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Acquisitions lift Adani Ports stock but debt needs to be managed well


Adani Ports and Special Economic Zone Ltd (APSEZ) remains in limelight with a series of acquisitions. As the acquisitions add to growth outlook, the company’s strong operational performance in March too has driven Street sentiments. The stock that scaled fresh highs on Wednesday is up almost 3.5 times in the last one year.

APSEZ in March had handled cargo volume of 26 MMT, up 41% year-on-year and 23% month-on-month. The total handled cargo volume of 73 MMT in Q4FY21 registering a growth of 27% year-on-year. The strong growth being seen by the company encourages. Coupled with this, the organic growth initiatives being pursued by the company too are boosting its outlook.

The company recently signed an agreement with Vishwa Samudra Holdings Pvt. Ltd. to acquire 25% stake in Adani Krishnapatnam Port Limited. APSEZ was already holding 75% stake in Krishnapatnam Port. Post-acquisition of 25% stake, Krishnapatnam Port will become a wholly-owned subsidiary of APSEZ. The port had clocked revenues of 1975 crore during FY20. APSEZ had said, “The Investment is in line with company’s strategy to increase its footprint in Andhra Pradesh.”

Meanwhile, the company had announced larger acquisitions earlier in March. APSEZ announced 31.5 % stake acquisition in the Gangavaram Port for 1954 crore. It had also announced acquisition of a rail logistic company of the promoter group through a 4800 crore share swap transaction at RS 675 a share.

With operational capacity of 64 mtpa (million tonne per annum) and a master plan capacity of 250 MT, the Gangavaram Port acquisition was looked at in a positive light. Though APSEZ was acquiring Warburg Pincus’ stake in the port, it is looking to buy out the promoter’s 58.1% stake in the future, said analysts. The port during FY16-21 had seen annual volume growth of 11%. Ports’ FY20 59% margin compares reasonably well with Adani Ports’ 63% consolidated port margin said analysts.

Meanwhile, S&P Global Ratings had said Adani Ports’ growth ambitions could reduce rating cushion. In their opinion, the India-based commercial port operator had sufficient financial buffer to absorb the recent acquisition of Gangavaram Port Ltd, but its rating trajectory will depend on the management’s financial discipline to maintain an investment-grade credit profile.

The rating agency anticipates APSEZ’s ratio of funds from operations to debt improving to 15.1% in fiscal 2022 and 17.9% in fiscal 2023, from 10.6% in fiscal 2021. However, they expect management to protect the company’s investment-grade credit profile by adjusting its capex, inorganic growth appetite, or dividend distributions to maintain an FFO-to-debt ratio of more than 15% on a sustainable basis. APSEZ’s leverage in fiscal 2021 was significantly higher than their earlier expectations because of lower trade volumes amid the covid-19 pandemic and the completion of the Krishnapatnam Port acquisition in fiscal 2021.

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