Stake sale at premium valuations a positive for Adani Ports

In addition to volume gains, lower pledges and acquisitions such as Concor would be new triggers

The stock of Adani Ports and SEZ (Adani Ports) hit its all-time high levels intraday after the company announced that Windy Lakeside Investment, an affiliate of Warburg Pincus has taken half a per cent stake via the preferential issue route. The issue priced at Rs 800 a share was made at a 7 per cent premium to Friday’s close. Most brokerages view the deal as a positive outcome.

Analysts at Morgan Stanley while indicating that the deal considers a  stake sale of only 0.5 per cent, it comes at a premium and highlights the confidence of the investor in the company. Moreover, the deal should be looked at in context of Gangavaram port acquisition, according to the brokerage.

Last week, Adani Ports announced the acquisition of a 31.5 per cent stake held by Windy Lakeside Investment in Gangavaram Port for Rs 1,954 crore. The company is in talks with the promoters to buy a majority stake in the company. The equity stake sale will help partly pay for the Gangavaram Port investment, its third in the last six months.  

Citi Research on the other hand indicated that the preferential issue offers a base for valuation and will give flexibility to the company to fund future acquisitions such as Container Corporation of India (Concor).

The government plans to sell 30.8 per cent stake in Concor which given the current market cap values the stake at just over Rs 11,000 crore. The Concor buy will help the company integrate its operations adding the crucial logistics piece to the ports business and offering end to end solutions to customers.

In addition to the news on the acquisition front, the street will keep an eye out for the reduction in promoter pledges which is currently at 22 per cent, down by more than half over the last six months.

While prospects for India’s largest private port operator are sound given the increasing Exim trade volumes and utilisation, the stock has gained about 120 per cent in the last one year. Most of the near term upsides from acquisitions and lower promoter pledge is in the valuations. Investors can look at the stock on dips.