APSEZ may be the one of the key beneficiary of overall expected
economic recovery in India
Recent index inclusion may also help the scrip
economic recovery in India
Recent index inclusion may also help the scrip
CMP: 276
Buy on dips around: 270-260
TGT: 293-300-320-331 (1-6M)
TGT: 351-375-400-430 (12-24M)
TSL<255
Note: Consecutive closing below 255 for any reason, APSEZ can fall up to 244-234-225 & 205 and in that scenario, it may be again accumulated for better investment buying average. Technically, now the stock may be in the 4-th Wave in daily EW pattern and the target of the same may be around 293-300-320 in the near term.
Q2FY16 result of APSEZ was in line with street estimates and consequently the stock corrected to some extent.
Q2 consolidated PAT was at around Rs.667 cr, up by 16% YOY against median estimate of Rs.658 cr. (YOY-573 & QOQ-632).
Q2 EPS was at 3.22 against consensus of 3.29 (YOY-2.77 & QOQ-3.10).
Q2 EBITDA rose by 7% on YOY basis to Rs.1349 cr; but adjusted an exceptional item, it came around Rs.579 cr, which was way below street estimate of Rs.744 cr.
Mundra port volume, which is a key parameter for APSEZ, registered a decent 9% growth due to high base effect, lower coal cargo also lagged analysts expectations.
Q2 net revenue from ports were at around Rs.880 cr (adjusted an exceptional item of land lease for Rs.657 cr to a subsidiary), clocked just 4% growth was significantly below analysts expectations and the scrip subsequently disappointed the street by over 10% after the result.
The management attributed the lower than expected cargo growth due to shut down of railway lines in Gujrat for monsoon and lower coal cargo volumes. The company is anticipating lower/tepid coal volumes over the next few quarters, but is optimistic about volume growth due to uptick in chemicals/liquid cargo.
Analysts are expecting that newly created assets at Goa, Vizag and visible assets additions at Dharma, Kandla, Ennore, CT-4 will enable healthy growth in APSEZ's cargo volume in the quarters ahead.
The new Vizhinjam (Kerala) port is likely to aid further growth as significant volume of global containers traffic goes past this region. The total consolidated cargo handled by the company was around 36 MT in Q2FY16, which is up by 4% on YOY, but fell 8% on QOQ basis lagged analysts estimates of 42 MT amid lower coal volumes and slow ramp up in Dahej.
There is high probability of increasing the utilization level at Mundra port (currently stands at around 53%) backed by growth impetus from coal, containers & crude (3C's) & also supported by creation of CT-4. Also, increased offtake by IOC, HMEL may drive crude cargo volumes.
The management is also taking care to improve the product mixes to gain further market share across all types of cargos on pan India basis that are expected to grow as the Indian economy continues to expand and expected to grow more amid hopes of overall economic recovery & "Made In India" themes.
APSEZ is also inking pacts with various states to develop SEZS for Electronic Manufacturing Clusters (EMC), Food & Agro processing industry etc.
APSEZ may benefit most from the relatively weaker INR as their $ earnings are sufficient to more than offset the negative impact of higher debt & capex in $ terms (consolidated debt of APSEZ was around Rs.15000 cr with D/E at 0.88 at FY-15).
Thus for APSEZ, healthy growth in container volumes, expected increase in cargo activities from coal & crude segment and continuing addition of new assets (Ports & SEZS) are key positives, but any significant slowdown in port traffic volumes (like Baltic Dry Index now around 20 years low for China slow down), development of new port near Mundra port and regulatory restrictions may be some of the major risks for APSEZ. Also inorganic capex may pose some risks for stretched balance sheet; but the company is basically using high cash flow from its Mundra port for inorganic expansion.
As we all know, APSEZ commenced commercial operations in Oct'2001 after entering into a concession agreement with GMB to build, operate and maintain ports for a period of 30 years till 2031 and extendable by another 20 years.These ports are providing cargo handling services for bulk crude and container cargo. AP has also received approval to develop adjacent port land into a multi product SEZ.
The Adani group is one of the leading Indian conglomerate with combined revenue of more than $10 bln and is basically an integrated infrastructure player in key industry verticals (resources, logistics, energy & cargo) and the business model is well adapted to the infra challenges of an emerging economy like India.
