Edelweiss’ research report on Adani Ports and SEZ
Adani Ports & SEZs (APSEZ) Q4FY18 revenues were 20% ahead of consensus mainly due to higher than expected SEZ revenues. Three key highlights were: 1) FCF for FY18 at INR12.5bn missed our estimate of INR19bn due to higher working capital requirement of INR15.7bn on account of CT3 extension and CT4 port development (which should prop up FY19 FCF); 2) management aims to achieve 200MT cargo in FY19 (ex-Adani Power 10MT volumes) in line with our estimates through broad based growth across ports; 3)announcement of new dividend policy which links the dividend pay-out ratio with max 15% PAT (at least 40% higher pay out), could bolster shareholders confidence in APSEZ. We believe APSEZs strong fundamentals will help accelerate volume growth and cement strategic customer relations. Maintain BUY.
We are sanguine on APSEZs long-term growth prospects led by new businesses – logistics, SEZ and expansion at ports. With the new dividend policy, at least a beginning has been made that FCF belongs to shareholders. We maintain BUY/SO with a revised SoTP-based TP of INR465 (INR483 earlier) as we factor in higher risk-free rate of 7.25%.
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