Adani Ports and SEZ - Positives being ignored; company update; Buy :Edelweiss PDF link

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Adani Ports and SEZ (ADSEZ IN, INR 124, Buy)

Adani Ports and SEZ (ADSEZ) has refinanced the ~USD2bn bridge loan taken for the Abbot Point X50 port terminal at lower-than-expected terms. In addition, it has been issued LoI for a 20 MT bulk terminal at Kandla port. We believe these positives are being overshadowed by negative news flow/perception at the group level. Maintain BUY/OP with TP of INR172/share.

Abbot Point bridge loan refinancing complete

The Abbot Point Terminal AUD1.8 bn acquisition, which was funded by a USD2bn bridge loan, has been refinanced by a combination of asset backed loan and a holding company term borrowing at competitive rates of BBSW+250bps and 3mUS LIBOR + 330bps respectively. The repayment is back ended, in line with volume scale-up which would be 50mtpa terminal by FY15 thereby ensuring repayments aligned with project cash flows.

Project pipeline in line with 200 mt target by 2020

ADSEZ was recently issued LoI by the Kandla Port Trust to develop a 20 mtpa dry bulk terminal at investment of INR10bn on BOOT basis for 30 years. Further, the company is also in race for the INR37bn Chennai Port's 4mn TEU mega container terminal project. It is also scaling up capacity at its flagship port, Mundra, by incurring capex of INR33bn buoyed by higher demand for coal imports and containersation volumes.

Outlook and valuations: Concerns overdone; Reiterate ‘BUY’

Despite strong capex plans and project wins, the negative news flow on security clearances and Enforcement Directorate probing ADSEZ on possible money laundering has weighed heavily on the stock leading to its underperformance by ~7% vis-a-vis broader market over the last month. However, with completion of Abbot Point refinancing, the company denying money laundering probe and LoI being awarded for the Kandla project, we believe these positives are being ignored and concerns are overdone. The stock at CMP of INR124 offers an attractive entry point with potential upside of 39% at our fair value of INR 172/share. Reiterate ‘BUY/Sector Outperformer’ on the stock. 

Adani Ports and SEZ - Positives being ignored; company update; Buy

Regards,