ADANIPORTS — earnings call

The transcript as filed. Every paragraph is addressable: its link names the page and the position it sits at in the call.

Prepared remarks

Moderator · Conference Operator

Ladies and gentlemen, good day and welcome to the Adani Ports & SEZ Limited Q1 FY2023

Questions and answers

Moderator · Conference Operator

Thank you very much.

We will now begin the question-and-answer session.

The first question is from the line of Sumit Kishore from Axis Capital.

Please go ahead.

Sumit Kishore

Good evening.

Thanks for the opportunity.

It is good to see a strong quarterly performance by Adani Ports.

My first question is in FY2022 end your warehousing capacity was 0.8 million square feet and so far till Q1 FY2024 you are at about 1.6 million square feet how will the ramp up to 60 million square feet is phased out and what will be the associated capex?

Karan Adani

So, we have roughly as of right now 5 million square feet under construction.

We would be looking to add roughly 10 million square feet every year in order to reach that target.

Sumit Kishore

And what will be the associated capex production?

Adani Ports and Special Economic Zone Limited August 08, 2023

Karan Adani

So, this year's capex guidance already takes into account the 5 million square feet and for the remaining we would look at roughly Rs.1800 to 2000 per square feet as a ballpark figure to compute the capex.

Sumit Kishore

My second question is also in logistics.

Could you help disaggregate the logistics rail volumes of 131,420 into exim and domestic and basically what has been the here on volume growth?

Is the exim imbalance situation expected to improve for rail container business in the balance fiscal?

Karan Adani

Roughly 90% of our volume is exim, 10% is domestic and we mainly run Mundra and Patli and Kila Raipur as the circuits and we have a very balanced route right now.

We do not see any imbalance as an issue.

In essence, we have actually seen more efficiencies coming in with the double stack counts increasing and especially with the DFC getting commissioned, we have seen the efficiency factors improving significantly.

Sumit Kishore

Okay so the volume growth of high teens or 20% that we see is showing up in your exim volume growth mainly that would be right to conclude.

Karan Adani

Yes, that is right.

Sumit Kishore

You are clearly gaining market share in your Mundra to North India route as of now because your competitors do not seem to be showing similar growth in exim is that right to conclude?

Karan Adani

That is right to conclude.

Sumit Kishore

Thank you and wish you all the best.

Moderator · Conference Operator

Thank you.

The next question is from the line of Abhiram Iyer from Deutsche Bank.

Please go ahead.

Abhiram Iyer

Hi, thanks for taking my question and congrats on a fantastic set of results.

My question is basically a bit operational, but can you provide what the debt and cash numbers were at the end of the quarter?

Muthukumaran

The total gross debt is 48,800 Crores and cash is 9,800 Crores so total net debt is around 39,000 Crores.

Abhiram Iyer

40,800 and 9800, right?

Karan Adani

Sorry the gross debt is 48,800 Crores and cash is 9,800 Crores.

So yes, Net debt is around 39,000 Crores.

Adani Ports and Special Economic Zone Limited August 08, 2023

Abhiram Iyer

Understood and this gross debt is inclusive of the short-term debt as well.

So effectively we see the sequential drop, small town?

Muthukumaran

Absolutely next to nothing short term debt, but it includes that.

Abhiram Iyer

Got it.

Thanks.

I will get back in the queue.

Moderator · Conference Operator

Thank you.

The next question is from the line of Achal Lohade from JM Financial.

Please go ahead.

Achal Lohade

Yes, good evening.

Thank you for the opportunity.

The first question I had was we have touched 100 million tonnes plus in this quarter and I see that we are still maintaining 370 to 390 guidance can you help us understand, are you expecting any decline from here on or we have been bit more extra conservatory out here, any particular cargo or port where you see pressure on the volumes?

Karan Adani

So far, we have not seen any pressures in the volume.

You would have seen the July number also reflects the similar sort of growth that we are continuing so we do not foresee any slowdown as of right now.

Achal Lohade

So, in that case Karan how do we explain 370-390?

If I simply analyze 100 million it crosses actually 400 million mark for FY2024.

Karan Adani

Achal we cannot be changing the guidance on a quarterly basis, right?

Some plus some minuses can happen, right.

So, we continue to grow.

So, we are optimistic at the right point in time we might like to change the guidance, but not at this point in time.

Achal Lohade

Understood.

Second question I had if you look at Krishnapatnam the margins have improved fairly significantly so can you help us understand the measures which are driving this margin improvement and the sustainability of this?

Is there any one off in any of the other ports as well where the particular cargo or particular receipt is helping boosting the margins?

