How Adani Became India’s Port Tycoon
Billionaire Gautam Adani’s conglomerate is now among the biggest corporate houses in India. And his ports business, the largest after Indian government-controlled sea cargo traffic, is the crown jewel of his empire.
The transformation from an upstart to an operator of 13 ports and terminals along India’s shoreline took more than two decades. Adani, according to estimates by ICRA Ltd., now controls nearly 25% of India’s seaborne cargo traffic after a string of recent acquisitions.
The port operator handles cargo traffic on both east and west coasts. Its Mundra terminal in Gujarat is India’s largest port owned by a private company.
Here's Adani Port's dominance in numbers:
- After the acquisition of Gangavaram port, total capacity stands at 562 million metric tonnes.
- Accounted for 40% of all-India container volume as of December.
- As of March 2020, controlled about 25% of the west coast trade and about 10% on east coast trade.
- Processed 37.4% of coal cargo and 53.2% of container cargo trading on the west coast as of March 2020, according to Centrum.
The port tycoon from Gujarat has been rapidly expanding his empire by adding airports, coal mines and data centres. The group, also the owner of the controversial Carmichael coal project in Australia, now has a market value of nearly $80 billion. The bulk of those gains came amid investor excitement in the last seven years as Adani aligned expansion with Prime Minister Narendra Modi's policies.
Adani Ports grew at an annualised rate of 12% in FY14-20, according to the company's investor presentation. That's more than twice the industry’s pace of 5%.
The group entered the ports business by setting up Mundra Port and Special Economic Zone in 1990s, which later became Adani Ports and Special Economic Zone Ltd. He targeted non-major ports, or those administered by states. The major ports are controlled by the central government.
Non-major ports had a 10% share in cargo traffic. But as Adani expanded, picking up stakes, non-major ports now command 45% of the traffic, according to data provided by India Ratings Ltd.
Adani’s Ports Empire
In 2001, Adani Ports and Special Economic Zone got the contract to operate the Mundra port from the Gujarat Maritime Board for 30 years. Since then, it has grown into a network of ports with a total installed capacity of more than 500 million metric tonnes. The expansion came on the back of acquisitions.
A String Of Acquisitions
In the last one year alone, Adani added three new ports, including acquisition of 75% in Krishnapatnam Port Co., India’s second-largest private port in 2020.
This year, it completed the acquisition of 100% stake in Dighi Port Ltd. for Rs 705 crore. Adani plans to invest Rs 10,000 crore to develop the port into a multi-cargo port to rival JNPT.
Adani recently acquired its 13th port by buying 89.6% stake in Gangavaram Port Ltd.—second-largest non-major port in southern India with a capacity of 64 million tonnes a year—from promoter DVS Raju and a unit of Warburg Pincus LLC for $269 million. Located on the eastern shore it is the country’s deepest all-weather port.
The deal will complement Adani Ports' acquisition of Krishnapatnam Port, which serves the hinterland of south and central Andhra Pradesh. It will allow Adani Ports to achieve a greater diversification by increasing volumes from India's east coast, said Moody’s Investor Service in a recent note.
Adani Ports on April 5 signed an agreement to acquire the balance 25% stake in Krishnapatnam Port from Vishwa Samudra Holdings Pvt. for Rs 2,800 crore. The port operator already owns 75% in Krishnapatnam Port.
India's shoreline to the east accounts for 40% of the nation's overall port trade. And Adani has been increasing its share.
As of FY20, it controlled about 25% of the west coast trade and about 10% of east coast trade. The eastern coast share will rise significantly with the acquisition of Krishnapatnam and Gangavaram.
Diversification on east coast has started showing benefits.
The region's contribution to its income has risen from 20% in 2019 to 28% in 2020. The share of east coast in its total port capacity increased from 8% in FY15 to about 33% in FY20.
Rising share will only increase dominance and pricing power.
And Adani has also been scouting for international opportunities. In March, Adani Ports received a letter of intent from Sri Lankan authorities for development and operations of West Container terminal in Colombo, its first such standalone overseas project. Besides, Adani Ports has been working to develop a port in Malaysia.
Adani has room to increase its footprint even more as the Indian ports sector is consolidating.
“There is visibly low interest in bidding for new assets and capacity addition at both major and minor ports is slowing (estimate 3% for major ports over FY19-24),” Centrum Institutional research said in a report.
