Acquisitions serve Adani ports, market share gains resist slowdown


MUMBAI: Shares of Adani Ports and Special Economic Zone Ltd have recovered much of their post-pandemic losses and are now just 5% below January highs, similar to the Nifty 50 index.

The company’s June quarter results were weak but are signs of a recovery, with July volume growth of 6%. By comparison, total cargo volumes at major ports – all products combined – fell 13% in July.

The rise in volumes fueled the revision of analysts’ estimates. “We have revised our FY21E-22E volume estimates higher to reflect the same,” analysts at Jefferies India Pvt said. Ltd in a note.

The company said it expects to complete the acquisition of Krishnapatnam Port Co in the current quarter (Q2) and that of Dighi Port by the end of this year.

Behind the acquisitions lies Adani Ports’ strategy of gaining a foothold on established trade routes and attracting freight volumes through efficient and value-added services.

The ports of Dhamra and Kattupalli on the east coast are a good example. Dhamra’s business volumes gained ground as Adani Ports improved its port handling capabilities and addressed evacuation issues.

The port of Kattupalli has benefited from market gains in the port region of Chennai, says Nomura Research.

Analysts expect the company to replicate the strategy with the latest acquisitions as well.

“Adani Ports has already gained market share by establishing ports within an established ecosystem. The same was observed with Mundra, which won on the west coast, Dhamra on the east coast, and Kattupalli in the Chennai cluster. We believe Dighi will help gain market share from JNPT until JNPT is able to establish a deep water port in Wadhawan, “Nomura Research analysts said in a note. JNPT is Jawaharlal Nehru Port. Trust, the largest container port in India.

Growing cargo volumes at the east coast ports at the industry level are also contributing. This contributes to the growth of Adani Ports in the region. “Management is optimistic on Dhamra and Kattupalli seeing strong growth in ports. Interestingly, the East Coast has accounted for 38% of the additional volumes over the past 3 years and has finished FY20 at 20% of the total,” added the Jefferies analysts.

The reduction in B2B lending and management’s focus on cash flow also reassured investors. The acquisitions will increase the leverage effect of the current year. But the additional earnings are expected to soften the net debt to earnings before interest, taxes, depreciation and amortization (Ebitda) ratio.

While all of this adds to investor optimism, any unrelated acquisition or significant investment outside of the current business can interrupt momentum.

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