerships to enhance cargo visibility This is the third JV that Adani Ports has entered into for container facilities at Mundra. Earlier, it had entered into an agreement with Dubai Ports (erstwhile P&O) for a 1.25m TEUs terminal (CT1) towards early In 2012, it signed a JV with MSC for a terminal (CT3) with capacity of 1.5m TEUs. Such strategic tie-ups are a win-win proposition for the ports as well as the shipping liners with the latter ensured of preferential berthing and faster turnaround, while cargo visibility increases for the ports. Management maintained they will continue to look for similar partnerships going ahead as well. Outlook and valuations: On expected lines; maintain BUY Management is fairly confident of achieving full utilisation of the new terminal within five years after commencing operations. Further, the recent acquisition of Dhamra Port and subsequent capex plans are expected to help the company achieve its 200MT of cargo handling target by FY17. We have revised our SOTP-based TP to INR281 (INR229 earlier) factoring in 10% spot cargo growth rate (7% earlier) and 12% Ke (13% earlier). Maintain BUY/Sector Outperformer. EDELWEISS 4D RATINGS Absolute Rating Rating Relative to Sector BUY Risk Rating Relative to Sector Low Sector Relative to Market Outperformer Underweight MARKET DATA (R: APSE.BO, B: ADSEZ IN) CMP : INR 258 Target Price : INR week range (INR) : 283 / 117 Share in issue (mn) : 2,070.1 M cap (INR bn/usd mn) : 535/ 8,937 Avg. Daily Vol.BSE/NSE( 000) : 3,423.1 SHARE HOLDING PATTERN (%) Current Q3FY14 Q2FY14 Promoters * MF's, FI's & BK s FII's Others * Promoters pledged shares (% of share in issue) PRICE PERFORMANCE (%) Stock Nifty : 2.4 EW Power Index 1 month months months Financials (Consolidated) Revenue (INR mn) 35,766 48,240 65,091 78,673 EBITDA (INR mn) 23,835 29,778 40,500 49,458 Net profit (INR mn) 16,232 17,396 21,020 30,622 P/B (x) EV/EBITDA (x) ROAE (%) Edelweiss Research is also available on Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset. Shankar.K shankar.k@edelweissfin.com Santosh Hiredesai santosh.hiredesai@edelweissfin.com July 8, 2014 Edelweiss Securities Limited

2 Infrastructure - Ports Table 1: SOTP Method CoE Value Stake Value of stake Price per share % age of SOTP (%) (INR mn) (%) (INR mn) (INR) (%) Mundra Port DCFE , , CT3/4/5. DCFE , , SEZ DCFE , , Dahej Port DCFE , , Mormugao Terminal DCFE , , Hazira Port DCFE , , Vizag Coal DCFE , , Ennore Cont. Terminal DCFE , , Kandla Bulk Terminal DCFE , , Dhamra Port DCFE , , ALL P/BV 1x FY13 3, , Cash/ICD & equivalents BV FY15E 29, , Total 665, , Source: Edelweiss research Change in Estimates FY15E FY16E New Old % change New Old % change Comments Net Revenue 65,091 56, ,673 68, Consolidating Dhamra Port EBITDA 40,500 36, ,458 43, EBITDA Margin Core profit 21,446 22,625 (5.2) 31,512 30, PAT Margin Capex 5,888 5, ,161 14, financials 2 Edelweiss Securities Limited

