Adani Ports: Strong operational performance offsets weak topline growth

30-Oct-2018

• Consolidated net profit declined due to a mark-to-market loss of Rs 570 crore against its $2 billion denominated loan on account of rupee depreciation.
• Reported revenue saw a decline of 3.5 percent as there was a one-time SEZ income worth Rs 500 crore in the comparable quarter.

Adani Ports and Special Economic Zone Limited reported a strong operational performance in the second-quarter of the current fiscal. While the headline numbers were mired due to the lack of SEZ income and a one-off forex loss, the volume growth was stronger than expected.

The company reported a 38.10 percent decline in consolidated net profit to Rs 614.23 crore for the quarter ended September. This was due to a mark-to-market loss of Rs 570 crore against its $2 billion denominated loan on account of rupee depreciation.

Reported revenue saw a decline of 3.5 percent as there was a one-time SEZ income worth Rs 500 crore in the comparable quarter.

Adjusted for one offs, the revenue grew by 18 percent year-on-year and operating margins expanded by 200 basis points. One basis point is one-hundredth of a percentage point. The topline growth was driven by strong volumes across products and ports.

Stellar Volume Growth

Total cargo handled by Adani Ports in the quarter stood at 52.2 million tons, showing a growth of 22 percent which was better than street estimates of volume growth of 12-15 percent.

Coal volumes were up 35 percent on year as Mundra power plant re-commenced operations in June. Crude cargo volumes grew by 42 percent while container growth continued to be strong at 16 percent.

Volume growth was broad-based with Western and Southern ports registering strong growth. Mundra, Dahej, Hazira and Kattupalli reported high double digit growth but Dhamra continued to face evacuation issues due to lower rakes availability.

Going forward as well, the management does not foresee any impact on Indian imports and exports and have, therefore, reiterated the cargo volume guidance for FY19 at 200 million metric tons. Management is also confident of improving port EBITDA margins to 71 percent from 70 percent in FY19.

Despite all the positives, Adani Ports debt increased by Rs 1,400 crore in Q2 partly on account of recasting of debt due to rupee depreciation. The management assuaged investor concerns around unhedged forex loan as they pointed that large part of company’s revenue is dollar denominated and provides a natural hedge. The other factor that investors need to be watchful of is the promoter pledge, which has gone up significantly sequentially. While at the end of June quarter, promoters had pledged 38.3 percent of their holding, the same went up to 47.81 percent at end of September quarter.

Optimism Intact

Overall, the brokerages have given a thumbs-up to the company’s second-quarter performance.  Macquarie has upgraded the stock rating to ‘outperform’ from ‘neutral’ on back of reasonable valuations. They reason that stock has corrected 30 percent from peak and now trades at FY20E PER of 16x.

Citi also maintained the stock as a top pick in the Indian infra space due to strong core growth and dominant position in the port space. They, however, have reduced the target price to Rs 455 from Rs 525 earlier owing to a broader de-rating in infrastructure space.

Source: MONTEL