Charanjit Singh

No, there is no one off in any of the port items at any places.

It is a clear reflection of the volumes which you see.

So, the port has recorded the highest ever quarterly volumes and that is the reason for improved margins.

Achal Lohade

Understood.

If I may ask, the impact of this cyclone, you said six days kind of impacted our capacity so is there any way to estimate what is the impact in terms of revenue loss or the margins?

Karan Adani

We lost 2 million tonnes of handling volume because of the cyclone.

Adani Ports and Special Economic Zone Limited August 08, 2023

Achal Lohade

And would that be covered in this quarter or that has gone for good?

Karan Adani

Sorry covered meaning.

Achal Lohade

I mean effectively that gets pushed in the following days and the quarter so will this be covered or compensated in the second quarter volume?

Karan Adani

I mean directionally yes, but accurate number prediction will be difficult, but directionally yes because some volume of cargo that actually did not show up may show up in the next quarters.

Achal Lohade

Got it.

Thank you.

I will fall back in the queue.

Thank you.

Moderator · Conference Operator

Thank you.

The next question is from the line of Parag Jain from HSBC Hong Kong.

Please go ahead.

Parag Jain

Thank you.

Hi Karan.

I have two questions.

First can you talk a bit about how has been boarding of Haifa been to your portfolio and after initial feeding issue what sort of margin shall we model as we exit from this financial year on a steady state basis?

And secondly, with Vizhinjam commencing by the end of this year.

Any timeline for the Colombo port and both of those ports combining to port combining together will you be looking to diverse say at a terminal level to any of your anchor customers or how would be the strategy to gain a sizable transshipment volume from the get go?

Karan Adani

On the Colombo, we expect phase one of Colombo to be commissioned by December of 2024.

As you know we already have partners over there.

We have John Keells and Sri Lankan Port Authority has partner, so we are not looking at divestment of any equity over there.

We do expect that there is enough volume over there in order to fill up the terminal.

In terms of Vizhinjam we have our first lot of cranes coming in October of this year and we expect commissioning to be done by March of 2024.

We expect phase one to be commissioned.

Even over there as of right now we are not looking to diverse any equity we have enough interest from shipping lines to make to this as a hub and we are looking at being more on cost competitive in that region that is how we are looking at it.

In terms of Haifa the on boarding has been good.

We are still going through some of the integration.

We have appointed a new CEO over there and we have also changed the board.

We are right now in the midst of negotiation with the unions to reduce some of the manpower over there to go through the VRS scheme as you know that 80% of the cost or their operating cost is manpower cost and that is reflecting in the EBITDA margin.

We are confident that we will be able to settle with the union by December of this year.

Once done, we will see good Adani Ports and Special Economic Zone Limited August 08, 2023 growth; I mean improvement in the margins from there onwards.

In terms of volume, we are very happy with the volume growth.

We are clocking 1 million tonne per month in Haifa, and we have gained some of the cargo which the port had lost when they were doing the divestment.

So, we are very confident that by end of this financial year we would be clocking anything between 12 to 14 million tonnes of cargo in Haifa.

Parag Jain

And your suggested margin probably will be or is there any numbers in mind?

Karan Adani

It is hard to give you exactly what will be the margins because it will all depend on what we are able to negotiate with the unions.

I think we will be able to give you an accurate number in December in terms of what will be ongoing margins over there.

Parag Jain

Thank you and have a wonderful day.

Moderator · Conference Operator

The next question is from the line of Shabad Thadani from Arkkan Capital.

Please go ahead.

Shabad Thadani

Hi congrats on a very strong set of numbers.

I guess this question is from a fixed income perspective.

The company had announced a tender for Adani Ports I think back in April and the messaging then was that they would continue to do so every three months I guess leading up to the maturity next July so is that still part of the plans because I guess we have gone through July 2023 without any incremental announcements.

Karan Adani

As you know that our plan which we have communicated to all the investor is that by March of 2024, we want to have our net debt EBITDA around 2.5 X as part of it we would look at strategically when to come out and do the repayments of the June bonds as well.

So that is still on cards.

I think the timing of it we will keep it open in terms of to look at it opportunistically when would be the right time to do it.

Shabad Thadani

Understood.

Okay great thank you very much.

Moderator · Conference Operator

Thank you.

The next question is from the line of Asmeeta Sidhu from MetLife Investment Management.

Please go ahead.

Asmeeta Sidhu

Hi thank you management and congrats on your results.

I just have a quick question actually regarding your SEZ goals, so I noticed on slide 34 that your current renewable energy share is at 14% versus your 2025 target of 100%.

