Stock of Adani Ports and  Special Economic Zone Ltd stock has lost just 0.2% while Gujarat Pipavav Port Ltd is down 18% over the last one year. Adani ports trade less than 20 times despite it generating highest returns. While Gujrat Pipavav Port Ltd trade 26 times FY 19 per share multiples.

Recent June Quarters results of Gujrat Pipavav reflect the impact of growing competition.

Despite higher volume and revenue, net earnings dropped from a year ago. Earnings were impacted by an adverse volume mix. The management has warned about competition and pricing pressure. Several analysts have competed for their earnings estimates, fearing subordinate profitability.

Due to the addition of new container terminals at JNPT and Kandla port and their core ports are situated in India’s west coast, which has been lately seeing a competitive intensity.

Adani Ports’ performance wasn’t unique either. Revenue and net earnings backed Street estimates in Q1. According to the analysts,”Even so, adjusted for non-recurring revenue in the year-ago quarter and forex losses due to mark-to-market adjustment on dollar-denominated debt, the core ports business did well”.

The management guided for an improvement in profitability at the ports business and rise in free cash flows.“Port Ebitda margins to expand by 100 bps to 71%,” a note on Adani Ports. Management expects free cash flow of RS.1,750-2,000 crores against RS.1,253 crores in FY18 and RS. 675 crores in FY17. The Q1 results and statement indicate that Adani Ports focus on improving the cargo mix is yielding results.

Despite, the superior earnings outlook doesn’t mean much. Share performance is low. What’s more, valuations are at a discount. Despite the slow growth profile, institutional investors prefer Gujarat Pipavav for its transparency and simpler business structure said, analysts.

Adani Ports don’t help in dealings with its group firms. Adani Ports curtailed related party loans, reacting to the investor’s concern. However, exposure to group firms remains high. Trade receivables jumped to RS. 4,300 crore (about 38% of sales; FY17 was RS.2,700 crore), said analysts at Edelweiss Securities Ltd in a note analyzing Adani Ports latest annual report.

This was led by a steady jump in receivables from related parties. What this means is that even as expanding trade volumes are helping domestic ports, a clear winner is yet to emerge.

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