APSEZ owns & operates seven major ports & terminals at Mundra, Dahej, Kandla and Hazira in Gujrat, Dharma in Odisha, Mormugao in Goa and Visakhapatnam in Andhra Pradesh. Among these, Mundra port is incidentally the largest port in India. It recently also acquired L&T Shipbuilding Ltd in TN for operating synergy. Also its subsidiary at Dharma Port (DPCL) will soon get a "Non-Govt" railway status in Odisha which will help it for better operational synergy across the east coast.
The group is supposedly very close to the NAMO camp and consequently the scrip rallied by more than 165%, since 2014, riding on the NAMO wave, followed by corrections of around 30% due to various reasons like China slow down, de-merger fiasco of various group entities and very nascent economic recovery in India so far.
Looking ahead, Indian seaports are very crucial in accelerating India's overall trade & economic growth as 95% of India's merchandised EXIM are handled by these ports. As the overall Indian economy is expected to grow significantly in the coming years, demand of imported energy, containerization of EXIM cargo, fertilizer, agro commodities etc may see incremental volume growth and APSEZ, being a major player and have nearly a virtual monopoly, may be one of the key beneficiary of that also.
For APSEZ, increased focus on liquid light cargo & containers, reduction/rollover of BS debt by incremental effort for monetization of SEZS & good credit rating, replication of the business model of Mundra port to other ports may give result in the medium term, while the present high mix of bulk cargo and EXIM slow down may impact it to some extent in the near term.
Also, so called China slowdown may be at its peak and EU is steadily recovering, we may see incremental volume growth in overall global trade and recovery in Baltic Dry Index & APSEZ may also benefit for that to some extent.
Thus, with expected visibility of robust economic growth & various initiatives by Govt in India in the coming months, APSEZ may be a good integrated infra play in the mid to long term.
As par BG metrics & current market parameters:
(Based on consolidated TTM & FWD EPS)
Present median valuation of APSEZ may be around : 300 (FY:15-16/TTM)
Projected fair valuations might be around: 325-350 (FY:17-18/FWD)
Q2FY16 result of APSEZ was in line with street estimates and consequently the stock corrected to some extent.
Q2 consolidated PAT was at around Rs.667 cr, up by 16% YOY against median estimate of Rs.658 cr. (YOY-573 & QOQ-632).
Q2 EPS was at 3.22 against consensus of 3.29 (YOY-2.77 & QOQ-3.10).
Q2 EBITDA rose by 7% on YOY basis to Rs.1349 cr; but adjusted an exceptional item, it came around Rs.579 cr, which was way below street estimate of Rs.744 cr.
Mundra port volume, which is a key parameter for APSEZ, registered a decent 9% growth due to high base effect, lower coal cargo also lagged analysts expectations.
Q2 net revenue from ports were at around Rs.880 cr (adjusted an exceptional item of land lease for Rs.657 cr to a subsidiary), clocked just 4% growth was significantly below analysts expectations and the scrip subsequently disappointed the street by over 10% after the result.
The management attributed the lower than expected cargo growth due to shut down of railway lines in Gujrat for monsoon and lower coal cargo volumes. The company is anticipating lower/tepid coal volumes over the next few quarters, but is optimistic about volume growth due to uptick in chemicals/liquid cargo.
Analysts are expecting that newly created assets at Goa, Vizag and visible assets additions at Dharma, Kandla, Ennore, CT-4 will enable healthy growth in APSEZ's cargo volume in the quarters ahead.
The new Vizhinjam (Kerala) port is likely to aid further growth as significant volume of global containers traffic goes past this region. The total consolidated cargo handled by the company was around 36 MT in Q2FY16, which is up by 4% on YOY, but fell 8% on QOQ basis lagged analysts estimates of 42 MT amid lower coal volumes and slow ramp up in Dahej.
There is high probability of increasing the utilization level at Mundra port (currently stands at around 53%) backed by growth impetus from coal, containers & crude (3C's) & also supported by creation of CT-4. Also, increased offtake by IOC, HMEL may drive crude cargo volumes.
The management is also taking care to improve the product mixes to gain further market share across all types of cargos on pan India basis that are expected to grow as the Indian economy continues to expand and expected to grow more amid hopes of overall economic recovery & "Made In India" themes.
