Adani Ports - May14 CU

Adani Ports & SEZs (APSEZ) Mundra port maintains its impressive growth,
with newer assets gaining scale and expected to contribute 35% of consolidated
cargo by FY16E. Driven by the incremental volumes, we estimate a 24% CAGR in
cargo handled for APSEZ (174m tonnes in FY16E) and a strong 24% earnings
CAGR over FY14-16. The healthy growth profile, coupled with a robust balance
sheet, makes APSEZ our preferred infra play. Also, the SEZ business is likely to
emerge as a key value creator given the increasing challenges to land acquisition
in the country. We reiterate Outperformer on APSEZ with a DCF-based target
price of Rs235.
Mundra stellar performance continues: Mundra Port handled 100m tonnes of
cargo in FY14, which makes it the largest commercial port in India. Mundras long-
term contracts for coal and crude cargo, along with sustained market share gains in
containers, have led to a volume surge of 23% CAGR over the past five years.
Newer assets gaining prominence: CT-3 and Dahej Port have registered
impressive growth and are highly profitable. Hazira Port too is well-positioned to
scale up in the next two years, benefiting from a highly industrialized hinterland.
While Mormugao and Vizag are already under trial runs, Kandla would commence
operations by end-FY15. We expect a 24% CAGR for APSEZ in consolidated cargo
over FY14-16 (174m tonnes in FY16) with a 35% cargo share of newer assets.
Our preferred infra play: APSEZ offers a strong growth profile with 24% earnings
CAGR over FY14-16E and robust balance sheet. The SEZ business, with ~16,000
acres of land bank, is likely to emerge as a key value creator in view of increasing
challenges on land acquisition for industries. We reiterate Outperformer on APSEZ
with a DCF-based 12-month price target of Rs235. Key risks include a prolonged
slowdown in the economy and overcapacity in container handling.

Key valuation metrics
As on 31 March FY12 FY13 FY14E FY15E FY16E
Net sales (Rs m) 26,973 35,766 44,453 58,405 73,718
Adj. net profit (Rs m) 11,947 15,904 18,115 22,551 27,655
Shares in issue (m) 2,003 2,003 2,070 2,070 2,070
Adj. EPS (Rs) 6.0 7.9 8.8 10.9 13.4
% change 42.4 33.1 10.2 24.5 22.6
PE (x) 31.2 23.4 21.2 17.1 13.9
Price/ Book (x) 7.5 5.7 4.3 3.5 2.8
EV/ EBITDA (x) 30.8 20.3 17.5 12.9 9.8
RoE (%) 25.9 27.7 23.3 22.5 22.6
RoCE (%) 8.5 8.9 10.0 11.9 13.6

INSTITUTIONAL SECURITIES
INDIA RESEARCH

Adani Ports & SEZ
Good to great
Shirish Rane
shirish.rane@idfc.com
91-22-6622 2575
For Private Circulation only.
Important disclosures appear at the back of this report
SEBI Registration Nos.: INB23 12914 37, INF23 12914 37, INB01 12914 33, INF01 12914 33.
80
95
110
125
140
May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14
Adani Port & Special Economic Zone Sensex

Price performance relative and absolute
Ashish Shah
ashish.shah@idfc.com
91-22-6622 2560
5 May 2014
BSE Sensex: 22404
Sector: Ports
Stock data
CMP (Rs) 186
Mkt Cap (Rsbn/USDbn) 384.7 /6.4
Target Price (Rs) 235
Change in TP (%) +29
Potential from CMP (%) +27
Earnings change (%)
FY14E
FY15E 5.4
FY16E 11.4
Bloomberg code ADSEZ IN
1-yr high/low (Rs) 213/117
6-mth avg. daily volumes (m) 2.81
6-mth avg. daily traded value
(Rs m/US$ m) 482.7 /8.02
Shares outstanding (m) 2070
Free float (%) 25.0
Promoter holding (%) 75.0
Stock price as on 2 May 2014
(%) 3-mth 6-mth 1-yr
Adani Port & SEZ 26.5 28.3 27.0
BSE Sensex 9.2 5.7 14.9
OUTPERFORMER
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Adani Ports & SEZ

