Will Adani Ports come out of the bear grip post Q1 earnings?

NEW DELHI: Adani Ports' June quarter results beat Street estimates but a few analysts felt the management's guidance lacked surprises. Analysts, who see limited positive surprises ahead, have upside targets as low as 5 per cent. Others who see it as a compelling story on India's EXIM play see up to 40 per cent upside on the counter.

On Wednesday, the scrip was trading at Rs 709, up 0,54 per cent. At this level, the scrip is off 21 per cent from its record high of Rs 901 apiece.

Edelweiss said Adani Ports' Ebitda came in higher than its expectations led by SEZ revenue and better-than-expected realisations of Rs 441 per tonne. It said the company has further fortified its numero uno position in ports led by strong market share gains and new acquisitions and is fast extending its port gate operations through logistics to become an integrated company.

"Container growth on Western ports and dry bulk cargo on Eastern ports are likely to drive strong growth led by industrial uptick. We remain confident of APSEZ’s strong growth trajectory led by macro factors, market share gains and attractive acquisitions," Edelweiss said, suggesting a target of Rs 875.

Clarification
The management said neither the promoters nor the company has any link with certain foreign portfolio investors (FPIs) that were named in recent media reports. In the case of its dealing with Myanmar military-controlled firm, it said the company had applied for a general licence for its Yangon project with the Office of Foreign Assets Control (OFAC) to operate the port and believes the project is viable. It said the company is not being investigated by key regulatory agencies.

"We believe this adds clarity on investor concerns on governance after the media reports. Adani Ports is adequately de-linked from the group entities and none of the FPIs mentioned are holding material stakes in Adani Ports," said Nomura India, which has Rs 915 target on the stock. CLSA has upgraded the stock to outperform with a target of Rs 816. Citi sees the stock at Rs 1,000.

Guidance
The company management has raised FY22 volume guidance to 350-360 million tonnes from 310-320 million tonnes earlier, after including full-year integration (39 million tonnes volumes at GPL port).

It is targeting to keep port segment margins steady at 71 per cent. The company has kept FY22 capex guidance unchanged at Rs 3,100-3,500 crore compared with Rs 2,000 crore in FY21, while maintaining the target of strategic acquisition for Concor.

Adani Ports said it is expecting to complete 100 per cent acquisition of Gangavaram Port by mid-August. The net debt/Ebitda will remain at 3 times despite acquisitions.

Kotak said Adani Ports' revised guidance for FY2022 broadly factors in annualised June quarter levels of financial performance. It sees a limited case for a positive surprise in FY2022 as any upside from the scale-up of the logistics business would take a longer 3-5 year time-frame to fructify.

The brokerage has retained the reduce rating on the stock with a target of Rs 740.

"Post 1Q, we adjust FY22/FY23 Ebitda estimates to incorporate full year (FY22) integration of Gangavaram Port and SRCPL acquisition. We also raise volume assumption reflecting strong trends seen in 1Q. We value the stock at a price target of Rs 895 Rs 865 earlier, implying an exit FY23 EV/Ebitda of 15 times," said Antique Stock Broking with a target price of Rs 895.

Q1 results
The ports operator reported a 72 per cent year-on-year rise in consolidated net profit at Rs 1,307 crore on a 99 per cent on-year rise in consolidated revenue from operations at Rs 4,557 crore. Operating margins took a sharp hit, contracting 520 basis points on-year to 57.5 per cent likely due to higher costs.

The recovery in the global economy during 2021 helped cargo volumes at the company jump 83 per cent year-on-year to 75.7 million tonnes. At the same time, its acquisitions over the past year has helped market share rise by 310 basis points to 28.6 per cent.