The broader markets are flirting with new highs and shares of many companies are witnessing a so-called catch-up rally. The latest to join this bandwagon is Adani Ports and Special Economic Zone Ltd. On Tuesday, the stock was the top gainer among the Nifty 50 stocks, rising nearly 5% and also touching a new 52-week high.
Going ahead, investors will have to keep tabs on a couple of factors. Decline in promoter pledges is one. “We believe the management commitment to drop promoter pledges over 12-18 months to 0-5% from the current 45% is a key re-rating trigger,” said analysts from Jefferies India Pvt. Ltd in a report on 3 November.
The second aspect is its debt. “Strong cash flow generation will aid deleveraging,” said Credit Suisse analysts.
For FY21, Adani Ports expects free cash from operations after adjusting for working capital changes, capex and net interest cost to be in the range of about ₹5,500-6,100 crore.
As on 30 September, the net debt stood at ₹24,831 crore with the debt-to-Ebitda ratio increasing to 3.44 times. Adani Ports maintains net debt-to-Ebitda is expected to be around 3.5 times in FY21 and will come down within its target range of 3-3.5 times by FY22. Ebitda is earnings before interest, tax, depreciation and amortization.
Meanwhile, better-than-expected volumes are helping investor sentiment as well. Jefferies has revised its FY22 earnings per share estimates upwards by 10% to reflect a 5-6% higher FY21-22 estimated volume assumption.
Note that Adani Ports’ volumes had risen by 21% year-on-year in October, excluding the volumes from the acquired Krishnapatnam port. Adani Ports had completed the Krishnapatnam acquisition in the first week of October. Further, Dighi port’s acquisition is expected to be completed in the current quarter.
To be sure, some are concerned about the volume outlook for the Krishnapatnam and Dighi ports. “Given Krishnapatnam’s dependency on coal cargo and Dighi’s lack of volume track record, these acquisitions would add to risk,” Credit Suisse Securities (India) Pvt. Ltd analysts said in a report on 4 November. Even so, the brokerage house expects volumes to rise about 25% in FY22, on the back of a 10.7% growth in FY21.
Adani Ports has said it expects cargo volume to be higher in the second half of fiscal year 2021. During the September quarter, cargo volumes had increased by 7% year-on-year.
Overall results were strong last quarter with consolidated revenues and Ebitda both increasing by around 3% year-on-year. The company’s Ebitda stood at ₹1,851 crore for the September quarter.