2 | IDFC SECURITIES 5 May 2014
Mundra achieves pole position
Having handled 100m tonnes cargo in FY14, Mundra Port (Mundra) has become the largest commercial port in the
country. Mundras geographical advantage, along with its superior handling and evacuation infrastructure, has been
the backbone of this rapid growth (23% CAGR in the last five years). Mundras long-term contracts for coal and crude
provide strong visibility on cargo growth. Market share gains and commencement of trans-shipment have also led to a
rapid scale-up in container cargo at Mundra. We expect a 13% CAGR in cargo at the port over FY14-16.
Mundra becomes Indias largest commercial port
Mundra handled 100m tonnes of cargo in FY14, becoming Indias largest commercial port. The port has rapidly gained
scale, growing at 23% CAGR over the past five years as compared to ~7% CAGR for Indias overall port cargo. During
the period, Mundras market share too has doubled to 10%. Mundra has a total cargo handling capacity of 200m
tonnes.
Capacity matrix
Capacity matrix Units Mundra Dahej Hazira Mormugao Vizag Kandla Ennore Total Group
Bulk mt pa 100 20 15 10* 7* - - 152
Crude mt pa 50 - - - - - - 50
Containers m TEUs 4 - 2 - - - - 6
Current capacity mt pa 200 20 35 10 7 - - 272
Under development
LNG mt pa 5 - - - - - - 5
Bulk (coal terminal expansion) mt pa 40 5 - - - 20 - 65
Containers m TEUs - - - - - - 1.4 1.4
Total under development mt pa 45 5 - - - 20 18 88
Expanded capacity mt pa 245 25 35 10 7 20 18 359
Source: Company data * -under trial runs to be commissioned by Jul/Aug-14
Long-term contracts for crude and coal cargo enhance volume visibility
Coal, crude and container cargo have been the key drivers of Mundras strong cargo growth. Mundra has long-term
contracts for crude cargo with IOC and HPCL-Mittal Energy, and for coal cargo with Mundra UMPP and Adani
Powers Mundra Power project. We estimate Mundra to have handled 27m tonnes coal and 18m tonnes crude under
these long-term coal contracts in FY14. Coal cargo has been further aided by an overall surge in Indias imported coal
volumes to ~175m tonnes in FY14 (~36% CAGR in the past three years).
Market share gains and trans-shipment driving container volumes
With total container handling capacity of 4m TEUs, Mundra has become the largest container port on the West Coast
and had a cargo market share of 31% in CY13. Its volumes have registered 23% CAGR over the past three years (based
on our FY14E estimate of 2.3m TEUs) as compared to ~5.5% CAGR for the industry. This rapid market scale-up has
been on the back of Mundras good cargo handling and evacuation infrastructure. Volumes have also been aided by
commencement of trans-shipment at Mundras new container terminal, CT-3.
Adani Ports & SEZ

West Coast container market
In '000 TEUs CY09 CY10 CY11 CY12 CY13
Major Ports 4,036 4,543 4,535 4,434 4,228
Growth (%) (8.8) 12.6 (0.2) (2.2) (4.6)
Market share (%) 77 74 69 66 60
Mundra 867 1,170 1,403 1,683 2,159
Growth (%) 5.2 35.0 19.9 20.0 28.3
Market share (%) 17 19 21 25 31
GPPL 321 466 610 570 661
Growth (%) 64.4 45.0 30.9 (6.5) 15.8
Market share (%) 6 8 9 9 9
Minor Ports 1,188 1,636 2,013 2,253 2,820
Growth (%) 16.5 37.7 23.0 11.9 25.1
Market share (%) 23 26 31 34 40
Total West coast 5,224 6,179 6,548 6,688 7,048
Growth (%) (4.0) 18.3 6.0 2.1 5.4
Source: Company data, Indian Ports Association
We expect 13% CAGR for cargo at Mundra over FY14-16E
We estimate cargo at Mundra to increase to 128m tonnes by FY16 (from ~100m tonnes in FY14) with 30% of
incremental cargo likely to come from its long-term contracts for coal and crude. Container cargo, aided by further
ramp-up in volumes at CT-3, is likely to constitute 50% of the incremental cargo at Mundra.
New ventures acquiring scale
APSEZs new ventures have been rapidly acquiring scale, giving the company continued growth visibility even as the
parent business at Mundra matures. CT-3, in its first full year of operations (FY14), achieved ~40% capacity utilization,
led by both EXIM and trans-shipment cargo. The Dahej Port is also operating at ~40% capacity and is highly profitable.
Cargo at Hazira Port is picking up pace; we estimate volumes of ~4m tonnes in FY14. We expect 81% CAGR in cargo
from new ventures (non-standalone cargo) over FY14-16 and account for 35% of consolidated cargo volumes.
CT-3 off to a flying start
APSEZ set up its third container terminal (CT-3) in the South Basin at Mundra at an investment of ~Rs20bn. The
terminal has a capacity of 1.5m TEUs and has been set up in a 50: 50 JV with MSC. MSC is among the largest shipping
lines in the world and carried 13.2m TEUs globally in 2012. MSC will make CT-3 its India hub, which will enable a
quick ramp-up in volumes at this terminal. APSEZ, besides having a 50% equity stake in the terminal, will also earn a
20% share of cargo handling revenues and 100% of marine revenues. CT-3 handled 0.45m TEUs during April-Dec
2013; we estimate 0.6m TEUs in FY14. About 40% of these volumes are likely to be trans-shipment. The company
expects this proportion to rise to ~50% in the next 1-2 years.
Dahej port scaling up well; posts robust profitability
Dahej Port (20m tonnes; South Gujarat) was commissioned in January 2012 and has seen a quick ramp-up in cargo
volumes. The port handled 6.4m tonnes cargo during April-Dec 2013; we estimate cargo volumes of 8m tonnes for
FY14. Nearly 80% of the cargo handled comprises coal for power producers based in Gujarat, Rajasthan, Madhya
Pradesh and the NCR (National Capital Region). Dahej also handles bulk cargo for various fertilizer companies and
industrial users based in South Gujarat. The port has signed eight medium-term cargo contracts with many users,
including GSFC, GNFC, Saint Gobain, Concept Logistics, Gujarat Alakalies and Kotak Logistics. Importantly, the
ports profitability remains robust at an EBIDTA margin of ~60%. APSEZ is in the process of completing the residual
capex at Dahej and will spend ~Rs2.5bn over FY15-16 in fully mechanizing the second berth and enhancing capacity of
the back-up area. After this capex, Dahejs installed capacity will increase by 25% to 25m tonnes.

