Adani Port & SEZ -Nomura

Adjusting TP, estimates for new equity issue
Recent fund-raising further
pares down gearing, while
preparing for inorganic growth

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: Top pick in the India infrastructure space; retain Buy
ADSEZ remains among the largest beneficiaries of a rising demandsupply mismatch in India’s port capacity. ADSEZ has been consistently
raising capacity at its flagship Mundra port, much before its competitors
and in anticipation of demand, and this proactive approach is finally
yielding results, as even its smaller ports (Dahej and Hazira) have started
delivering good volume and profits. Our traffic projections suggest that
ADSEZ will be the single-largest beneficiary of the growth recovery and
container handling capacity shortage at major ports in India. With
deleveraging plans now gaining momentum on the back of the Abbott
Point stake sale and recent fund-raising of ~INR10bn, we think the
company can now focus on opportunities within India, thus driving a stock
re-rating. We project ~25% traffic CAGR for Mundra port over FY13-15F,
which, in the current backdrop of a weak macro environment, we think
makes ADSEZ a compelling Buy.
Catalysts: Continued market share gain and softer rate cycle
Continued strong momentum in traffic growth and a softer interest rate
cycle are key tailwinds for the stock, in our view. We also think that further
clarity on the group’s financial health, especially for Adani Power, will be a
key stock price trigger.
Valuation: Stock inexpensive at 13x standalone FY15F P/E (EPS:
INR11.06); Buy
We adjust our TP to INR187 to factor in the recent equity issue of
~INR10bn to meet the SEBI requirement of restricting promoter holding to
75%. This also leads to ~2% decline each in our FY14/15F EPS estimates
due to the equity dilution. We maintain a Buy with a ~30% upside potential,
and ADSEZ is our top India infrastructure play.