Adani Ports rides on acquisitions to withstand covid-induced downturn, feel Equity Analysts
Adani Ports and
Special Economic Zone Ltd recouped a large part of its post covid-19 losses and
is now only 5% lower than its pre-covid highs.
company’s June quarter results were weak, there have been signs of a recovery,
with a 6% growth in volumes in July. In comparison, total cargo volumes at
major ports (for all commodities) declined 13% in July.
Analysts revise their volume
estimates after rise in Adani’s volumes and market share gains
The rise in
Adani’s volumes and market share gains has got analysts to revise their volume
estimates. “We have revised our FY21E-22 volume estimates higher to account for
the same,” analysts at Jefferies India Pvt. Ltd said in a note.
The company said
it expects to complete the acquisition of Krishnapatnam Port Co. in the current
quarter (Q2FY21) and Dighi Port by the end of this year.
acquisitions is Adani Ports’ strategy of gaining foothold in established trade
routes and attracting cargo volumes through efficient and value-added services.
Analysts expect the firm to replicate the strategy with the latest acquisitions
The Dhamra and
Kattupalli ports in the east coast are a case in point. Business volumes at
Dhamra gained traction after Adani Ports enhanced port-handling capabilities
and addressed evacuation issues.
port benefited from market share gains
benefited from market share gains from the Chennai port region, points out
Nomura Research. “Adani Ports has a track record of gaining market share by
establishing ports within an established ecosystem. The same was witnessed with
Mundra, which has gained on west coast, Dhamra in the east coast and Kattupalli
in the Chennai cluster. We believe that Dighi will aid in gaining market share
from JNPT until JNPT is able to establish a deepwater port at Wadhawan,”
analysts at Nomura Research said in a note. JNPT is Jawaharlal Nehru Port
Trust, the largest container port in India.
Growing cargo volumes in east coast ports at the industry level are
helping Adani Ports’ growth in the region.
optimistic on Dhamra and Kattupalli seeing strong growth within ports.
Interestingly, east coast has accounted for 38% of incremental volumes in the
last 3 years and ended FY20 at 20% of overall,” added analysts at Jefferies.
Acquisitions will push up
leverage in the current fiscal
The reduction in
inter-corporate loans and the management’s focus on cash flows reassured
investors. Acquisitions will push up leverage in the current fiscal. But
incremental earnings are expected to soften the net debt to earnings before
interest, taxes, depreciation and amortization (Ebitda) ratio. While all these
add to investor optimism, any unrelated acquisition or large investments
outside the current business can halt the momentum.