Adani Ports & SEZ

Hazira Port a good start
APSEZ commissioned the Hazira Port in Jul-13 with a capitalized cost of ~Rs25bn. The port has a total cargo handling
capacity of 35m tonnes, which comprises container handling capacity of 1.5m TEUs and bulk cargo handling capacity
of 15m tonnes. The port has a design draught of ~17m and has been developed to handle bulk, break bulk, container
and liquid cargo. The overall master plan of the port envisages development of 13 berths in a phased manner with a
potential cargo handling capacity of 100m tonnes. Hazira is located in close proximity to the highly industrialized belt
of Surat and Ankleshwar in Gujarat. It is connected to key North-South and East-West National Highways and the
Delhi-Mumbai Rail Corridor at Surat. The company is in the process of securing approval to construct a dedicated rail
link that will connect the port to Surat. Hazira serves as an attractive alternate location to JNPT for handling container
cargo, especially for users based in its immediate hinterland of North Maharashtra and Gujarat. Hazira handled 2.8m
tonnes of cargo during April-Dec 2013; we estimate it to have handled 4m tonnes of cargo in FY14. Absence of direct
rail connectivity with the main line is,however, a key concern for growth of container cargo at Hazira.
Developing four terminals on BOT basis at Major Ports
APSEZ is developing three terminals at Major Ports under 30-year concessions on BOT basis one coal terminal each
at Mormugao Port and Visakhapatnam Port and an offshore bulk terminal at Kandla Port. Recently, APSEZ was also
awarded the project to develop the first container terminal at Ennore Port on BOT basis.
APSEZs new projects
Rs m Project cost Debt Equity & accruals Capacity (m tonnes) COD
Dahej 12,100 6,800 5,300 25* Sep-10
Hazira I 25,000 17,500 7,500 35 Jul-13
Vizag 4,000 2,800 1,200 7 Jul-14
Kandla 12,000 8,400 3,600 20 Apr-15
Mormugao 4,058 2,841 1,217 10 Oct-14
CT-3 20,000 12,850 7,150 20 Jul-13
Ennore 12,000 8,400 3,600 17 FY17
Source: Company data, IDFC Securities Research *-20mt currently
Coal terminal at Mormugao
APSEZ is developing a coal terminal at Mormugao Port with an initial capacity of 7m tpa. The capacity will be
subsequently ramped up to 10m tpa based on increase in volumes. The target markets are power and steel plants in
West and Central Maharashtra as also North Karnataka. Being a Major Port, Mormugao Ports tariffs would be
governed by Tariff Authority for Major Ports (TAMP). The concession agreement provides for operating the terminal
on BOT basis till 15 May 2040. The terminal is undergoing trial runs currently and is likely to be commissioned by
Aug-14. Mormugao Port handled 7.5m tonnes coal in FY14.
Coal terminal at Visakhapatnam
This coal terminal will have a capacity of ~7m tpa to handle imported coal volumes. The target markets of the port are
industries and power plants in Andhra Pradesh, Orissa, Chhattisgarh and Eastern Maharashtra. This terminal is also
aligned with the long-term strategic interest of the Adani Group to establish presence on the East Coast of India. The
terminal is undergoing trial runs currently and is likely to be commissioned by Jul-14. Visakhapatnam Port handled
9.7m tonnes of coal in FY14.
Bulk terminal at Kandla
APSEZ is developing an offshore bulk cargo terminal project at Kandla Port. The proposed terminal would be a
greenfield development located ~17km to the west of the mouth of the Kandla Creek. The proposed dry bulk terminal
will have a capacity of 20m tonnes to handle cargo like coal, foodgrain, fertilizers and minerals. Evacuation from the
new terminal would be through a new 11km rail link to the existing Kandla Port (not in Adani Ports scope of work).
Cargo handling at the inner harbor at Kandla Port remains constrained due to insufficient draught, and development
of this offshore terminal is aimed at addressing this bottleneck. As a result, cargo at this terminal is likely to scale up
Adani Ports & SEZ