Could we just get an idea how the ramp up will go from 40% to 100% in the next 18 months.

Thank you.

Karan Adani

We are currently in implementation of 250 megawatts of renewable energy, which we expect to be commissioned by April 2024.

The 250 megawatts we would be reaching roughly 90% of the renewable share.

Adani Ports and Special Economic Zone Limited August 08, 2023

Asmeeta Sidhu

That is great.

Thank you very much and have a good evening.

Moderator · Conference Operator

Thank you.

The next question is from the line of Atul Tiwari from Citigroup.

Please go ahead.

Atul Tiwari

Sir basically for the container logistics on the exim side you what would be your current market share?

Karan Adani

Current market share from a port perspective or overall exim volume.

Atul Tiwari

In terms of the overall exim volume, the number of containers that you have handled on your rail versus the total industry.

Karan Adani

To be honest Atul we do not track on the Pan India basis because that most of our circuits that we run are Mundra to North India as of right now and from Tuna to JNPT or Tuna to Hazira.

I can tell you that from Mundra perspective ALS market share from all these rail volume moving out of Mundra is roughly at around 13 to 14% but for Pan India basis let me come back to you and the team can give you offline that number.

Atul Tiwari

And obviously you mentioned that 24 trains you have ordered on the container side.

So, it looks like that you continue to expect pretty strong growth on that side of the business over next two to three years.

I mean what kind of volume growth should we pencil in?

Karan Adani

We would look at similar growth that what we have been achieving in the last three years.

If you have seen in the last three years, we have been consistently growing at anything between 20 to 25% so we are very confident of achieving those, continuing with that sort of target as you know that we have commissioned the ICD in Nagpur.

So that will be a completely new area for us where we will be gaining market share.

We would be starting I mean by March of next year we would be starting our ICD in Ahmedabad so that will be again a new market share that we will be taking.

What we have planned is the rates coming in with the assets that we are adding and getting commissioned and with that we are very confident that 20 to 25% growth in rail volume will continue.

Atul Tiwari

Great.

Thanks a lot.

Moderator · Conference Operator

Thank you.

The next question is from the line of Vishal from Silverdale.

Please go ahead.

Vishal

Thanks, and good evening, Karan.

Just one question I think on the cash level, what I heard was that the cash at the end of the quarter was about 9000 Crores but if I look at the covenant calculation on the last page of your financial statements, the cash mentioned is about 3700 Crores so could you be able to reconcile what is the difference in those two numbers that is Adani Ports and Special Economic Zone Limited August 08, 2023 one and second, how much of this cash is restricted versus unrestricted and how much of the cash is at the Haifa port that could be useful?

Thank you.

Muthukumaran

See the difference between the 9800 Crores that we told you versus what you see in the annexure is consolidated versus standalone.

The one in the annexure is standalone which is the requirement under the LODR to actually separately file the governance against the NCDs as outstanding so that is it and all the cash is actually NCD.

Moderator · Conference Operator

We move to the next question that is from the line of Abhiram Iyer from Deutsche Bank.

Please go ahead.

Abhiram Iyer

Hi thanks for the follow up opportunity.

My question is a bit medium term as there has been any talks conducted with the Gujarat Maritime both on extending Mundra ports concession, there are few news reports last year, but been no updates beyond that or is it too early to sort of think about that at the moment from the company’s perspective?

Karan Adani

As we have been mentioning we are touch with Gujarat government to come out with a policy, it is not just Mundra port but all the private parts which are operated in the state of Gujarat.

The government is formulating a policy.

We are hopeful that we should be able to hear something soon, but as of right now there is no new update to give on that.

Abhiram Iyer

Got it and does the company has any expectations on when this might be this year, next year with the elections coming up obviously that might take a backseat, but any expectations from the company?

Karan Adani

As long as we get clarity that is more than important.

Abhiram Iyer

Fair enough thank you.

Moderator · Conference Operator

Thank you.

The next question is from the line of Pulkit from Goldman Sachs.

Please go ahead.

Pulkit

Thank you for taking my questions.

I have two questions.

First is as part of your annual report in the three pillars of growth, you talk about building port interest outside of India and this is through acquisitions.

Could you highlight what are the key things that we look for when we are looking at these ports outside India given that we already have two assets under either construction or operations for us so that is my question one.

Karan Adani

I think what we look for outside India obviously first is efficacy, returns have to be same as India if not more.

Second, we look at what kind of partners we are getting.

If we are getting a good partner, then only we would be entering as you have seen in the last two investments, we have local partners over there.

The third we would obviously look at what is the size of Adani Ports and Special Economic Zone Limited August 08, 2023 the market share that we can get by investing in that region and unless it is not a significant market share that would not be of interest.

