Adani Ports: European foray; balance sheet leverage under control, say analysts

Analysts are largely positive on Adani Ports & Special Economic Zone Ltd 's acquisition of Evos, Europe's second-largest independent liquid storage operator, viewing it as a high-margin, value-accretive growth business.

The entry into European liquid storage is at a valuation largely in line with that of listed European liquids major Royal Vopak. For now, the asset has limited synergies with Indian operations initially, except for the potential acquisition of engineering capabilities to handle sustainable fuels, analysts said.

They noted that the management expects to improve the return on capital employed (RoCE) of these assets by focusing on additional value-added activities and expanding into the broader ecosystem, including distribution, over the longer term.

"No additional capex is required, and the asset provides strong annuity-type storage EBITDA (take-or-pay with CPI-linked escalations), providing strong cash flow visibility. We view the acquisition as a largely neutral development initially, but in case ADSEZ is able to demonstrate strong EBITDA accretion from value-added services, it can be a key turnaround driver. We recently upgraded ADSEZ to a 'Buy' with a target of Rs 2,065," JM Financial said.

"Evos adds a high-margin European liquid business and ADSEZ intends to drive value-accretive growth, leveraging energy transition. We expect balance sheet leverage to be under control," Jefferies said.

The global investment bank said Adani Ports' management highlighted Evos' strategic locations, exposure to conventional and transition fuels, stable macro environment and hard-currency earnings as key attractions.

"The acquisition also provides access to lower-cost funding, with Evos' cost of debt at 4.5% against 6.5% for ADSEZ, including foreign-currency borrowings. Management intends to retain Evos' existing leadership team and potentially leverage its balance sheet for acquisition funding," Jefferies said.

Nuvama said the acquisition provides APSEZ access to a strategically located liquid storage platform in a stable macroeconomic, geopolitical and currency environment while bolstering its international presence. The acquisition is likely to be completed in 15 months and is estimated to contribute to APSEZ's EBITDA immediately, it said.

"Pending closure (15 months), our estimates and target price of Rs 2,170 remain unchanged. Maintain 'Buy'. At the current market price, it trades at 15.4 times FY28 EV/EBITDA," Nuvama said.