rapidly due to the shift in handling from the inner harbor. The project has an estimated development cost of Rs12bn
and commissioning is likely by end-FY15.
Container terminal at Ennore
APSEZ was recently awarded the Ennore Container terminal project. The estimated project cost of Rs12bn will be
incurred in phases over six years. Phase I will involve an outlay of Rs6.5bn in the first two years, leading to a capacity
of 0.8m TEUs. Phase 2 capex has to be incurred in the 5
th
and 6
th
years and will involve an outlay of the remaining
Rs5.5bn. It would take the total capacity to 1.4m TEUs. APSEZ bagged the project at a revenue share of 37%. The
Ennore Port is located 24km north of Chennai and was originally developed as a satellite port to the Chennai Port and
to primarily handle thermal coal. While the other major ports are operated as Port Trusts, the Ennore Port is
incorporated under the Companies Act 1956. As a result, tariffs at Ennore Port are not governed by TAMP regulations
which apply to other Major Ports. The port predominantly handles only coal cargo at present and APSEZ would be
developing the first container terminal at the port. We have not yet factored this asset in our estimates.
Evacuation constraints at Chennai Port lead to inefficiencies
The Chennai Port handled container cargo of 1.5m TEUs in FY14 (down 5% yoy). Chennai is a city-based port and
evacuation is constrained due to urbanization around the port. The last mile road connectivity at the port is
congested and has traffic restrictions. Rail evacuation too is constrained due to inadequate support infrastructure
within the port. The share of rail-based cargo is only 12% at Chennai compared with 24% for all Major Ports put
together. Availability of sufficient back-up area too is a key bottleneck in the efficient handling of cargo.
Ennore Port provides superior infrastructure
The Ennore Port has ~2,000 acres of land available for creating a back-up area and other support infrastructure. The
port will provide a back-up area of 90 acres for the proposed container terminal. Ennore Port is connected by rail to
Chennai-Kolkata broad gauge main line which is at about 6km from the port. The port has also undertaken a project
to provide dedicated rail connectivity to the proposed container terminal. Road connectivity is through NH4, NH5
and NH45. The channel draught at Ennore Port is 16m and a similar draught will be provided by the Ennore Port at
the proposed container berth, enabling it to handle container vessels up to 14,500 TEUs. The proposed berth length
will be 730m. Environment clearance for this project is in place, facilitating smooth execution.
New ventures to account for 35% of consolidated cargo by FY16E
Cargo from new ventures like CT-3, Dahej and Hazira is growing rapidly. Further, APSEZs new BOT assets of
Mormugao and Vizag will be commercially operational in FY15E and Kandla will commence operations in FY16E. We
estimate cargo from these new ventures to clock 81% CAGR over FY14-16 from 19m tonnes in FY14 (estimated) to 61m
tonnes in FY16. The contribution of these projects will rise from 16% of consolidated cargo to 35% by FY16E.
APSEZs consolidated cargo volumes
Cargo (m tonnes) FY11 FY12 FY13 FY14E FY15E FY16E
Mundra Port (standalone) 52 68 82 94 104 113
CT-3 (at Mundra Port) - 7 12 15
Kandla 12
Dahej 1 2 8 8 11 15
Mormugao - - - - 2 4
Hazira - - - 4 8 12
Vizag - - - - 2 4
Consolidated cargo (mt) 52 70 90 113 138 174
Cargo from new ventures 8 19 35 61
% cargo from new ventures - - 8.4 16.4 25.0 34.8
Source: Company data, IDFC Securities Research
Adani Ports & SEZ