If you can see in Haifa itself 50% of countries volume moves through Haifa port so that is a significant presence that we can have and obviously the last one is how it can benefit by having a position from our existing, how can it value add into our existing portfolio this is more of a longer term, longer strategic direction, not short term or a medium term.

Pulkit

It will be only an operation port, or we could look at doing Greenfield ports also outside India.

Karan Adani

It will be operational ports, even it is Greenfield it would be more like a terminal like what we are doing in Colombo which is more in a controlled environment.

We would not be doing a full-fledged Greenfield outside India.

Pulkit

Second question is while Charanjit did highlight that you do not want to be coming in the first quarter and changing your guidance, but is it also because of the fact that we are seeing these export ban for food products from India as well as some of the global shipping lines have issued profit warnings or volume warning, is that something that is also factored in, which is why despite doing such great volumes in the first four months, you are holding back on increasing your guidance?

Karan Adani

We are bullish on India.

We are bullish on the trade.

As you know that we are multi commodity so as part of our de-risking, we do not rely only on container or only on coal and that is the strength of the company that if we are seeing a slowdown in one part we are able to ramp up quickly on the other part of the cargo segment and also with geographical diversification we are also de-risking from just one particular pockets of the country.

So, I think it is nothing to do with that we are cautious, but I think as Charanjit said that it would be not prudent to change right now and maybe in October we would be able to give a better guidance if we have to change.

Pulkit

Got it thank you for those answers.

Moderator · Conference Operator

Thank you.

The next question is from the line of Nikhil Abhyankar from ICICI Securities.

Please go ahead.

Nikhil Abhyankar

Thank you for the opportunity and congrats on a good set of numbers.

Sir I just one question.

Sir the realizations for Q1 are down on Y-o-Y and Q-o-Q basis is it purely because of the mix and have we taken the price hikes for the year?

Muthukumaran

You are right, actually it is about couple of percentage reduction, but it is by and large because of the mix but the important number to note is actually the port EBITDA which actually is at Adani Ports and Special Economic Zone Limited August 08, 2023 72% and also in absolute terms the EBITDA has grown as well so you are absolutely right, it is mix.

Nikhil Abhyankar

Okay and Sir have we taken the price hikes for FY2024?

Muthukumaran

Yes, we have taken.

Karan Adani

We will see the full effect of price hike from July onwards.

Nikhil Abhyankar

Because if you can quantify the price hike or blended.

Karan Adani

As you know that we keep guiding, it is around 2.5% of our total per tonne revenue.

Nikhil Abhyankar

Okay Sir.

Thank you.

That is all from me.

Moderator · Conference Operator

Thank you.

The next question is from the line of Nikhil Nigania from Alliance Bernstein.

Please go ahead.

Nikhil Nigania

Hi thank you for taking my question.

I just have one question.

So good to see strong set of numbers in the first quarter on volumes, but just on a longer guidance on 500 million tonnes in FY2025, now that most of the inorganic growth seems behind Krishnapatnam, Gangavaram, Karaikal, Haifa.

Apart from Vizhinjam what else is maybe under evaluation or something in mind to help us get close to that kind of the 500 million tonne next fiscal.

Karan Adani

No 500 million tonne is predominantly from our existing assets and obviously it also takes into account Colombo as well as Vizhinjam coming online fully which itself would add roughly if I am not wrong 25 to 30 million tonnes of volume additionally, but this is predominantly from our existing portfolio and existing assets and also what is more important is that we would still hit our revenue and EBITDA targets even if we are a little bit short of the 500 in case if we do, but we will still achieve the guidance of revenue and EBITDA.

Nikhil Nigania

Got it thank you.

Just one follow up to that so on the inorganic front, is the company finding it a bit challenging now to use that lever given there are not too many opportunities left in India per se?

Karan Adani

As you know that between FY2028 and lot of FY2030 lot of concessions will come up for renewal so that will give us another opportunity of growth and yes but otherwise we would look at expanding our existing portfolio and we would look at increasing our portfolio as a transport utility over there.

Understood.

That is very helpful.

Thank you.

Adani Ports and Special Economic Zone Limited August 08, 2023

Moderator · Conference Operator

The next question is from the line of Achal Lohade from JM Financial.

Please go ahead.

Achal Lohade

Thank you for the follow up.

Just wanted to clarify with respect to your capex guidance is there anything new which is building in this capex, or it is the same capital allocation what you had talked about in terms of ports earlier in the overall capex number of 4500 Crores?

Karan Adani

Right now, there is no change in our capex guidance.