3 Adani Ports and Special Economic Zone Company Description Incorporated as Gujarat Adani Port Limited on May26, 1998, commercial operations began in October 2001, post entering into concession agreement with GMB to build, operate and maintain the port for a period of 30 years till 2031 extendable by another 20 years. The port is into providing cargo handling services for bulk, crude and container cargo. The company has also received approval to develop the adjacent port land as a multi-product SEZ. Notification has been issued to ~16,000 acres of land while the company is in talks to acquire more land to add to its SEZ portfolio. While the company is also bidding for other domestic and international port projects it has also invested in value added services like logistics support, providing container rail services and inland container depots to diversify from its core port business. Investment Theme Long-term contracts and volume recovery to lead race to pole position Since inception, Mundra Port & SEZ (MPSEZ) has posted 35% CAGR and handled ~40 MT cargo in FY10, higher than most other major Indian ports. Also, it has hedged cargo uncertainty risk by getting into long-term service contracts (45% of total cargo to be handled in FY14E). The port is expected to continue its current growth momentum over the coming 2-3 years, handling ~96 MT of cargo by FY13E, and pip major Indian ports to pole position from its current seventh position. A unique port: One of its kind in India MPSEZ, under the aegis of the parent company Adani Enterprises, has been instrumental in developing a deep draft gateway port and SEZ strategically on the West coast of India with state of-the-art infrastructure and capability to handle diversified cargo. Such a third generation port acting as one-stop-shop for export/import logistics is in unique league of ports and one of its kinds in India. Strong pipeline of projects; expansion on the radar The company has a strong portfolio of projects on the Indian west coast other than the flagship Mundra port. The projects are a mix of brown-field port development i.e. currently at Dahej & Hazira and as terminal operator at the major ports i.e. coal terminal under development at the Murmagao port. Such projects would help the company gain a pan India presence. While the company is looking at setting up a large port on the east cost of India, it has also been scouting for opportunities to go global and has recently evinced interest in port development projects in Australia and Indonesia, in line with its long-term strategy. Key Risks Uncertainty in traffic at ports: Since cargo at ports is contingent on international trade, any slowdown in it could affect Mundra Port as well. Regulatory changes regarding SEZs : The existing SEZ policies and benefits outlined by the government to promote exports are relatively new and are being continuously reviewed. Any changes in the form of reversal of current tax benefits to units under the SEZ umbrella will significantly undermine incentives for industries to setup units in the SEZ, hampering current plans of land sale. Land parcel sale at the SEZ is yet to pick up. 3 Edelweiss Securities Limited

4 Infrastructure - Ports Financial Statements Key Assumptions Year to March FY13 FY14E FY15E FY16E Macro GDP(Y-o-Y %) Inflation (Avg) Repo rate (exit rate) USD/INR (Avg) Company Mundra cargo handled (MT) Average realisation (INR/t) EBITDA margin (%) SEZ land sold (Acre) Dahej Cargo handled (MT) Avg realisation (INR/t) Hazira Cargo handled (MT) Avg realisation (INR/t) Average Interest rate (%) Average Depreciation rate (%) Tax rate (%) Dividend payout ratio (%) Net borrowings (INR mn) 98, , , ,238 Capex (INR mn) (65,139) 7,138 5,889 14,161 Debtor days Inventory days Payable days Income statement (INR mn) Net revenue 35,766 48,240 65,091 78,673 Cost of Operations 9,129 14,798 18,977 22,614 Other operating expenses 1,496 2,047 3,511 4,155 Employee costs 1,308 1,616 2,102 2,446 Total operating expenses 11,932 18,462 24,590 29,215 EBITDA 23,835 29,778 40,500 49,458 Depreciation and amortisation 4,220 6,495 7,793 8,306 EBIT 19,615 23,283 32,708 41,152 Other income 2,644 6,836 1,701 3,432 Interest expenses 4,894 7,659 11,984 10,559 Profit before tax 17,365 22,461 22,425 34,025 Provision for tax 1,231 2, ,513 Net profit 16,134 20,094 21,446 31,512 Extraordinary income/ (loss) (599) (2,684) - - Minority interest + pre- 15,535 17,410 21,446 31,512 Minority interest Share in profit of associates Profit after minority interest 16,232 17,396 21,020 30,622 Basic EPS (INR) Shares outstanding (mn) 2,003 2,070 2,070 2,070 Diluted EPS (INR) Dividend per share (INR) Dividend payout (%) Common size metrics Operating expenses Depreciation Interest expenditure EBITDA margins Net profit margins Growth ratios (%) Revenues EBITDA PBT (0.2) 51.7 Net profit EPS Edelweiss Securities Limited