Potential opportunities: The next leg of growth
With current container handling capacities fast getting filled up, APSEZ is evaluating partnership with a major
container shipping line for its fourth container terminal (CT-4) at Mundra on similar lines of CT-3 with MSC. The
development of a proposed 5m tpa LNG terminal at Mundra too is in advanced stages. APSEZ has the potential to
handle additional crude cargo at Mundra based on the expansion plans of its clients. APSEZ is also evaluating
acquiring the 25m tpa Dhamra Port, which will help meet its strategic objective of gaining significant presence on the
East Coast. The SEZ business, with a land bank of 16,000 acres, is likely to emerge a key value creator due to increasing
challenges in land acquisition for industries.
Development of fourth container terminal at Mundra
The first two container terminals at Mundra, CT-1 and CT-2, are each operating at ~70% capacity utilization. The third
container terminal has, in its first full year of operations (FY14), attained 40% utilization. Therefore, APSEZ is soon
planning to take up development of its fourth container terminal (CT-4) in the South Basin. This terminal is likely to
have similar specifications as CT-3s with a cargo handling capacity of ~1.5m TEUs and ability to handle vessels of up
to 14,500 TEUs in size. APSEZ is planning partnership for CT-4 on the lines of the MSC tie-up for CT-3. In CT-3,
besides having a 50% equity interest, APSEZ earns 20% royalty on handling income and undertakes the entire marine
handling (which typically accounts for 20-25% of aggregate revenues from container handling). APSEZ is also likely to
get an upfront consideration in lieu of waterfront development and lease of back-up land to the terminal.
Development of 5m tpa LNG terminal
GSPC, along with Adani Enterprises and a third partner (yet to be firmed up), plans to develop a 5m tpa LNG terminal
at Mundra. Our checks with GSPC indicate that the venture has already placed orders for long-lead items like storage
tanks and gasifiers. APSEZ will have a three-fold revenue stream from this development; i) upfront payment for lease
of waterfront, ii) recurring payments for land leased for back-end handling and storage infrastructure, and iii) marine
income from handling of cargo vessels.
Increased crude offtake by existing clients HMEL and IOCL
HMEL (HPCL-Mittal Energy) plans to increase its refining capacity at Bhatinda from 9m tonnes to 11.2m tonnes in the
near term and eventually to 18m tonnes. It is in the process of tying up funds for this expansion. GGSR is connected to
Mundra through a dedicated pipeline, and an expansion in its refining capacity would bring in additional crude cargo
for Mundra. IOCL too is evaluating expanding the capacity of its Panipat refinery from 15m tonnes to 18m tonnes.
Both these expansions will lead to additional crude handling at Mundra.
Acquisition of Dhamra Port
Dhamra is a greenfield non-major port in Orissa and has been developed by a JV of L&T and Tata Steel (50:50). The
port has a capacity of ~25m tonnes for handling bulk cargo. The JV plans to scale up capacity to 100m tonnes
eventually. APSEZ has dominant presence on the West Coast and has been seeking to gain a foothold on the East
Coast. It is evaluating acquiring the Dhamra Port from its current owners to further this strategy.
Dhamra Port key highlights
Parameter Detail
Capacity 25mtpa
Proposed capacity post expansions 100mtpa
Project cost incurred Rs36.4bn
Equity invested by current promoters Rs7.6bn
Sponsor loans Rs9bn
Cargo handled in FY14 14.3mt (+29%yoy)
Adani Ports & SEZ


Dhamra achieves key milestones for its expansion plans
Dhamra Port has received the final environment clearance for its Phase II expansion. The project entails capacity
expansion to 100m tpa from ~25m tpa at present. The port requires ~1,000 acres of land for expansion, of which 300
acres are available with the port. Dhamra had sought allotment of 740 acres from the Odisha government to meet the
remaining land. According to press reports (source Business Standard, 23 April 2014), the Odisha government has
given an in-principle approval for the same. With this approval, Dhamra has achieved two key milestones required for
its expansion plans. We believe this improves visibility of the acquisition being completed in the near future.
Acquisition unlikely to be cheap, but premium appears justified
According to media reports (source Business Standard, 16 Jan 2013), APSEZ is likely to acquire Dhamra Port for an EV
of ~Rs55bn. With total debt of ~Rs35bn in Dhamra (including sponsor loans of Rs9bn), the implied equity
consideration is ~Rs20bn (P/B of 2.6x of total equity invested of Rs7.6bn). In comparison, APSEZ stock trades at P/B of
4.3x FY14E. Given that Dhamra incurred a net loss of Rs3.4bn in FY13 and with further losses likely in FY14 and FY15,
the implied deal valuation seems rich. However, we believe the valuation premium is justified given the high entry
barriers in the sector, Dhamras well developed infrastructure and its scalability potential.
APSEZ our preferred play in the infra space
APSEZ remains our preferred infra play given its strong growth profile (24% earnings CAGR over FY14-16E) and a
robust balance sheet. A strong cash generation outlook should also lead to sharp reduction in leverage in the coming
years. APSEZs SEZ business, with its ~16,000 acres land bank, is likely to emerge as a key value creator as land
acquisition for industries is becoming increasingly difficult. Reiterate Outperformer on the stock with a DCF-based 12-
month price target of Rs235.
Cash generation to remain strong; expect leverage to come down
On the back of our estimate of 24% CAGR in consolidated cargo over FY14-16 to 174m tonnes by FY16E, we estimate
29% growth in EBIDTA and 24% growth in earnings for APSEZ. With capex intensity at APSEZ peaking, we estimate a
high free cash generation. We have upgraded our FY15E and FY16E earnings by 5.4% and 11.4%, respectively due to
higher than expected scale up in APSEZs new assets and improved prospects for the SEZ business. As a result, we
expect a sharp drop in leverage for APSEZ over the next two years. We estimate consolidated D/E to drop to 0.5x by
Mar-16 from 1.2x in FY14E and Debt/EBIDTA to drop to 1.5x from 3.8x over the same period.
Expect a sharp increase in free cash flow
(40)
(20)
0
20
40
FY12 FY13 FY14E FY15E FY16E
(Rsbn)
Free cash from operations (standalone)
(60)
(40)
(20)
0
20
40
(Rsbn)
Free cash f rom operations (consolidated)