APSEZ is also inking pacts with various states to develop SEZS for Electronic Manufacturing Clusters (EMC), Food & Agro processing industry etc.
APSEZ may benefit most from the relatively weaker INR as their $ earnings are sufficient to more than offset the negative impact of higher debt & capex in $ terms (consolidated debt of APSEZ was around Rs.15000 cr with D/E at 0.88 at FY-15).
Thus for APSEZ, healthy growth in container volumes, expected increase in cargo activities from coal & crude segment and continuing addition of new assets (Ports & SEZS) are key positives, but any significant slowdown in port traffic volumes (like Baltic Dry Index now around 20 years low for China slow down), development of new port near Mundra port and regulatory restrictions may be some of the major risks for APSEZ. Also inorganic capex may pose some risks for stretched balance sheet; but the company is basically using high cash flow from its Mundra port for inorganic expansion.
As we all know, APSEZ commenced commercial operations in Oct'2001 after entering into a concession agreement with GMB to build, operate and maintain ports for a period of 30 years till 2031 and extendable by another 20 years.These ports are providing cargo handling services for bulk crude and container cargo. AP has also received approval to develop adjacent port land into a multi product SEZ.
The Adani group is one of the leading Indian conglomerate with combined revenue of more than $10 bln and is basically an integrated infrastructure player in key industry verticals (resources, logistics, energy & cargo) and the business model is well adapted to the infra challenges of an emerging economy like India.
APSEZ owns & operates seven major ports & terminals at Mundra, Dahej, Kandla and Hazira in Gujrat, Dharma in Odisha, Mormugao in Goa and Visakhapatnam in Andhra Pradesh. Among these, Mundra port is incidentally the largest port in India. It recently also acquired L&T Shipbuilding Ltd in TN for operating synergy. Also its subsidiary at Dharma Port (DPCL) will soon get a "Non-Govt" railway status in Odisha which will help it for better operational synergy across the east coast.
The group is supposedly very close to the NAMO camp and consequently the scrip rallied by more than 165%, since 2014, riding on the NAMO wave, followed by corrections of around 30% due to various reasons like China slow down, de-merger fiasco of various group entities and very nascent economic recovery in India so far.
Looking ahead, Indian seaports are very crucial in accelerating India's overall trade & economic growth as 95% of India's merchandised EXIM are handled by these ports. As the overall Indian economy is expected to grow significantly in the coming years, demand of imported energy, containerization of EXIM cargo, fertilizer, agro commodities etc may see incremental volume growth and APSEZ, being a major player and have nearly a virtual monopoly, may be one of the key beneficiary of that also.
For APSEZ, increased focus on liquid light cargo & containers, reduction/rollover of BS debt by incremental effort for monetization of SEZS & good credit rating, replication of the business model of Mundra port to other ports may give result in the medium term, while the present high mix of bulk cargo and EXIM slow down may impact it to some extent in the near term.
Also, so called China slowdown may be at its peak and EU is steadily recovering, we may see incremental volume growth in overall global trade and recovery in Baltic Dry Index & APSEZ may also benefit for that to some extent.
Thus, with expected visibility of robust economic growth & various initiatives by Govt in India in the coming months, APSEZ may be a good integrated infra play in the mid to long term.
As par BG metrics & current market parameters:
(Based on consolidated TTM & FWD EPS)
Present median valuation of APSEZ may be around : 300 (FY:15-16/TTM)
Projected fair valuations might be around: 325-350 (FY:17-18/FWD)
| SCRIP | EPS(TTM) | BV(Act) | P/E(AVG) | Low | High | Median | 200-DEMA | 10-DEMA |
| ADANIPORTS | 11.98 | 51.98 | 25 | 304.52 | 286.65 | 295.58 | 309.62 | 274.35 |
| ADANIPORTS | 12.3 | 324.25 | 25 | 308.56 | 290.45 | 299.51 | 309.62 | 274.35 |
| ADANIPORTS | 14.5 | 426.75 | 25 | 335.02 | 315.36 | 325.19 | 309.62 | 274.35 |
| ADANIPORTS | 16.75 | 561.55 | 25 | 360.07 | 338.95 | 349.51 | 309.62 | 274.35 |
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