5 Adani Ports and Special Economic Zone Balance sheet (INR mn) As on 31st March FY13 FY14 FY15E FY16E Equity capital 4,035 4,168 4,168 4,168 Reserves & surplus 62,272 83, , ,311 Shareholders funds 66,307 87, , ,479 Minority interest (BS) 1,423 1,437 1,862 2,752 Short term debt 4,047 4,056 4,056 4,056 Long term debt 102, , , ,230 Borrowings 106, , , ,285 Deferred tax liability 5,286 6,744 6,744 6,744 Sources of funds 179, , , ,260 Tangible assets 103, , , ,246 Intangible assets 3,165 3,165 3,165 3,165 CWIP (incl. intangible) 36,377 18,189 5,652 4,418 Total net fixed assets 143, , , ,829 Non current investments 2, Cash and equivalents 8,306 5,139 19,158 38,047 Inventories 980 1,694 2,173 2,589 Sundry debtors 8,023 14,276 15,812 20,554 Loans and advances 28,982 63,327 43,297 43,297 Other current assets 18,510 9,882 9,882 9,882 Total current assets (ex cash) 56,494 89,179 71,163 76,322 Trade payable 1,742 2,648 3,527 4,190 Others current liabilities 28,972 31,322 31,322 31,322 Total current liabilities & 30,715 33,970 34,849 35,512 Net current assets (ex cash) 25,779 55,209 36,315 40,810 Uses of funds 179, , , ,260 Book value per share (INR) Cash flow metrics Operating cash flow 13,791 (20,041) 58,416 42,449 Investing cash flow (46,898) (302) (24,218) (10,728) Financing cash flow 41,377 13,015 (20,180) (12,832) Net cash flow 8,270 (7,328) 14,019 18,889 Capex 65,139 (7,138) (5,889) (14,161) Dividends paid (1,630) (2,422) (2,422) (2,422) Share issuance/(buyback) , Profitability & efficiency ratios ROAE (%) ROACE (%) Debtors days Current ratio Debt/EBITDA Fixed asset turnover (x) Average working capital turnover Average capital employed Debt/Equity Adjusted debt/equity Operating ratios Total asset turnover Fixed asset turnover Equity turnover Free cash flow (INR mn) Net profit 16,232 17,396 21,020 30,622 Depreciation 4,220 6,495 7,793 8,306 Others (376) ,708 8,017 Gross cash flow 20,076 24,727 39,522 46,944 Less: Changes in WC 6,285 44,768 (18,894) 4,495 Operating cash flow 13,791 (20,041) 58,416 42,449 Less: Capex (65,139) 7,138 5,889 14,161 Free cash flow 78,930 (27,179) 52,527 28,289 Valuation parameters Diluted EPS (INR) Y-o-Y growth (%) CEPS (INR) Diluted PE (x) Price/BV (x) EV/Sales (x) EV/EBITDA (x) Dividend yield (%) Peer comparison valuation Market cap EV/EBITDA (X) Price/BV (X) ROAE (%) Name (USD mn) FY15E FY16E FY15E FY16E FY15E FY16E Adani Ports and Special Economic Zone 8, Essar Ports Gujarat Pipavav Port Median AVERAGE Source: Edelweiss research 5 Edelweiss Securities Limited

6 Infrastructure - Ports Additional Data Directors Data Mr. Gautam S. Adani CMD, Promoter & Executive Director Mr. Rajesh S. Adani Promoter & Non-Independent Director Mr. Rajeeva Ranjan Sinha Executive Director Dr. Malay Mahadevia Executive Director Mr. Arun Duggal Independent & Non Executive Director Mr. D. T. Joseph Independent & Non Executive Director Prof. G. Raghuram Independent & Non Executive Director Mr. G.K. Pillai Independent & Non Executive Director Mr. Sanjay Lalbhai Independent & Non Executive Director Auditors - M/s. S. R. Batliboi & Associates Holding Top 10 Perc. Holding Perc. Holding Baytree Investments (Mauritius) 1.39 T Rowe Price Associates 1.03 Fidelity Management & Research 0.77 Vanguard Group Inc 0.63 UTI Asset Management Co Ltd 0.50 Columbia Wanger Asset Management 0.48 Norges Bank 0.46 HDFC Asset Management Co Ltd 0.43 Blackrock Fund Advisors 0.35 HDFC Life Insurance Co Ltd 0.26 *as per last available data Bulk Deals Data Acquired / Seller B/S Qty Traded Price No Data Available *in last one year Insider Trades Reporting Data Acquired / Seller B/S Qty Traded No Data Available *in last one year 6 Edelweiss Securities Limited