Adani Ports & SEZ

Improved cash flows to lead to a drop in leverage
Standalone leverage
0.0
0.9
1.8
2.7
3.6
FY10 FY11 FY12 FY13 FY14E FY15E FY16E
0
0.3
0.6
0.9
1.2
Net Debt/EBIDTA (x) (LHS) Net Debt/Equity (x) (RHS)
Consolidated leverage
0.0
1.3
2.5
3.8
5.0
FY10 FY11 FY12 FY13 FY14E FY15E FY16E
0.0
1.0
2.0
3.0
4.0
Net Debt/EBIDTA (x) (LHS) Net Debt/Equity (x) (RHS)

SEZ business likely to be a key value creator
APSEZ has a land bank of ~16,000 acres in its Mundra SEZ. APSEZ has provided basic access and utility infrastructure
in the SEZ, which improves the attractiveness of the land. With the enactment of the new Land Acquisition Bill,
acquisition of land for industries is not only likely to become more expensive but also more time-consuming. In this
backdrop, we believe APSEZs vast land bank equipped with good support infrastructure has immense strategic value
and is likely to be a key value creator. In the near future, we expect a pick-up in SEZ land lease income from the likely
development of CT-4 and an LNG terminal (as described above). Recent press reports (source Mint, 23 March 2014)
also suggest that IOC is evaluating setting up a 15m tonnes greenfield refinery on the West Coast, either at Mundra or
in Maharashtra. Given that land is readily available at Mundra, we believe Mundra will have an advantage over any
alternative location. If IOC decides to set up its refinery at Mundra, we see land lease potential of ~3,000 acres in the
SEZ business (basis: IOC acquired 3,344 acres of land for its 15m tpa Paradip refinery).
The EAC (Expert Appraisal Committee) of the Ministry of Environment and Forest (MoEF) had recommended
environment clearance (EC) to the Mundra SEZ in June12. The MoEF has neither accepted nor rejected these
recommendations till date as against a stipulated time period of 45 days. In line with the provisions of the EIA
Regulations, APSEZ regarded this EAC view as Deemed Clearance for the SEZ. The Gujarat High Court (HC) in
Jan-14 held that, since development activities were undertaken even prior to the favorable EAC recommendations,
in spirit, the case does not qualify for the benefit of Deemed Clearance. The HC ordered all units within the SEZ to
stop construction/operations till the SEZ gets EC from the MoEF. The HC had also asked MoEF to decide on the EC
for the SEZ within 30 days. The Supreme Court subsequently allowed the operating units within the SEZ to function
while staying construction of new units. The MoEF has yet to communicate its final view on this issue.
Preferred infra play; reiterate Outperformer
We like APSEZ for its geographical advantage, well-developed infrastructure and high cargo visibility imparted by
long-term contracts. Given its strong growth profile and a robust balance sheet, APSEZ remains our preferred infra
play. APSEZ has clarified that the ~Rs20bn of surplus funds invested in ICDs of third party corporate and NBFCs
would be unwound as and when this cash is required for an acquisition opportunity (potentially Dhamra Port in the
next 3-6 months). The outstanding corporate guarantee on the Abbott Point acquisition debt is likely to be vacated
over the next 3-6 months. We have valued Adani Ports using the DCF methodology, discounting its equity cash flows
at 14-16% cost of equity. We reiterate Outperformer on the stock with a 12-month price target of Rs235.
Adani Ports & SEZ

