Fundamental Analysis of Adani Ports: Gautam Adani led Adani Ports and SEZ is India’s biggest private sector ports company with a vision to become the largest globally. In this article, let us perform a fundamental analysis of Adani Ports. We will take a quick scan of the maritime industry and company history along with its business. Later, a section has been devoted to a competitive advantage study and a conclusion summarises the article in the end. So let’s dive right in!

Fundamental Analysis of Adani Ports

Industry Overview

India’s exports of commodities have grown at a CAGR of 6.81% in five years from FY18 ($304 billion) to FY22 ($422 billion). During the same time, the nation’s imports grew annually at a rate of 5.64% from $466 billion in FY18 to $613 billion in FY22. 

Consequently, this led to a rise in the share of India in global trade. India’s global trade share increased from 2.10% in 2017 to 2.16% in FY21 as per WTO data. 

Both of these statistics point to the growth of India’s maritime industry. The industry is slowly on track after getting a minor beating during the pandemic-induced lockdown. This was followed by a surge in container prices and disruption in the global container market.

Despite this, the cargo traffic at India’s major and non-major ports grew by 7.2% and 4.1% respectively in FY22. 

We can say that India’s global trade has grown over the last 5 years at a healthy pace. As ports are a window to global trade, their rise directly results in the growth of the maritime sector. The growth is expected to stay strong in the coming years.

The logistics sector is the other sector in which APSEZ operates. In India, only 10% of the logistics industry is organised. Since it requires heavy capital investments, a clear logistics policy will help accelerate growth in the industry.

Let us now move on to understand the company around which the article revolves.

Company Overview

Adani Ports and SEZ was started more than two decades ago in 1998. By 2013-2014 it became the largest private sector ports company in India. It has the vision to position itself as the world’s largest private port entity.

As of this day, it has a capacity of handling 498 MMTPA cargo. The company operates 3 logistics parks and 12 ports & terminals. In terms of land space, it has 15,000 hectares of industrial land and 4 lac sq ft of warehousing. Adani Ports employs 2,736 individuals with an impressive average tenure of 8 years. 

Its facilities are strategically located pan-India giving the company an integrated and competitive advantage. 

Pan-India strategic presence of Adani Ports and Special Economic Zones Ltd.

Business Segments

We just got through a quick overview of the company. Now let us move forward to understand its business segments in detail.

With its 12 domestic ports spread across seven maritime states, APSEZ handles almost 1/4th of the cargo movement in the country. Its ports are able to handle even the largest vessels. Along with this, the facilities are equipped to manage different types of cargo: dry, liquid, crude and containers.

In conjunction with the ports business, it also owns three logistics parks in Haryana, Punjab and Rajasthan. It offers a variety of services as part of its logistics offerings such as auto logistics, inland waterways, logistics parks, warehouses and more.

The well-integrated structure of APSEZ gives it a competitive edge over other companies. It also results in more value creation for its clients. The Mundra SEZ in Gujarat is one such fine example. The 8,000 hectares industrial hub offers multiple port infrastructure amenities.

Last but not the least, Adani Ports also operates a large fleet of 23 dredgers providing dredging and reclamation solutions. In simple terms, dredging means decreasing the level of a waterbed (a harbour, river, or another area of water) and reclamation means increasing it. These can be for cleaning purposes, new construction, land formation, etc.

Adani Ports – Financials

Revenue & Net Profit Growth

APSEZ outperformed the market in FY22 by registering a growth of 26% in cargo handling. It handled 312 MMT of cargo in FY22 compared to 247 MMT in FY21. This is in short contrast to a 5% growth in all-India cargo volume. This gives a picture of the fast growth of Adani Ports and SEZ.

As for its warehousing segment, it added 0.43 million sq. ft. translating into a growth of an impressive 108%.  

The revenues of the port company have consistently grown over the years. It has mostly grown inorganically over the years by acquiring various other ports. For instance, last year the company spent Rs 14,659 crore to acquire three ports, namely Dighi Port, Krishnapatnam Port, and Gangavaram Port.

Taking a five-year time horizon, its revenues have grown at a CAGR of 7.07%. Its profits have also steadily increased, although at a slower rate of 5.17%. On a year-on-year basis, the topline grew 27% to Rs 15,934 crore in FY22 while net profit saw a decline of 5.33% to Rs 4,728 crore.

The table below presents year-wise revenues and net profit of Adani Ports and SEZ for the last five years.

Year	Revenues (Rs Cr)	Net Profit (Rs Cr)
2022	15,934	4,728
2021	12,550	4,994
2020	11,873	3,763
2019	10,925	3,990
2018	11,323	3,674
5-Yr CAGR	7.07%	5.17%

Operating Profit Margin & Net Profit Margin

The ports industry has higher operating profit margins. Most port operators have more than 55% of the operating margin. The consequent net-profit margin depends on the capacity utilization and interest paid on debt. 

