Adani group firm shares business update with Kotak: 5 takeaways

On Day 2 of Kotak's flagship conference Chasing Growth 2024, the domestic brokerage hosted the management of Adani Ports & Special Economic Zone Ltd (Adani Ports). The key takeaways included minimal impact of the Red Sea issue on cargo, expectations of improvement in market share from the current levels of 27 per cent and hopes increasing assets will improve network effects, aiding margins.

Minimal Red Sea impact

Kotak Institutional Equities said Adani Ports sees minimal impact seen from the Red Sea issue on cargo. Adani Ports spoke of its 10 per cent exposure of cargo to the Red Sea route, despite which the impact on volume has been much lower than that in the past few months.

The company continues to see a monthly run-rate of 1 million tonne, even in the ongoing month. "The disruptions happening in the region are concentrated—mostly increase in the travel time of shipping routes by 10-15 days, as ships take a longer route circumventing Africa now and thereby, the supply chain disruption." Kotak said.

On the pricing front, Adani Ports does not see any change arising from the issue, while the situation favouring shipping lines in leveraging onto an excess fee owing to disruptions.

Adani Ports may benefit if at all there are any shipping line contracts (typically 1-2 years) for renewal that can attract higher prices. The guidance of 400 million tonne cargo volumes for the year remains the same, while its medium-term target of 1,000 million ton cargo by 2030 being intact.

Preferred partner

Adani Ports, Kotak said, suggested that it has been a preferred partner for many gas distributors in the country. The company spoke of its superior customer service, best-in-class infrastructure facilities and cost-effective offerings in gas distribution, which is one of the best realisations in cargo for the company.

"Adani Ports sees a significant rise in gas volumes in the country, which would make port requirement vital for gas handling. The company is also looking to be benefited in bulk cargo from the coastal coal movement through the eastern part of India, where coal production happens, to the consumption hinterlands, where Adani Ports  can get both the origin and destination volumes at its ports," Kotak said.

Market share

Adani Ports expects to further grow its ports market share. Adani Ports is the largest private player in the country, with a 27 per cent market share that has grown from 10 per cent in FY2014, and the only big private player in third-party cargo, while the rest of the big private players being captives (JSW, Essar, Reliance).

"This gives room for Adani to grow further by gaining market share from government-owned ports, while being capable to expanding existing ports by 3-5X capacity, given opportunities are available. Historically, the company has grown its port volumes at 2 times the India growth rate. ADSEZ expects the cargo volume to grow beyond GDP growth, as the country is seeing improvement in road and rail infrastructure, aiding in improving overall service level in the sector," it said.

Better margins

Adani Ports said increasing assets would improve network effects for ADSEZ, aiding in better margins. As Adani Ports increases its presence both domestically and globally as it is today, this increases its leverage to convince shipping lines on preferring particular routes originated/destined from its port to only prefer its other ports available in the region, massively cutting out competition from the picture.

"Apart from this, ADSEZ expects to maintain its port Ebitda margin at 70 per cent in domestic and international as well, and logistics Ebitda margin at 29 per cent," it said.

CONCOR interest

Adani Ports, Kotak said, expressed its interest in CONCOR as an attractive asset in the logistics space. However, it displayed displeasure in the time taken for the disinvestment process, which is only going to make the acquisition less useful for Adani Ports, as its asset base continues to grow in logistics, making it competitive and bigger; thereby, decreasing relevance for acquiring CONCOR in the future.

 

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