APSEZ DCF-based price target of Rs235
Project (Rs m) Basis of valuation Value of equity Stake APSEZ value Cost of Per share
(Rs m; Mar-15) (%) (Rsm; Mar-15) equity (%) value (Rs)
Mundra Port DCF 255,901 NA 255,901 14 124
CT-3 (at Mundra) DCF 35,116 50 17,558 14 8
SEZ DCF 110,337 NA 110,337 15 53
Dahej Terminal DCF 42,778 74 31,656 14 15
VPT DCF 1,951 100 1,951 14 1
Hazira DCF 42,621 100 42,621 14 21
Mormugao DCF 4,279 100* 4,279 15 2
Adani Logistics P/B 12,474 100 12,474 NA 6
Kandla DCF 10,079 100* 10,079 16 5
Total value 515,410 486,730 235
Source: Company data, IDFC Securities Research*-economic interest

Adani Ports & SEZ

Income statement
Net sales 26,973 35,766 44,453 58,405 73,718
% growth 41.0 32.6 24.3 31.4 26.2
Operating expenses 9,507 12,007 16,073 20,315 26,460
EBITDA 17,466 23,760 28,380 38,089 47,259
% change 44.1 36.0 19.4 34.2 24.1
Other income 515 2,644 6,896 5,846 6,521
Net interest (2,041) (4,894) (7,879) (9,544) (10,702)
Depreciation 3,159 4,220 7,148 9,102 10,498
Pre-tax profit 12,781 17,290 20,250 25,289 32,580
Deferred tax 750 1,012 174 (88) (214)
Current tax 177 218 1,885 2,441 4,487
Profit after tax 11,854 16,060 18,190 22,936 28,306
Minorities 94 (156) (75) (385) (652)
Non-recurring items (927) 329 (2,000) - -
Net profit after
non-recurring items 11,021 16,232 16,114 22,551 27,655
% change 20.0 47.3 (0.7) 39.9 22.6

Balance sheet
Paid-up capital 4,007 4,007 4,140 4,140 4,140
Preference share capital 28 28 28 28 28
Reserves & surplus 44,118 59,928 85,879 105,281 129,789
Total shareholders' equity 49,473 65,358 90,152 109,939 135,099
Total current liabilities 12,619 17,953 22,313 29,316 37,003
Total debt 175,678 115,886 129,257 136,667 135,745
Deferred tax liabilities 15,179 5,286 5,800 5,785 5,636
Other non-current liabilities 6,187 5,870 5,377 5,184 4,991
Total liabilities 209,663 144,995 162,747 176,952 183,375
Total equity & liabilities 259,136 210,352 252,898 286,891 318,474
Net fixed assets 209,531 142,933 161,487 173,857 173,581
Investments 697 2,216 4,398 3,369 3,369
Total current assets 37,783 64,799 86,610 109,262 141,121
Other non-current assets 11,125 404 404 404 404
Working capital 25,164 46,847 64,298 79,946 104,119
Total assets 259,136 210,352 252,898 286,891 318,474

Cash flow statement
Pre-tax profit 12,781 17,290 20,250 25,289 32,580
Depreciation 3,159 4,220 7,148 9,102 10,498
Chg in Working capital (13,848) (24,562) (7,863) (1,740) 3,963
Total tax paid (177) (218) (1,885) (2,441) (4,487)
Ext ord. Items & others (861) 11 (2,493) (193) (193)
Operating cash Inflow 1,055 (3,259) 15,156 30,017 42,361
Capital expenditure (128,008) 62,378 (25,701) (21,472) (10,222)
Free cash flow (a+b) (126,953) 59,120 (10,546) 8,545 32,139
Chg in investments 49 24 2,188 1,108 -
Debt raised/(repaid) 139,725 (59,791) 13,371 7,410 (922)
Capital raised/(repaid) 0 0 9,999 (0) 0
Dividend (incl. tax) (2,344) (2,578) (2,906) (3,149) (3,391)
Misc (1,808) 348 (2,518) (7) 310
Net chg in cash 8,669 (2,879) 9,588 13,908 28,136
Key ratios
EBITDA margin (%) 64.8 66.4 63.8 65.2 64.1
EBIT margin (%) 53.0 54.6 47.8 49.6 49.9
PAT margin (%) 44.3 44.5 40.8 38.6 37.5
RoE (%) 25.9 27.7 23.3 22.5 22.6
RoCE (%) 8.5 8.9 10.0 11.9 13.6
Gearing (x) 3.3 1.6 1.2 1.0 0.6

Valuations
Reported EPS (Rs) 5.5 8.1 7.8 10.9 13.4
Adj. EPS (Rs) 6.0 7.9 8.8 10.9 13.4
PE (x) 31.2 23.4 21.2 17.1 13.9
Price/ Book (x) 7.5 5.7 4.3 3.5 2.8
EV/ Net sales (x) 20.0 13.5 11.2 8.4 6.3
EV/ EBITDA (x) 30.8 20.3 17.5 12.9 9.8
EV/ CE (x) 2.2 2.5 2.2 1.9 1.6

