Adani Ports & SEZ Rating: Target price: EPS:

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1 Adani Ports & SEZ : price: EPS: Volume traction continues in a seasonally good quarter; maintain Adani Ports & SEZ reported a good quarter with total operating revenues (standalone) of Rs. 8.02bn and PAT of Rs. 4.77bn with a 8% yoy fall in revenue due to lower realizations but posted a 15% growth in PAT due to higher other income and forex gains. Consolidated revenues for the quarter is Rs bn with a PAT of Rs. 4.51bn; adjusting for the forex related losses PAT for the quarter grew to Rs. 3.74bn vs. Rs in 3QFY13 (a 30% yoy growth). Long term & short term loans and advances increased from Rs bn in March 2013 to Rs bn in Sept Consequently the total debt increased from Rs. 107bn to Rs. 122bn during the same period. Mundra Port s cargo volumes for the quarter is 26.5mn tonnes vs. 21.4mn in 3QFY13 and vs. 24.6mn 2QFY14, a 24% yoy and a 8% qoq growth. Container volumes grew ~58% yoy due to seasonality; it also indicates an increase in market share as shipping lines prefer to call on more efficient ports (as the system level container volume growth was flattish during the same period). Volumes at Dahej was 1.68mn tonnes (down 32% yoy) and at Hazira it was 0.95mn tonnes vs. 0.14mn in 2QFY13. Valuation Discussion Though cash flow got a boost due to receiving part of the consideration towards Abbot in 2QFY14 and from the asset sale related to CT-3, the large increase in Loans and advances (for capital advances) remains a concern as it suppresses the return ratios and increases leverage. Also the USD800mn corporate guarantee related to Abbot Point still remains (management informed that the corporate guarantee will be vacated by March 2014). We continue to value the stock on an SoTP basis yielding a fair value of / share. We continue to like the company s diversified exposure to cargo, high growth potential in cargo volumes (31% CAGR consolidated volumes and 24% CAGR at Mundra for FY12-15E) and the high RoEs (>20%). Hence we maintain our positive stance on the Company subject to the concerns mentioned above. Reiterate with a TP of / share. Financial summary (Consolidated) Year Revenues (Rs. mn) EBITDA (Rs. mn) PAT (Rs. mn) EPS (Rs.) P/E (x) FY12 35,766 23,760 16, FY13E 38,473 24,864 17, FY14E 44,410 28,690 17, QFY14 Update Date Jan 28, 2014 Market Data SENSEX Nifty 6127 Bloomberg Shares o/s Market Cap ADSEZ IN 2,070mn Rs. 300bn 52-wk High-Low Rs m Avg. Daily Vol Index member Rs. 358mn BSE100 Latest shareholding (%) Promoters 75.0 Institutions 20.2 Public 4.8 Stock performance (%) 1m 3m 12m ADSEZ -9.5% -0.2% 5.9% Sensex -2.4% 0.5% 2.9% BSE % 0.3% -0.4% Bharanidhar Vijayakumar bharanidhar@sparkcapital.in Find Spark research on Bloomberg (SPAK <go>), Thomson First Call, Reuters Knowledge and Factset 1

2 Adani Ports & SEZ Quarterly Financial Results Standalone Rs. mn \ Period 30-Dec Dec-12 YoY Growth 30-Sep-13 QoQ Growth FY13 FY14E Annual Growth Income from Operations 8,018 8,682-8% 7,941 1% 31,111 30,224-3% Other Operating Income % 840-7% 2,499 2,549 2% Total Expenditures 2,908 2,267 28% 2,855 2% 8,908 9,183 3% EBITDA 5,892 6,655-11% 5,926-1% 24,702 23,590-5% EBITDA, % 67% 75% 67% 73% 72% -2% Other Income 1, % 2,501-31% 2,032 3,105 53% Depreciation 1, % 1,200 1% 3,424 3,092-10% Interest Expenses 1,032 1,582-35% 3,271-68% 4,419 4,363-1% Forex loss (280) PBT 5,158 4,375 18% 4,235 22% 18,892 19,240 2% Taxes % % 1,350 1,375 2% PAT 4,771 4,154 15% 3,479 37% 17,542 17,865 2% EPS (in Rs.) % % % 2

