Adani Group Analysis : Adani Port & SEZ Ltd

I hope this article finds you and your loved ones safe and happy. The objective of this series is to simplify Adani Group businesses in simple, easy-to-understand language. We won’t be diving deep to make investment recommendations. Also, we’ll leave the recommendation task to our investment teams and stick to an objective look at the businesses.

This is the first article for our series of articles on Adani Group stocks detailed analysis. Stay tuned for more updates. Subscribe Now to never miss an update.

Part 2 of our series explaining Adani Group Companies. That one covers the business of Adani Green Energy limited. Click on the link to visit there.

Adani Group

Adani Group is an Indian multinational conglomerate, headquartered in Ahmedabad, Gujarat, India. It was founded by Gautam Adani in 1988 as a commodity trading business, with the flagship company Adani Enterprises Limited (previously Adani Exports Limited).

The Ahmedabad-headquartered multinational corporation has become present everywhere within India’s infrastructure value chain. From logistics, airports, roads, and railways to energy, mining, defence, and aerospace, Adani boasts a very diverse business portfolio, also including real estate, agri, financial services, and now even data centers.

With operations spread across 70 locations in 50 countries, the six Adani Group listed companies generate annual revenue of roughly ₹ 1.5 lakh crore (~USD 13.5 Billion). While the coronavirus brought most business to a grinding halt, Adani Group businesses have gone from strength to strength. There are some rumors regarding political support as well but, we are not fully satisfied after looking at their business,execution skills etc.

The combined market capitalisation of six listed Adani Group companies now stands at close to ₹ 7 lakh crore (USD 93 Billion),. Courtesy this rise, Gautam Adani is now India’s second-richest person.

adani group business
Source : Company Presentation

Commodity Trading To Managing Airports

It started with one commodity trading company – Adani Enterprises Ltd. – in 1988. The company built around 5 infrastructure businesses. Post multiple corporate restructurings to and unlock their potential, led to the listing of five new companies – Adani Ports and SEZ Ltd., Adani Power Ltd., Adani Transmission Ltd., Adani Green Energy Ltd., and Adani Total Gas Ltd.

adani group journey
Source : Company Annual Report

Adani Ports and SEZ

Adani Ports is India’s largest private port and logistics service provider. It is the only company from the basket of Adani Group to be the part of Nifty 50 index.

Snapshot

Market Cap

₹ 148,098 Cr.

Current Price

₹ 725

Book Value

₹ 136

High / Low

₹ 885 / 256

EPS

₹ 19.9

PE Ratio

36.6

Dividend Yield

0.44 %

PB Ratio

5.33

RoE

15.2 %

RoCE

11.4 %

Adani Port 5 year stock price
Adani Ports 5-year stock price chart

Adani port 5 year returns
Source : Stockedge Mobile App ( Returns in % )

The company owns & manages 12 ports in India, one port in Myanmar ( under construction ), and owns a majority stake in a port in Sri Lanka. Apart from this, the company’s wholly-owned subsidiary Adani Logistics provides end-to-end logistics service in industries like container, bulk, chemical, auto, and liquid across India.

Adani Port business

Adani Agri Logistics Ltd. – is a India’s largest player with a 45% market share in the modern agri storage space. The company also has large-scale ready to set up industrial land with a land bank of 13000 hectares at Mundra, Dhamra, Kattupalli & Krishnapatnam.

Leveraging robust post infrastructure, SEZs become a good investment opportunity for diversified industries. The western coast accounts for 80% of SEZ land bank share, while the balance is on the Eastern coast.

Adani Logistics operates 5 multi-modal logistics parks at Kanech, Kilaraipur, Patli, Kishangarh, and Malur, and 1 logistic park at Nagpur which is under development. It also provides supply chain solutions for auto OEMs and ancillaries and has a dedicated Ro-Ro facility available at ports. The company plans to develop 15+ multi-modal logistics parks by FY25.

Adani Track Management Services, a newly created wholly owned subsidiary houses all the rails tracks assets of the company for better investments opportunities and for better PPP partnership with Indian Railways. Adani Port started its rail operation in 2006 and is now India’s largest private rail operator.

Adani port financial
Source : Company Financial

Adani Ports currently has developed 12 ports and several other ports developed , where it grew its capacity 50 times from 10 MMT to 490 MMT, within a span of just 15 years. It is amongst the world’s top-5 fastest-growing port players. The company’s Mundra port continues to be the largest container handling port commanding a market share of approximately 17%.

Adani Ports which has a strong and dominant position in the West has recently decided to expand into the East via acquisitions. It recently acquired two major ports – Krishnapatnam and Dighi, these ports will increase to new customers and increase hinterland coverage to 90%. Company management believes that newer ports which are recently made operational or acquired can increase RoCE upto 20%+.

Cargo volume of 56.25 MMT a Q-o-Q growth of 36%, which is 2 times the all India cargo growth of 18%. Mundra continues to be the largest container handling port for the second consecutive quarter after Jawaharlal Nehru Port in Mumbai (JNPT). With the increased focus of government on Dedicated Freight Corridor of Indian Railways , Adani don’t want to miss these opportunities and it went on acquisition spree to capitalise on these opportunities.

Adani port revenue contribution
Source : Company Annual Report

Adani Port is aggressively focusing on creating multiple revenue streams and decreasing reliance on a single source of income. And Adani Port is currently aggressively developing their logistics business by building rail tracks and logistics parks to increase its share in the revenue and also to capitalise DFC project opportunities and government initiative in Atamnirbar Bharat.

Adani Ports debt stood at ₹ 34,367 crore, while its debt-to-equity ratio at 1.2x levels is little high which is because of recent acquisition and company estimates it to be under control by FY 2021. Its debt-to-EBITDA is 4.5x. Despite an increase in debt, interest costs are declining with a shift to long-term (99% currently) debt, thus improving the company’s ALM profile and liquidity position. Forex debt continues to be maintained at 70% of total debt. Annual foreign exchange earnings act as a natural hedge against foreign debt.

SWOT ANALYSIS

Strength

Weakness

  • India’s largest private logistic and rail operation company.
  • Strong Promoters and Adani group sponsorship.
  • Strong free cash flow generating ability.
  • Increasing profits from the past 3 quarters and lockdown don’t impact their business.
  • Inefficient use of capital to generate profits – RoCE declining in the last 2 years.
  • Inefficient use of equity- RoE declining in the last two years.
  • 15% Promoters holding is pledged.

Opportunities

Threat

  • Adani Port is well-positioned to capitalize on the Indian government initiative of DFC and PPP in Indian Railways
  • Adani Port has gained experience in managing the ports and the company can expand globally in developing nations.
  • Adani Ports 87% revenue comes from port management only.
  • The current government focus is to build an infrastructure-based economy and any change in government can hamper the growth of the company.

Our View

Healthy cash accruals and strong operating efficiencies, commissioning of ports, acquisition, increased geographical diversity, diversified cargo mix, long-term contracts, the strategic location of ports, low dependency on single cargo, etc, all will continue to function together to support the company’s operation going forward. India is becoming a preferred trading partner globally. The port sector would be one of the biggest beneficiaries and Adani Ports could capitalize the most from India’s increasing contribution to global trade.

In the Next Article, we take a look at a company raising a lot of eyebrows with its business and stock price : Adani Green Energy Limited.

This article is for information only, and should not be considered as a recommendation to buy or sell any stocks. Stocks discussed might be part of our holding or recommended to our client.

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2 thoughts on “Adani Group Analysis : Adani Port & SEZ Ltd”

  1. Pingback: Adani Group Analysis : Adani Green Energy Limited Ltd - Earnstock Financial Services

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