Is it a good time to invest in Adani ports (currently trading @ 550 level)?
Ans: First of all we need to understand the questions being asked by Hindenberg and try to evaluate whether the allegation made by them makes any sense. If anyone goes through the Hindenberg report than the allegations and questions asked can be bifurcated into below broad categories:
1) Violations of Exchange and listed rules
2) Dubious Intra- Party Transactions
3) Use of Shell companies outside india ( Mauritius) to manuipulate the stock price
4) Money laundering through private Adani companies in listed companies of Adani inorder to look Balance sheet good.
5) Inexperienced Chartered accountants to audit the companies.
6) Using stocks as collateral for debt.
Looking at Adani Port, this company is best placed amongst the Adani companies.
Let’s looks at some of its strenghths:
1) Strong cash-generating ability from core business - Improving Cash Flow from operation for the last 2 years.
2) Book Value per share Improving for last 2 years
3) Company with decreasing Promoter pledge
4) Debtor days have improved from 80 to 57 days.
5) Company's median sales growth is 18.7% of last 10 years
Now lets look at the weakness and cons of investing in this company:
1) Valuation seems to be still higher but better placed now as compared to before this fall
2) Promoter holding has decreased over last quarter: -0.89%
Lets analyse Q3 results:
• Performance largely in line.
• Absolute EBITDA grew 15% to Rs 3011 crore (margins remained range bound at 62-63% levels – higher realisation negated by change in product mix).
• PAT de-grew 16% to Rs 1316 crore due to forex loss of Rs 315 crore
• Since major capex is behind APSEZ, the management expects to repay and prepay some bonds, NCDs and maintain debt/EBITDA in the 2.5x range. It has not had incorporate loans and deposits for two to three years.
• Total - 18% growth in EBITDA includes current growth deceleration in Exim movement
• ICD Tumb (Vapi) and Haifa port are expected to fully contribute in FY24 in logistics and port vertical, respectively
• QoQ slowdown in the bulk segment is mainly due to higher duties on iron ore, steel, fertiliser, sugar, etc, and ban on wheat, etc
• The management has prioritised loan repayment and prepayment over other immediate inorganic growth initiatives (debt/EBITDA to be maintained at 2.5x in the near term). However, strategic initiatives may be evaluated as time comes.
• APSEZ has Rs 3000 crore of cash (FD) and another Rs 2200 crore of overdraw (not yet utilised). In a hypothetical event, the company can deploy its entire capital base (~ Rs 42000 crore) to raise cash.
• Also, 22% of gross debt, which amounts to ~Rs 8500 crore, is secured and APSEZ has pledged 1.25x of its assets. The company intends to repay Rs 1600 crore of this secured debt. In FY24, pledging is expected to reach nil.
• Haifa port has been consolidated into APSEZ’s book as on Q4FY23
• Of the Rs 4000-4500 crore capex planned in FY24, Rs 3500-3800 crore would be utilised in ports division, rest in logistics vertical. Karaikal port acquisition (Rs 1500 crore) is a part of the planned capex.
• FY24 capex has been lower as majority of the project based capex has occurred in FY23 and the management expects to ramp up logistics capex as and when demand reaches current capacity.
• Total 100 trains would come online for Adani Logistics in FY24.
Looking at this numbers of Q3 and management concall highlights it looks attractive after the current fall with a price target of Rs 800 in near term but an investor should also look at Gujarat Pipavav Port where there is a MNC promotor ( (Maersk Group). The port container capacity is at 1.35 million TeUs.
As a retail investor, one should do the due diligence based on the above points and then one must consider the decision of investing in the company.
Disclaimer: This is just for educational purpose and this should not be taken as advise for buy or sell.
