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Part 2 of our series explaining Adani Group Companies and their businesses. This one covers the business of Adani Ports and SEZ limited.
Part 1: Adani Group Companies Explained: Adani Green
Read all posts in the series here: Adani Group Explainer
Adani Ports is India’s largest private port operator and logistics service provider. It is also the only Adani Group stock to be a part of the Nifty 50 index. The stock was added in 2015.
The company manages 13 ports in India, one port in Myanmar, and owns a majority stake in a port in Sri Lanka. Apart from this, the company’s wholly-owned subsidiary Adani Logistics provides end-to-end logistics service in industries like container, bulk, chemical, auto, and liquid across India.
Adani Agri Logistics Ltd. – unit of Adani Logistics, is India’s largest player with a 45% market share in the modern agri storage space. The company also has large-scale ‘ready to setup’ industrial land (SEZ) with a land bank of 13,000 hectares at Mundra, Dhamra, Kattupalli & Krishnapatnam.
Leveraging the advantage of robust port infrastructure, SEZs becomes a good investment opportunity for diversified industries. The western coast accounts for 80% of SEZ land bank share, while the balance is on the Eastern coast. Usually, SEZ business revenues contribute to around ₹ 800-1,000 crore every year.
Adani Logistics operates 5 multi-modal logistics parks at Kanech, Kilaraipur, Patli, Kishangarh, and Malur, and 1 logistic park at Nagpur which is under development. It started its rail operations in 2006 and is now the largest private rail operator in India. It also provides supply chain solutions for auto OEMs and ancillaries and has a dedicated Ro-Ro facility available at ports. The company plans to develop 15+ multi-modal logistics parks by FY25.
Adani Ports currently has developed 12 ports, where it grew its capacity 50 times from 10 MMT to 490 MMT, within a span of just 12 years. It is amongst the world’s top-5 fastest-growing port players. The company’s Mundra port continues to be the largest container handling port commanding a market share of approximately 17%.
Adani Ports which has a strong and dominant position in the West has recently decided to expand into the East via acquisitions. It recently acquired two major ports – Krishnapatnam and Gangavaram. Both the ports are situated in Andhra Pradesh and have a capacity of 64 MMT each.
Traffic at Eastern ports has increased at a CAGR of 5.1% over FY10-20, while that of western ports have increased at 4% CAGR during the same period. Indian eastern ports enjoy a 39% share with significant scope for expansion as the majority of port users are industries in and around the vicinity and eastern ports are on an expansion spree. With eastern coast ports share on a rise, Adani Ports went on an acquisition spree as it wanted to capitalise on this opportunity.
Adani Ports’ key trading partners in western and eastern ports are the U.S., China, Europe, and UAE. However, commodities traded in western ports and eastern ports are completely different. Key commodities traded in western ports are cereals, cotton, mineral fuels, and fertilizers while in eastern ports are ores, vehicles, machineries, fisheries, and vegetable oil. This has diversified Adani Ports’ commodity risk within the same risk profile of countries.
Over FY17-20, Adani Ports’ total cargo volumes have grown at 10% CAGR – beating 5% growth for the industry – mainly led by a 15% CAGR in container volumes. Revenue CAGR of 12% was driven by higher container volumes and SEZ-related income.
Adani Ports’ net debt stood at ₹ 24,169 crore, while its net debt-to-equity ratio at 0.9x levels is under control. Its net debt-to-EBITDA at 3.2x is well within management guidance 3-3.5x. Despite an increase in debt, interest costs are declining with a shift to long-term (95% currently) debt, thus improving the company’s ALM profile and liquidity position. Forex debt continues to be maintained at 68% of total debt. Annual foreign exchange earnings act as a natural hedge against foreign debt.
Healthy cash accruals, and strong operating efficiencies, commissioning of ports, acquisition, increased geographical diversity, diversified cargo mix, long-term contracts, strategic locations of ports, low dependency on coal cargo, etc. all will continue to function together to support the company’s operations going forward. India is becoming a preferred trading partner globally. China+1 policy followed by many global corporations is expected to benefit India immensely, given its locational advantage and infrastructure. The ports sector would be one of the biggest beneficiaries and Adani Ports could benefit the most from India’s increasing contribution to global trade.
Next in this series, we take a look at a company raising a lot of eyebrows with its stock price: Adani Total Gas
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Adani Group Companies Explained: Adani Green
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