7 RATING & INTERPRETATION Company Absolute reco Relative reco Relative risk Company Absolute reco Relative reco Relative Risk Adani Ports and Special Economic Zone BUY SO L Essar Ports BUY None None Gujarat Pipavav Port HOLD None None ABSOLUTE RATING Ratings Expected absolute returns over 12 months Buy More than 15% Hold Between 15% and - 5% Reduce Less than -5% RELATIVE RETURNS RATING Ratings Sector Outperformer (SO) Sector Performer (SP) Criteria Stock return > 1.25 x Sector return Stock return > 0.75 x Sector return Stock return < 1.25 x Sector return Sector Underperformer (SU) Stock return < 0.75 x Sector return Sector return is market cap weighted average return for the coverage universe within the sector RELATIVE RISK RATING Ratings Low (L) Medium (M) High (H) Criteria Bottom 1/3rd percentile in the sector Middle 1/3rd percentile in the sector Top 1/3rd percentile in the sector Risk ratings are based on Edelweiss risk model SECTOR RATING Ratings Overweight (OW) Equalweight (EW) Criteria Sector return > 1.25 x Nifty return Sector return > 0.75 x Nifty return Sector return < 1.25 x Nifty return Underweight (UW) Sector return < 0.75 x Nifty return 7 Edelweiss Securities Limited

8 Infrastructure - Ports Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai Board: (91-22) , research@edelweissfin.com Vikas Khemani Head Institutional Equities vikas.khemani@edelweissfin.com Nischal Maheshwari Co-Head Institutional Equities & Head Research nischal.maheshwari@edelweissfin.com Nirav Sheth Head Sales nirav.sheth@edelweissfin.com Coverage group(s) of stocks by primary analyst(s): Infrastructure - Ports Adani Ports and Special Economic Zone, Essar Ports, Gujarat Pipavav Port Recent Research Date Company Title Price (INR) Recos 16-May-14 Adani Ports and SEZ 15-May-14 Adani Ports and SEZ Acquires Dhamra port from L&T, Tata Steel; EdelFlash Net sustains though operationally weak; Result Update 15-May-14 Essar Ports Business as usual; Result Update 225 Buy 220 Buy 69 Buy Distribution of Ratings / Market Cap Edelweiss Research Coverage Universe Buy Hold Reduce Total Rating Interpretation Rating Expected to Rating Distribution* * 1 stocks under review > 50bn Between 10bn and 50 bn < 10bn Market Cap (INR) Buy Hold Reduce appreciate more than 15% over a 12-month period appreciate up to 15% over a 12-month period depreciate more than 5% over a 12-month period 8 Edelweiss Securities Limited

9 Adani Ports and Special Economic Zone General Disclaimer: DISCLAIMER This report has been prepared by Edelweiss Securities Limited (Edelweiss). Edelweiss, its holding company and associate companies are a full service, integrated investment banking, portfolio management and brokerage group. Our research analysts and sales persons provide important input into our investment banking activities. This report does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable, but we do not represent that it is accurate or complete and it should not be relied on as such. Edelweiss or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This report is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. The user assumes the entire risk of any use made of this information. Each recipient of this report should make such investigation as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this report (including the merits and risks involved), and should consult his own advisors to determine the merits and risks of such investment. The investment discussed or views expressed may not be suitable for all investors. We and our affiliates, group companies, officers, directors, and employees may: (a) from time to time, have long or short positions in, and buy or sell the securities thereof, of company (ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as advisor or lender/borrower to such company (ies) or have other potential conflict of interest with respect to any recommendation and related information and opinions. This information is strictly confidential and is being furnished to you solely for your information. This information should not be reproduced or redistributed or passed on directly or indirectly in any form to any other person or published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject Edelweiss and affiliates/ group companies to any registration or licensing requirements within such jurisdiction. The distribution of this report in certain jurisdictions may be restricted by law, and persons in whose possession this report comes, should inform themselves about and observe, any such restrictions. The information given in this report is as of the date of this report and there can be no assurance that future results or events will be consistent with this information. This information is subject to change without any prior notice. Edelweiss reserves the right to make modifications and alterations to this statement as may be required from time to time. However, Edelweiss is under no obligation to update or keep the information current. Nevertheless, Edelweiss is committed to providing independent and transparent recommendation to its client and would be happy to provide any information in response to specific client queries. Neither Edelweiss nor any of its affiliates, group companies, directors, employees, agents or representatives shall be liable for any damages whether direct, indirect, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. Past performance is not necessarily a guide to future performance. The disclosures of interest statements incorporated in this report are provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. Edelweiss Securities Limited generally prohibits its analysts, persons reporting to analysts and their dependents from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. The information provided in these reports remains, unless otherwise stated, the copyright of Edelweiss. All layout, design, original artwork, concepts and other Intellectual Properties, remains the property and copyright Edelweiss and may not be used in any form or for any purpose whatsoever by any party without the express written permission of the copyright holders. Analyst Certification: The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report. Analyst holding in the stock: Yes. Edelweiss shall not be liable for any delay or any other interruption which may occur in presenting the data due to any reason including network (Internet) reasons or snags in the system, break down of the system or any other equipment, server breakdown, maintenance shutdown, breakdown of communication services or inability of the Edelweiss to present the data. In no event shall the Edelweiss be liable for any damages, including without limitation direct or indirect, special, incidental, or consequential damages, losses or expenses arising in connection with the data presented by the Edelweiss through this presentation. 9 Edelweiss Securities Limited

