Q4FY21 EBITDA is 17% beneath expectations provided reduce margins but must recover as volumes rise and the April 2021 price tag hike reflects in FY22e. We think 3 drivers will re-price the stock from existing levels: (i) Market share rise from 21% to 32% with current acquisitions by FY25e (ii) ROE back at 20% with asset sweating (iii) additional drop in promoter pledges. Our revised DCF based PT of Rs 910 (v/s Rs 670) reflects 13% PAT upgrade in FY23e and greater implied numerous.
Gangavaram (GPL) acquisition adds 6% to FY23e Ebitda: Adani Ports will shell out Rs 56 bn for 89.6% stake in GPL – 9.2x FY21 EV/Ebitda vs Adani Port’s 23.2x. The port is a net money asset. Mundra Port gained industry share from JNPT amongst service efficiency, lesser distance to hinterland and JNPT’s capacity constraints. Mundra’s container cargo industry share rose to 49% in FY20 vs just 15% in FY07 inside the JNPT, Mundra and Pipavav pie. We assume GPL’s share rises to 42% by FY25e from 32% in FY20 in the Gangavaram and Vishakapatnam ports’ pie. Adani group’s elevated service levels and capacity to give shipping liners the advantage of berthing at its distinct ports must drive this.
Krishnapatnam continues to concentrate on hinterland expansion: KPCL is 13% and 14% of consolidated revenues and Ebitda and annualised 40 mnt on 227-mnt FY21 base ex KPCL. Margins rose to 71% in Q4 from 55% considering the fact that FY20 when take-more than discussions have been on. Chennai port, Machillipatnam, Kakinada are important ports about KPCL, with combined volumes of about 70 mnt. Our assumptions issue in some industry share gains and 68-73% margins in FY22E-25e. Management is gearing for 80% margins by FY25e.
Factored in some reduce margins in FY22E: Lower Q4FY21 margins led to FY21 margins disappointing by 170 bps at 63.6%. It is most likely that Q4 saw acquisition linked fees and some residual costs booked that led to reduce margins. Hence, we have decreased our FY22e margin assumptions by only 40 bps to 64.9% and lowered FY22e Ebitda by 3%.
Promoter pledges down to 16% of holding from 45% in Nov. 2020: Adani Promoters have dropped pledges sharply post their 20% stake sale in Adani Green. Management commitment is to additional drop this to negligible levels. Our DCF based PT of Rs 910 implies 16.6x EV/Ebitda FY23e, which is the typical of the 10-year trading band. Mgmt was clear if its Myanmar port project comes below the sanction purview, it will abandon the very same.
Judicious B/S use playing out in development – PAT must rise 2.4x in FY20-25E (13% CAGR FY20-22e): APSEZ is a excellent blend of geographical and cargo diversification. We think ROE must return to 20% by FY25e (19% in FY20, 16-17% in FY21-22e) with 16% volume CAGR, greater payout and sweating of acquired ports. Operational strength in pricing and working with liners to berth at Adani’s ports could lead to volume upside surprise. 10% volume adjust is 13% adjust on FY23e EPS.