Based on the sturdy turnaround of new acquisitions (KPCL and Dhamra) and volume momentum, we continue to be constructive.
Overall volume outlook sturdy with momentum continuing into 3QFY21 acquisition substantially worth-accretive Raise EBITDA estimates by 3-4% more than FY21-23F on sturdy operational turnaround at KPCL acquisition raise TP to Rs 530 keep Buy with 17% upside ADSEZ has risen 19% YTD, vs the Nifty 50’s rise of 9%. This outperformance is underpinned by sturdy volume development in 1HFY21, which beat our estimates. Based on the sturdy turnaround of new acquisitions (KPCL and Dhamra) and volume momentum, we continue to be constructive.
ADSEZ has turned about its Krishnapatnam (KPCL) acquisition substantially ahead of our preceding estimates, major to earnings upgrade: ADSEZ has turned about the operations additional effectively than anticipated. We estimate that price measures and operational efficiencies amounting to INR2.4bn highlighted by the management seem sustainable. This in our view leads to opex/t (ex-royalty) declining by 20% y/y in FY21F and additional 16% y/y in FY22F . This price rationalization coupled with ~12-15% price tag hike leads us to estimate 73.5% EBITDA margin in FY22F and sustainable margin of 75% from FY23F (estimating that mechanization levels will rise from 55% at present to 85-90%). Thus, we boost our EBITDA margin estimate for KPCL by 600bp for FY21F and 900bp for FY22F. We estimate worth accretion of INR60/sh from the turnaround of KPCL.
We estimate ADSEZ can provide 12%+ ROCE on its acquisitions. We anticipate new assets like Dhamra and KPCL to exceed 12% ROCE by FY21F and FY22F respectively. In the future, if new assets are turned about like Dhamra and KPCL to accomplish steady-state ROCE of c.16% (management target for KPCL is 20% on a steady state), the stock has prospective valuation variety of Rs 540-560, in our view.
3QFY21 also seems promising with sturdy volume momentum in Oct/Nov’20. Excluding the KPCL acquisition, ADSEZ’s underlying port volume development has been robust at 22% and 10% y/y for Oct’20 and Nov’20, respectively.