Historically, Adani Ports and SEZ have demonstrated healthy operating and net-profit margins. The table below lists the profit margins of APSEZ for the last five years.

Year	Operating Profit Margin	Net-Profit Margin
2022	56%	30%
2021	64%	40%
2020	50%	32%
2019	60%	37%
2018	63%	32%

Debt & Returns

Apart from their returns, Adani group companies are famous for one more thing: their debt. Adani Ports and SEZ is not an exception either.

In the table below, we can see that total borrowings have almost more than doubled in the last five years. As for the debt-to-equity ratio, it has increased but not at a very alarming rate. 

And talking about the return on equity, Adani Ports has a higher return on equity than the return on capital employed because of more debt proportion in the capital. It has remained volatile because of the acquisitions of the company and the subsequent time taken to increase its efficiency. 

Thus we can conclude that APSEZ does have high debt but the management has faith in the earnings to service the debt and interest with the interest coverage ratio of 4.34 for the year ending March 2022.

Year	Total Borrowings (Rs. Cr.)	Debt/Equity	Return on Equity (%)
2022	47,619	1.19	12.41
2021	35,583	1.13	16.40
2020	29,979	1.09	14.78
2019	27,446	1.07	16.26
2018	22,112	1.01	17.43

Competitive Advantage

There is nothing new about the maritime sector. It has been there for a long time. The profitability of Adani Ports and SEZ begets the question of how APSEZ is different from other port operators in India. 

Technological advancements and increased efficiency helped Indian ports to increase their average output per ship berth. In six years from FY2016 to FY21, the port efficiency increased by 32%. And this increase in asset utilization was primarily led by private port players such as APSEZ. 

Along with this, Adani Ports has done a very fine job of integrating warehousing and industrial zones with the ports business. Thus, at one end we have better efficiency and at another end of the spectrum, the integrated nature of the APSEZ. Thus, these two points are put together to give a competitive edge to the company.

Adani Ports – Future Plans

APSEZ invested Rs 11,400 crore on acquisitions in FY22. Along with this, the company spent Rs 3,750 crore on organic capital expenditure. 

Recently, the company purchased an inland container depot from Navkar Corporation for Rs 835 crore. Adani’s acquisitions are in line with the vision of creating an integrated ports and logistics enterprise.

Investors can expect higher earnings in the future years as the turnaround of the recently acquired facilities progresses.

Furthermore, the Indian government has identified 31 port projects for monetisation worth ₹ 14,483 crores for FY22-25. Of these, 13 are planned to be tendered in FY22 and more than 10 in FY23. This hints at another acquisition spree for Adani Ports and SEZ as it is the largest private port player in India.

In addition to this, the company recently partnered with Flipkart to set up a fulfilment centre. This is just one of the many other projects the logistics arm of APSEZ has undertaken.

Thus going forward, we may witness more acquisitions and partnerships from Adani Ports and SEZ in both the segments: ports and logistics.

Key Metrics

We are almost at the end of the article. Let us quickly run through a few figures more.

CMP (Rs)	613	Market Cap (Rs Cr)	132,500
Stock P/E	24.8	Face Value (Rs)	2.0
RoCE	9.9%	Book Value (Rs)	205
RoE	12.41%	Price to Book Value	3.02
Debt/Equity	1.24	Promoter Holding	65.13%
Net Profit Margin	32.2%	Operating Profit Margin	56%
Net Debt/EBITDA	3.4	Dividend Payout Ratio	22%

We can note that:

1. The company maintains a healthy dividend payout ratio meaning the management has confidence in servicing its heavy debt in future through earnings.
2. Net debt to EBITDA is low from an overall perspective but still well within the guidance provided by the company. 
3. The debt-to-equity ratio is high as the company has used borrowings to finance its acquisitions. 
4. Promoters are very bullish on the business given the promoter shareholding at 65.13%. Over the last few years, the Adani group has slowly bought back and increased its stake in the ports business.
5. Stock P/E is high but it also incorporates the strength of the company such as healthy return ratios, profit margins and steady growth in revenues & profit.

In Conclusion

Despite high debt levels, the earnings of Adani Ports have grown at a sustainable rate. The stock currently trades at 3.02 times its book value, lower than its five-year median of 3.7x. Thus, it will be interesting to see whether there will be any stock gains in the future. Or 3.02x of book value will be the new price multiple for the stock.

It is said that time has all the answers in the market. Let us wait and watch. Till then keep saving and keep investing. Let us know what you think about Adani Ports fundamental analysis. Would you invest?

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