Positives priced in Adani Ports & SEZ ::HDFC Sec

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Positives priced in Adani Ports & SEZ’s (ADSEZ) consolidated 3QFY15 revenues (including Dhamra) of Rs 15.4bn were below est. Rs 16.3bn owing to lower SEZ income of Rs 110mn during the quarter. Consequently, consolidated EBITDA of Rs 9.6bn was also below estimated Rs 9.9bn. Although standalone EBITDA margin of 68% for Mundra remained strong, lower operating margins in other ports dragged down margins to ~62% (in line with estimates). However, minimal tax outgo of just Rs 11mn owing to MAT credit of Rs 1.1bn led to inline consolidated PAT of Rs 5.2bn. Mundra port clocked steady 8% YoY volume growth in 3QFY15 at 28.7mn tonnes while the Hazira port exhibited an impressive growth in 3QFY15 and handled 1.6mn tonnes of cargo (up 68% YoY). We like ADSEZ for its visibility on cargo volumes and robust cash flows. However, post the recent run up in stock price (CMP Rs 338/sh), we believe that the stock is fairly valued at 13.9x FY17E EV/EBITDA and 4.4x P/B. We value ADSEZ on SOTP basis with TP of Rs 318/sh and maintain our NEUTRAL rating.  Volume growth to sustain : ADSEZ’s consolidated volumes (ex-Dhamra and other minor ports) grew 15.9% YoY to 33.8MT owing to strong volumes across ports. Further, Dhamra Port clocked 4.4MT in 3QFY15. However, liquid volumes at Mundra declined 28% YoY owing to lower crude volumes from HMEL on account of maintenance shutdown at their plant. ADSEZ remains confident of clocking double digit volume growth over FY15-17E led by growth in container traffic and ramp up in other ports such as Hazira, Kandla, Mormugao and Vizag.  SEZ land sales an additional trigger : With ADSEZ recently having received go ahead to develop the SEZ at Mundra, we expect Mundra volumes to benefit over the long term as more companies set up operations at the SEZ along with revenues from land sales.

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http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3010969