10 Infrastructure - Ports Disclaimer for U.S. Persons This research report is a product of Edelweiss Securities Limited, which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker-dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker-dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account. This report is intended for distribution by Edelweiss Securities Limited only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person, which is not the Major Institutional Investor. In reliance on the exemption from registration provided by Rule 15a-6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, Edelweiss Securities Limited has entered into an agreement with a U.S. registered broker-dealer, Enclave Capital, LLC ("Enclave"). Transactions in securities discussed in this research report should be effected through Enclave Capital, LLC. Disclaimer for U.K. Persons The contents of this research report have not been approved by an authorised person within the meaning of the Financial Services and Markets Act 2000 ("FSMA"). In the United Kingdom, this research report is being distributed only to and is directed only at (a) persons who have professional experience in matters relating to investments falling within Article 19(5) of the FSMA (Financial Promotion) Order 2005 (the Order ); (b) persons falling within Article 49(2)(a) to (d) of the Order (including high net worth companies and unincorporated associations); and (c) any other persons to whom it may otherwise lawfully be communicated (all such persons together being referred to as relevant persons ). This research report must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this research report relates is available only to relevant persons and will be engaged in only with relevant persons. Any person who is not a relevant person should not act or rely on this research report or any of its contents. This research report must not be distributed, published, reproduced or disclosed (in whole or in part) by recipients to any other person. Disclaimer for Canadian Persons This research report is a product of Edelweiss Securities Limited ("ESL"), which is the employer of the research analysts who have prepared the research report. The research analysts preparing the research report are resident outside the Canada and are not associated persons of any Canadian registered adviser and/or dealer and, therefore, the analysts are not subject to supervision by a Canadian registered adviser and/or dealer, and are not required to satisfy the regulatory licensing requirements of the Ontario Securities Commission, other Canadian provincial securities regulators, the Investment Industry Regulatory Organization of Canada and are not required to otherwise comply with Canadian rules or regulations regarding, among other things, the research analysts' business or relationship with a subject company or trading of securities by a research analyst. This report is intended for distribution by ESL only to "Permitted Clients" (as defined in National Instrument ("NI ")) who are resident in the Province of Ontario, Canada (an "Ontario Permitted Client"). If the recipient of this report is not an Ontario Permitted Client, as specified above, then the recipient should not act upon this report and should return the report to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any Canadian person. ESL is relying on an exemption from the adviser and/or dealer registration requirements under NI available to certain international advisers and/or dealers. Please be advised that (i) ESL is not registered in the Province of Ontario to trade in securities nor is it registered in the Province of Ontario to provide advice with respect to securities; (ii) ESL's head office or principal place of business is located in India; (iii) all or substantially all of ESL's assets may be situated outside of Canada; (iv) there may be difficulty enforcing legal rights against ESL because of the above; and (v) the name and address of the ESL's agent for service of process in the Province of Ontario is: Bamac Services Inc., 181 Bay Street, Suite 2100, Toronto, Ontario M5J 2T3 Canada. Copyright 2009 Edelweiss Research (Edelweiss Securities Ltd). All rights reserved Access the entire repository of Edelweiss Research on 10 Edelweiss Securities Limited