3 Rs. mn mn tonnes Adani Ports & SEZ Quarterly Performance Standalone total revenues grows 14% yoy Volume at Mundra grows 24% yoy 10,000 7,714 71% 8,781 8,800 67% 67% 90% 80% 70% 60% Containers 50% 40% Bulk 5,000 3QFY13 2QFY14 3QFY14 Revenues adj. for lease rentals (LHS) Adj. EBITDA Margins, % (RHS) 30% 3QFY13 2QFY14 3QFY14 Source: Company Source: Company Consolidated level cargo volumes mn tonnes 3QFY13 2QFY14 3QFY14 QoQ YoY Mundra % 24% Dahej % -35% Hazira % 579% Total Cargo % 21% Actual vs. Estimates (Standalone) 3QFY14 Actual Spark Estimate Delta Revenue 8,800 10,852-19% EBITDA 5,892 7,813-25% Margin (%) 67% 72% (504bps) PAT 4,770 4,028 18% Margin (%) 54% 37% 1709bps EPS All figures in Rs. mn, except EPS, which is in Rs. 3

4 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 (Rs.) (Rs.) Adani Ports & SEZ Key Estimate Revisions and Valuations Key estimate revision (Cons.) new numbers excluding Abbot ADSEZ SoTP Valuation at the end of FY14E FY14E FY15E Old New Change Old New Change Revenue 38,473 38,473 0% 44,410 44,410 0% EBITDA 24,864 24,864 0% 28,690 28,690 0% Margin (%) 65% 65% 65% 65% PAT 17,052 17,052 0% 17,692 17,692 0% Margin (%) 44% 44% 40% 40% EPS % % Asset Stake, % CoE, % Value to ADSEZ Per Share (Rs.) % to Total Stand Alone Entity 100% 15% 233, % Adani Petronet (Dahej) Port 74% 14% 27, % Adani Murmugao Port Terminal 100% 14% 11, % Adani Hazira Port Terminal 100% 14% 43, % Total 314, % All figures in Rs. mn, except EPS, which is in Rs. 1 year forward P/E price bands 1 year forward P/BV price bands x 19.0x 17.0x 15.0x x 4.0x 3.0x 2.0x Price Price Source: Bloomberg, Spark Capital Research Source: Bloomberg, Spark Capital Research 4

5 Adani Ports & SEZ Standalone Financial Summary Abridged Financial Statements (Standalone) Key metrics Rs. mn FY12 FY13 FY14E FY15E FY12 FY13 FY14E FY15E Profit & Loss Growth Ratios Revenues 24,819 33,611 32,773 36,069 Cargo Volume, MT EBITDA 17,119 24,702 23,590 26,023 Revenues 31.7% 35.4% -2.5% 10.1% Other Income 427 2,032 3, EBITDA 30.7% 44.3% -4.5% 10.3% Depreciation 2,735 3,424 2,758 2,989 PBT 17.9% 48.8% 5.0% -3.8% EBIT 14,811 23,311 24,196 23,497 PAT 19.4% 49.0% 5.0% -3.8% PBT 12,696 18,892 19,833 19,087 PAT after MI PAT 11,773 17,542 18,416 17,723 Performance ratios RoA (%) 11.2% 11.5% 9.6% 9.3% Balance Sheet RoE (%) 24.7% 29.4% 24.5% 19.5% Net Worth 52,385 67,040 83,261 98,655 RoCE (%) 14.1% 15.2% 12.7% 12.4% Total Debt 61,727 99, ,594 58,188 Total Assets Turnover (x) Deferred Tax Liability (net) 9,264 6,165 12,873 12,873 Fixed Assets Turnover (x) Other liabilities 4,297 5,530 6,261 5,530 Working capital Turnover (x) Total Networth & Liabilities 127, , , ,245 Financial stability ratios Gross Fixed assets 71,403 82,679 83,679 90,679 Net Debt to Equity (x) Net fixed assets 60,622 76,036 64,144 68,156 Current ratio (x) Investments 21,899 23,099 26,699 26,699 Working capital days Loans and Advances 20,429 24,276 47,711 32,711 Inventory & Debtor days Goodwill on Cosolidation 18,376 12,073 13,214 13,214 Creditor days Cash and bank balances 5,359 5,936 8,618 9,893 Interest cover (x) Receivables & other current assets 5,264 41,133 46,340 29,222 Valuation metrics Current Liabilities 4,275 4,335 2,738 4,649 Fully Diluted shares (mn) 2,003 2,003 2,070 2,070 Net current assets 6,348 42,735 52,220 34,466 Fully diluted M. Cap (Rs.mn) 290,435 Total Assets 127, , , ,245 Fully Diluted EPS (Rs.) P/E (x) Cash Flows EV (Rs.mn) 346, , , ,729 Cash flows from Operations 12,874 6,656 36,287 38,420 EV/ EBITDA (x) Cash flows from Investing (38,192) (30,860) (29,157) 13,000 BV/ share (Rs.) Cash flows from Financing 26,806 30,451 (4,447) (50,145) Price to BV (x)