We are still well within our guided range of 4500 to 5000 there is no change on that.

Achal Lohade

Got it and any update on the Dighi port where we are, what is the plan here from next three to five years effective?

Karan Adani

So, as you know that we are working on the railway line to connect.

We have got the approval from the Maharashtra government and the land acquisition is under way right now.

A lot of work to be done in terms of rejuvenating the existing jetties and the backup area, so we are working on that.

The road connectivity which was also an issue we have used this year to finish that.

We got four lane road connectivity all the way to the port, and we are confident that we will be able to create an alternate to JNPT at Dighi.

Achal Lohade

Is there any capex guidance you can provide in this case for next three to four years at Dighi port.

Karan Adani

It will be hard to give you a port-by-port guidance.

I think what we give as an overall guidance that includes all of these things.

Achal Lohade

Understood and just one clarification with respect to, in the PPT you have talked about the Marina flotilla is that the harbour business, because the number in terms of the increase in the equipments is substantially increase so any reason for that.

Karan Adani

So that is tug business that is the Ocean Sparkle business and the harbor business that is right.

That predominant increase is because of Ocean Sparkle acquisition which we did last year.

Achal Lohade

Got it.

Thank you.

That is all from my end.

Thank you.

Moderator · Conference Operator

The next question is from the line of Yunyun Bai from Barings.

Please go ahead.

Yunyun Bai

I have two quick questions.

One is about your secured debt.

I think if I remember correctly, you have about 20% of the secured debt and you said you are going to repay them over time in financial year 2024 can you give us an update on this?

Adani Ports and Special Economic Zone Limited August 08, 2023

Muthukumaran

Can you repeat the question?

I did not quite catch the question.

You are asking for secured debt?

Yunyun Bai

Yes.

Muthukumaran

No not our bonds are secured.

We are all unsecured.

The only secured debt we have is actually the domestic bonds, which is actually debentures, which is also winning, which is today at 6000 Crores round number, approximate number.

Yunyun Bai

6000 Crores.

Muthukumaran

6000 Crores at the end of the year.

Yunyun Bai

Okay thank you and also how about share pledge.

I think the share price is still about 4,5%.

What is the level now?

Muthukumaran

This share pledge actually is secondary collateral for operating assets.

There are no loans outstanding and all these share pledges, you are asking about promoter level share pledge right.

Yunyun Bai

I am asking about the promoter share pledge.

Muthukumaran

Yes, that is actually a secondary and there are no loan outstanding at the promoter level as we speak.

Yunyun Bai

Okay thanks for the update.

Moderator · Conference Operator

Thank you.

The next question is from the line of Aditya Mongia from Kotak Securities.

Please go ahead.

Aditya Mongia

Thank you for the opportunity and congratulations for a very strong set of results.

My question relates to CONCOR.

The question was with every year of deferment of privatization and you kind of gearing your own business does the attractiveness of CONCOR for you come down over time?

Karan Adani

Directionally, yes, but we will keep evaluating it.

Aditya Mongia

What I am suggesting is that in case in FY2025 the privatization were to happen do we believe that given our own kind of criteria of where we want to have leverage, what kind of capex we will be having, we would be able to give it a decent shot.

Adani Ports and Special Economic Zone Limited August 08, 2023

Karan Adani

Yes, we would find a way to do it.

If you the asset is interesting, we will find a financing situation, but a broad leverage level of the long term is what we have given you the guidance.

Aditya Mongia

Understood and just a second question, anything specific that you would want to share about let us say recent news on Tanzania and Adani ports acquiring assets over there?

Company Speaker

So, Tanzania we are currently doing operating and maintenance, so anything else we will actually update you?

Karan Adani

Right now, there is nothing else to update.

Right now, we are just doing O&M.

At an appropriate time, we would if there is anything else.

Aditya Mongia

And just lastly, let us say a billion tonnes by 2030 is a more longer-term target that you have spoken about.

Have you become the largest port operator over time?

How much you envisage would be the share of overseas within that?

Karan Adani

Roughly not more than 10 to 15%.

Aditya Mongia

Understood and very clear.

Thank you those where my questions.

Moderator · Conference Operator

Ladies and gentlemen, as there are no further questions from the participants, I now hand the conference back to the management for their closing remarks.

Thank you and over to you.

Charanjit Singh

So, thank you very much for joining the call.

Looking forward to have you again back on the call in the month of October when we will give our half yearly results thank you and good day.

Moderator · Conference Operator

Thank you very much.

Ladies and gentlemen, on behalf of ICICI Securities that concludes this conference.

Thank you for joining us and you may now disconnect your lines.