| Date: |
26-09-2014 |
| Subject: |
Hold Adani Ports & SEZ, target Rs 266 |
We retain a non-consensus 'hold' rating on Adani Ports & SEZ with a revised 12-month SOTP-based target price of Rs 266 per share (arrived using NPV with a zero terminal value and 12.6% CoE, same as earlier), given the limited return potential of the stock. Although we lift our FY15e and FY16e EPS by 1% and 3% for the improved volumes, valuations at 20x P/E and 4.5x P/B FY16e do not seem to capture the risk of higher working capital that may generate sub-optimal returns.
Adani Ports would appear as one of the best players in infrastructure space if we look at its omnipresent modern ports across India. The company gains market share every month and has delivered an improved P&L, but its FY14 annual report shows that for the first time, working capital consumed a larger capital versus capex and was funded by debt. Hence, our dichotomy of views continues and we find the stock's 85% 12-month higher returns (versus Sensex) captures upside from its enviable business. Meantime, valuations at 4.4x FY16e P/B (for 24% RoE) do not seem to capture rising risk of working capital needs (from inter-corporate/group exposures).
Our analysis suggests that Adani Ports can again report an impressive quarter due to two key factors: First, YTD coal imports in India are up 43% y-o-y – a large part of this has moved towards Adani Ports as per coal traders, and second, container volumes are also up 9% YTD. Factoring in these data, we raise our estimates by 1% and 3% for FY15e and FY16e, respectively. The company looks to be in a stronger position to report a 23% earnings CAGR over FY14-17e.
Source : financialexpress.com
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