Fundamental AnalysisIndia

What is building in Adani Port & SEZ?

Overall Rating: Race Car 🏎️

What is the national economic outlook?

  • How well are we recovering from the pandemic? [High 🟢]
    • Overall Indian economy is posting a strong recovery post the 2nd COVID wave. Though there is recent concern on the rising inflations, the majority of the pundits still believe it to be transitory.
  • Change in purchasing power [High 🟢]
    • Based on FY20 data, the overall purchasing power of the Indian customer is on the rise and poses a strong economy in the immediate future.

What is the industry outlook?

  • What is the current industry category for the company?
    • Infrastructure & Logistics
  • What are the growth prospects? [High 🟢] 
    • Rapid growth in GDP is fueled by high demand across both goods and infrastructure. Though political influence is the key driver in the industry, attributed to the growing demand, the growth prospects fall mostly on the side of the green.
  • What is the competitor landscape? [Low🟢]
    • Adani Port & SEZ don’t have direct competition as the consolidated unit but one of the biggest competitors in the port sector is Gujarat Pipavav.
  • What is the company profile?
  • Business Overview
    • Adani port & SEZ operates in shipping and infrastructure sector with majority of income generating from port services and infrastructure leasing
  • Financials
    • How are company financials changing?
      • The company has posted a strong financial quarter with a forecast FY22 increase in both top and bottom line by 20% and 18% YoY. The increase is driven by both the industry and market share growth.
  • What are the stand-alone future financial prospects? [ Medium 🟠]
    • Though the company posted strong earning, the increasing debt puts the financial prospects in the mid to high range
  • Pipeline deals and possible future risk and gains [High 🟢]
    • Adani Port & SEZ has some strong deals in the pipeline, making it an even stronger market leader. 
    • APSEZ recently acquired the remaining 25% stake in krishnapatnam making it a 100% subsidiary. 
    • In a plan to acquire 100% of Gangavaram Port Ltd (GPL) – a zero debt company, APSEZ acquired 31.5% stakes in Gangavaram port @120/share and got approval from AP Government for their 10.4% to be paid in cash. Additional considering of 58.1% share from DVS. Raju & Family, if processed through, would make GPL 100% subsidiary of APSEZ. 
    • APSEZ also plan to consolidate its rail assets by acquiring SRCPL and demerging Mundra rail assets.
    • APSEZ has disinvested its stake in Bowen rail operations realizing its “Held for Sales Investments” amounting to USD 25Mn
  • Beyond the numbers – ProCapitas Think Tank 🧠
    • Let’s look beyond these numbers and try to answer – “What Matters”
      • Now let’s start by looking at APSEZ financial with a broader lens. What exactly happened that led to such a dramatic increase in both the top and bottom lines. The majority of this upside is attributed to the incremental brought in by GPL and SRCPL(1408Cr and cash balance of 565Cr & 500Cr). These deals would make APSEZ a strong leader on both east and west coast. The key strategy which makes APSEZ different from peers is the integrated one-stop solution from port to infra to transport. Given the rapid acquisitions, the synergy would be further multiplied to increase both the overall top and bottom line.
      • On the other side, APSEZ went through a strong transition from PSU fueled company to corporate bonds. This strong restructuring and increasing debt cast some shadow on the overall future strategy. it would be interesting to look at how recent acquisitions would attribute to overall APSEZ synergy

Checkout Technical Analysis of Adani Port & SEZ – Click Here

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