APSEZ’s share value has declined 15%+ from 11 June 2021 to 30 June (vs. NIFTY flat) just after adverse media reports along with other Group entities regardless of management clarification on the news. We view the present value as eye-catching and we address some of the investor issues more than other Adani Group entities and the Myanmar project.
APSEZ most likely to keep on course with its governance commitments: Mgmt had committed not to provide associated party loans to Group entities in finish-FY16 and has so far (FY21) maintained this commitment. Further, it has lowered promoter share pledges considerably from the peak levels of FY20 to at the moment beneath 10%. Thus, with negligible loans and advances to Group entities and minimal share pledges, we think APSEZ is largely insulated from the Group’s overall performance.
Group entities have demonstrated powerful money flow development and look financially sustainable at present: Adani Group entities have registered powerful money flow generation as nicely as a reduction in relative leverage. Further, person promoter pledge levels have also fallen more than FY15-21, highlighting Group entities can independently meet monetary demands. Further, APSEZ’s shareholding and these of other entities are distinctive, hence carrying restricted threat of concentrated fund holdings. Hence, we think APSEZ’s monetary overall performance is largely insulated from the Group entities.
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Potential sanction effect due to Myanmar project appears overdone: We think investments in Myanmar port have been adversely singled out by the media regardless of a UN report (2019) mentioning the military hyperlinks of other top Indian and international firms. The port concession was secured from the earlier democratic government and the maximum effect of a most likely sanction on our valuation would be Rs 9/share. Trading at 10.4x FY23F Ebitda preserve Buy with a larger TP of Rs 890
We reduce our FY22F PAT by 13% as we align our volume estimates with mgmt guidance although raise FY23F PAT by 10% on reduce depreciation. We continue to worth port assets on a SOTP basis, applying DCF metrics, with expense of equity unchanged at 9.4%, to arrive at our larger TP of Rs 890, implying ~27% upside, and preserve Buy. Key downside dangers are reduce-than-estimated volumes and larger debt.