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Near-term pain

Source : BUSINESS_STANDARD
Last Updated: Thu, Jun 07, 2012 20:12 hrs

A series of negative news about Adani Ports and Special Economic Zone Ltd (ADSEZ), as well as last month’s Gujarat High Court’s directive to stop construction work at its SEZ, impacted the company’s share prices. The stock, around Rs 130 at the start of this financial year, slipped to Rs 111 in mid-May—it fell from Rs 121 to Rs 114.45 in a trading session after the March quarter results were announced (on May 14). The results were below expectations and reflected the lower volume growth, mainly in coal due to the lower off-take by the utilities.

Nevertheless, the company has clarified on some of these issues, and analysts agree that such issues will not have any financial implications. On the fundamentals side, analysts expect ADSEZ to report good growth over the next two years. Growth will be powered by 25-30 per cent rise in volumes, led by increase in capacity, higher off-take of coal and jump in crude oil volumes. On the back of volume and earnings growth of about 28-30 per cent over the next two years, analysts have a ‘buy’ rating on the stock, which has recovered to Rs 125.35 currently and is trading at 16 times its estimated FY13 earnings.

No major challenges
The high court’s directive to stop work at the SEZ initially had created some apprehensions among investors, as fears increased that the SEZ project, spread over 16,000 acres and involving several crores of investments, could face challenges. Analysts say the management, however, has clarified on the issue and the Gujarat High Court order was only directing individual project developers to secure environmental clearances. Analysts rule out any financial implications given that this is pertaining to the Alstom Bharat Forge joint venture, which has a 120-acre unit in the SEZ. “ADSEZ, taking the cue, has directed various developers, seeking to set up plants in the SEZ, to pursue clearances. This order could prolong setting up of a project in the SEZ but does not make it unviable,” noted Shankar K, who tracks the company at Edelweiss Securities, in his report last month.
 

SUM OF PARTS
  Per share
(Rs)
% of
total
Mundra Port 119 72.6
Abbot Point 9 5.5
Dahej Terminal 8 4.9
Hazira Port 8 4.9
SEZ 11 6.7
Mormugao port 3 1.8
Others 5 3.0
Total 164 100.0
Current price 125  
Upside (%) 31  
Source: Edelweiss Securities
 
HIGHER PROFITS IN FY14
in Rs crore FY12 FY13E FY14E
Sales 3,271 4,623 5,932
Ebitda 2,065 3,027 3,927
Ebitda (%) 63.1 65.5 66.2
Net profit 1,102 1,356 1,827
EPS (Rs) 5.5 6.8 9.1
PE (x) 22.7 18.4 13.7
Source: Edelweiss Securities

Q4: Volumes impacted
Meanwhile, during the March quarter, the company reported a 10.4 per cent growth in overall volumes, compared with the year-ago period. However, sequentially, volumes were lower by 6.4 per cent as coal volumes, which account for about a quarter of overall volumes, shrank 10 per cent. This was attributed to lower coal off-take by Tata Power’s Mundra ultra mega power plant (UMPP) of 4,000-Mw. Barring that, on consolidated basis, for 2011-12, the company has put up a decent growth, wherein revenues grew 58 per cent year-on-year, led by 49 per cent growth in cargo volumes (77.75 million tonnes—mt) and 24 per cent growth in container volumes (15,20,000 twenty-feet equivalent units).

Better days ahead
On the back of demand and expansion in capacities, the company has been able to report rising volumes. However, there is a lot more to come, say analysts. The company’s stand-alone volumes are expected to increase from 64 mt in 2011-12 to around 80 mt in 2012-13 and further to 95-98 mt in 2013-14. The ongoing expansion at other ports and increase in volumes from the existing facilities will add to volumes. For instance, the new nine-million-tonne refinery at Bhatinda, Punjab, which became operational in March 2012, could add another five mt to crude oil volumes of the Mundra Port, which stood at about nine mt in 2011-12. Also, analysts are expecting a ramp-up in coal off-take by the utilities, which along with additional coal volumes for the new units of Adani Power and Tata Power’s UMPPs will mean higher coal volumes. All these will help sustain growth momentum in the coming years and add to ADSEZ’s earnings, which are expected to grow in the region of 28-30 per cent in next two years.




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