APSEZs consolidated cargo trend
67.9
82.1
94.4
103.7
113.4
2.1
7.6
18.5
34.6
60.6
0
50
100
150
200
(mt)
Standalone New assets

Shareholding pattern
Promoters
75.0%
Foreign
17.6%
Institutions
3.2%
Non-
promoter
corporate
holding
1.3%
Public &
Others
2.9%

As of March 2014
Adani Ports & SEZ

Analyst Sector/Industry/Coverage E-mail Tel.+91-22-6622 2600
Shirish Rane Head of Research; Construction, Power shirish.rane@idfc.com 91-22-662 22575
Prakash J oshi Oil & Gas, Metals, Mining prakash.joshi@idfc.com 91-22-662 22564
Nitin Agarwal Pharmaceuticals, Real Estate, Agri-inputs nitin.agarwal@idfc.com 91-22-662 22568
Hitesh Shah, CFA IT Services & Telecom hitesh.shah@idfc.com 91-22-662 22565
Manish Chowdhary Financials manish.chowdhary@idfc.com 91-22-662 22563
Bhoomika Nair Engineering, Cement, Power Equipment, Logistics bhoomika.nair@idfc.com 91-22-662 22561
Pramod Kumar Automobiles, Auto ancillaries pramod.kumar@idfc.com 91-22-662 22562
Rohit Dokania Media & Entertainment rohit.dokania@idfc.com 91-22-662 22567
Ashish Shah Construction, Power ashish.shah@idfc.com 91-22-662 22560
Abhishek Gupta Telecom, IT services abhishek.gupta@idfc.com 91-22-662 22661
Mohit Kumar, CFA Construction, Power mohit.kumar@idfc.com 91-22-662 22573
Param Desai Pharmaceuticals, Real Estate, Agri-inputs param.desai@idfc.com 91-22-662 22579
Probal Sen Oil & Gas probal.sen@idfc.com 91-22-662 22569
Saumil Mehta Metals, Mining saumil.mehta@idfc.com 91-22-662 22578
Harit Kapoor FMCG, Retail, Alcoholic Beverages harit.kapoor@idfc.com 91-22-662 22649
Sameer Bhise Financials sameer.bhise@idfc.com 91-22-662 22635
Abhishek Ghosh Engineering, Cement, Power Equipment, Logistics abhishek.ghosh@idfc.com 91-22-662 22658
J ay Kale, CFA Automobiles, Auto ancillaries jay.kale@idfc.com 91-22-662 22529
Dharmendra Sahu Database Analyst dharmendra.sahu@idfc.com 91-22-662 22580
Equity Sales/Dealing Designation E-mail Tel.+91-22-6622 2500
Anish Damania Head Institutional Equities anish.damania@idfc.com 91-22-6622 2522
Ashish Kalra Managing Director, Sales ashish.kalra@idfc.com 91-22-6622 2525
Rajesh Makharia Director, Sales rajesh.makharia@idfc.com 91-22-6622 2528
Varun Saboo VP, Sales varun.saboo@idfc.com 91-22-6622 2558
Arati Mishra VP, Sales arati.mishra@idfc.com 91-22-6622 2597
Hemal Ghia VP, Sales hemal.ghia@idfc.com 91-22-6622 2533
Tanvi Dixit AVP, Sales tanvi.dixit@idfc.com 91-22-6622 2595
Nirav Bhatt AVP, Sales nirav.bhatt@idfc.com 91-22-6622 2681
Chandan Asrani Manager, Sales chandan.asrani@idfc.com 91-22-6622 2540
Sneha Baxi Manager, Sales sneha.baxi@idfc.com 91-22-6622 2537
Samir Gilani Head of Trading samir.gilani@idfc.com 91-22-6622 2535
Mukesh Chaturvedi Director, Sales trading mukesh.chaturvedi@idfc.com 91-22-6622 2512
Viren Sompura SVP, Sales trading viren.sompura@idfc.com 91-22-6622 2527
Rajashekhar Hiremath SVP, Sales trading rajashekhar.hiremath@idfc.com 91-22-6622 2516
Alok Shyamsukha VP, Sales trading alok.shyamsukha@idfc.com 91-22-6622 2523
IDFC Securities US Designation E-mail Telephone
Ravilochan Pola CEO ravilochan.pola@idfc.com 001 646 756 5865
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Explanation of Ratings:
1. Outperformer : More than 5% to Index
2. Neutral : Within 0-5% (upside or downside) to Index
3. Underperformer : Less than 5% to Index

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Adani Ports & SEZ


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Adani Ports & SEZs (APSEZ) Mundra port maintains its impressive growth,

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