HDFC Securities has upgraded Adani Ports & Special Economic Zone (ADSEZ) to 'Buy' with revised target price of Rs 240 from Rs 224 as against current market price (CMP) of Rs 225 in its report.
Commenting on the investment rationale, the stock broker said, "Adani Ports & SEZ (ADSEZ) has announced the acquisition of 100% stake in Dhamra Port for an EV of Rs 55 billion from Tata Steel (NR) and L&T IDPL (50:50 JV). The acquisition provides ADSEZ access to the Indian East Coast with potential to ramp up capacity to 100MT by FY20E (FY14 cargo volumes of 14.3MT with capacity of 25MT) and replicate the success story of Mundra Port that handled 101MT in FY14.
DPCL commenced operations in May-11 and reported 34% EBITDA margins in FY13 that has improved to 55% in FY14. We assume equity of Rs 21 billion to be paid by ADSEZ and debt of Rs 34 billion to be transferred to ADSEZ books. Although near-term PAT contribution from DPCL may be marginal over FY15-16E to ADSEZ's consolidated profits, we believe the deal is value accretive for ADSEZ over the long term. Based on our DCFE for Dhamra Port we arrive at a value of Rs 42.7 billion and adjusting for equity payment of Rs 21 billion, we derive value accretion of Rs 21.7 billion."
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