6 Adani Ports & SEZ Consolidated Financial Summary Abridged Financial Statements (Consolidated) Key metrics Rs. mn FY12 FY13 FY14E FY15E FY12 FY13 FY14E FY15E Profit & Loss Growth Ratios Revenues 32,708 35,766 38,473 44,410 Cargo Volume, MT EBITDA 20,653 23,760 24,864 28,690 Revenues 63.5% 9.4% 7.6% 15.4% Other Income 596 2,644 4,067 1,223 EBITDA 58.8% 15.0% 4.6% 15.4% Depreciation 4,630 4,220 5,232 5,463 PBT 17.7% 41.8% 5.7% 4.0% EBIT 16,619 22,185 23,698 24,450 PAT 19.1% 50.0% 5.4% 4.4% PBT 11,822 16,766 17,718 18,421 PAT after MI 18.1% 49.8% 5.0% 3.8% PAT after MI 10,833 16,232 17,052 17,692 Performance ratios Balance Sheet RoA (%) 6.3% 7.0% 7.6% 7.8% Net Worth 48,385 66,307 84, ,318 RoE (%) 24.0% 28.3% 22.7% 19.0% Minority Interest 1,349 1,423 1,763 2,101 RoCE (%) 9.6% 9.6% 10.6% 10.8% Total Debt 164, , ,315 68,559 Total Assets Turnover (x) Deferred Tax Liability (net) 15,179 5,286 5,660 4,278 Fixed Assets Turnover (x) Other liabilities 23,488 28,316 35,023 35,023 Working capital Turnover (x) Total Networth & Liabilities 252, , , ,279 Financial stability ratios Gross Fixed assets 189, , , ,904 Net Debt to Equity (x) Net fixed assets 173, , , ,486 Current ratio (x) Investments Working capital days Loans and Advances 12,140 11,511 26,946 7,946 Inventory & Debtor days Goodwill on Cosolidation 11, Creditor days Cash and bank balances 11,184 8,306 7,340 11,054 Interest cover (x) Receivables & other current assets 14,703 46,429 52,361 36,266 Valuation metrics Current Liabilities 6,466 2, ,093 Fully Diluted shares (mn) 2,003 2,003 2,070 2,070 Net current assets 19,421 52,335 58,702 44,227 Fully diluted M. Cap (Rs.mn) 290,435 Total Assets 252, , , ,279 Fully Diluted EPS (Rs.) P/E (x) Cash Flows EV (Rs.mn) 443, , , ,940 Cash flows from Operations 16,428 (10,839) 20,300 46,858 EV/ EBITDA (x) Cash flows from Investing (152,701) 73,793 (29,133) 7,203 BV/ share (Rs.) Cash flows from Financing 148,801 (68,082) 7,268 (50,830) Price to BV (x)

7 Disclaimer Absolute Interpretation Recommendation History Buy Reduce Sell Stock expected to provide positive returns of >15% over a 1-year horizon Stock expected to provide positive returns of >5% <15% over a 1-year horizon Stock expected to provide returns of <5% -10% over a 1-year horizon Stock expected to fall >10% over a 1-year horizon Date price 29/Oct/ /May/ /Feb/ /Oct/ Buy 03/Aug/ Buy Spark Disclaimer Spark Capital Advisors (India) Private Limited (Spark Capital) and its affiliates are engaged in investment banking, investment advisory and institutional equities. Spark Capital is registered with SEBI as a Stock Broker and Category 1 Merchant Banker. This document does not constitute or form part of any offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. Nothing in this document should be construed as investment or financial advice, and nothing in this document should be construed as an advice to buy or sell or solicitation to buy or sell the securities of companies referred to in this document. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, 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 Spark Capital and/or its affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to a certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such applicable restrictions. This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. Spark Capital makes no representation or warranty, express or implied, as to the accuracy, completeness or fairness of the information and opinions contained in this document. Spark Capital, its affiliates, and the employees of Spark Capital and its affiliates may, from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. This report has been prepared on the basis of information, which is already available in publicly accessible media or developed through an independent analysis by Spark Capital. While we would endeavour to update the information herein on a reasonable basis, Spark Capital and its affiliates are under no obligation to update the information. Also, there may be regulatory, compliance or other reasons that prevent Spark Capital and its affiliates from doing so. Neither Spark Capital nor its affiliates or their respective directors, employees, agents or representatives shall be responsible or liable in any manner, directly or indirectly, for views or opinions expressed in this report or the contents or any errors or discrepancies herein or for any decisions or actions taken in reliance on the report or the inability to use or access our service in this report or for any loss or damages whether direct or indirect, incidental, special or consequential including without limitation loss of revenue or profits that may arise from or in connection with the use of or reliance on this report. Spark Capital and/or its affiliates and/or employees may have interests/positions, financial or otherwise in the securities mentioned in this report. To enhance transparency, Spark Capital has incorporated a disclosure of interest statement in this document. This should however not be treated as endorsement of views expressed in this report:

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