Players such as Balaji Infrastructure Ltd., Navayuga Group, have exited, having sold their stakes to Adani Ports, according to data shared by Centrum Research. "There has been a consolidation in the ports industry over the last five years. Several prominent private players have either exited their investments or are at least not investing any further due to financial stress or owing to change in business strategy."
The ones that still focus on the port business include APM Terminals, DP World, JSW Infrastructure Ltd., Shapoorji Pallonji Group and PSA.
"There is no competition for Adani in the ports business, and there is no body even second close to Adani in terms of ports operation," Ramesh Singhal, director at i-maritime Consultancy Pvt. said over the phone.
The Mundra Playbook
Mundra is at the centre of Adani's port empire.
Geographic placement gives it a key edge, helping it tap the North India market that accounts for 40% of the container volume, Tarwadi of India Ratings said.
Adani also struck strategic partnerships with global shipping liners and port operators during its early days. That included tie-ups with MCS and CMA-CGM, second and fourth largest ship liners in the world, respectively.
The port’s dwell time (how long cargo ships spend within a port) and transit time (how long it takes to deliver a shipment to its final destination) was lower compared with Mumbai’s Jawahar Lal Nehru Port Terminal, the largest container port at the time. As of December 2020, India Ratings data showed, JNPT had a dwell time of 21 hours as against two hours for Mundra.
“Due to Adani’s efficient and agile operations, state of the art infrastructure and competitive tariffs advantage, the company was able to pull demand with Mundra,” said Ankit Patel, vice president and co-head at ICRA Ltd. If the industry gets an alternate which not only saves them time, cost, reduce shipping time, automatically people will start to shift, and that’s what happened with Mundra, he said.
And Adani Ports’ ability to strike partnerships not only helped it increase cargo volumes but also gave it sticky business. More than 60% of Adani’s cargo is being backed either by long-term pacts or strategic partnerships, Centrum Research said.
For example, Mundra has long-term agreements with Indian Oil Corp. and Hindustan Petroleum Corp. for crude oil, while it has a long-term ‘take or pay’ agreement with Tata Power Ltd. and Adani Power Ltd. for handling coal, the report said.
Adani Ports continues to outperform industry's cargo growth because of capacity expansions, cargo diversification and investments in evacuation infrastructure, it said.
The firm capitalises on opportunities ahead of time investment, like investing in modern and efficient marine, cargo handling, storage and evacuation infrastructure, Centrum said. "This has helped APSEZ attract cargo away from legacy ports as well as from ports operating on a sub-optimal scale."
The company is duplicating the Mundra playbook across India on operations and financial prudence. The strategy is to gain foothold in established trade routes and attract cargo volumes through efficient and value-added services.
Investors are buying into this strategy. Last year, Adani Ports crossed Rs 1 lakh crore in market capitalisation for the first time after its shares hit a record high—the second group firm to reach the milestone after Adani Green Energy Ltd.
Ports is just one business of the company. It also operates a logistics unit and a special economic zone.
While ports contribute 75% of the revenue, according to India Ratings, logistics brings in 10% of the revenue, and the rest comes from SEZ business.
Piling Debt, Strong Ebitda Margin
Despite healthy cash flows, Adani Port’s debt is on the rise as it continues to invest aggressively in expansion. Debt levels will rise if Adani Ports expands aggressively, instead of repaying debt.
But most of that debt is long term. According to the company’s disclosures, 95% of its debt has a maturity of more than five years, up from 74% in FY16.
Cash flows are healthy. For FY21, Adani Ports expects free cash from operations, after adjusting for working capital changes, capex and net interest cost, to be around Rs 5,600 crore.
It estimates revenue of about Rs 12,700 crore in FY21, of which Rs 10,800 crore will come from the port business, with port Ebidta margin of around 71%.
Adani is aligning its logistics businesses, offering sea, rail and road distribution. It’s bringing all rail assets under one platform—Adani Track Management Services Pvt., fully owned by Adani Ports.
“Adani is building for the next decade, and that’s what their strategy has been in ports,” said Patel of ICRA. With railways, they see a 10-year road map that fits with the port business, he said. Dedicated freight corridor implementation it will aid growth by drastically reducing transit time, Patel said.
And Adani, according to its disclosures, targets cargo throughput to more than double to 500 MMT by fiscal 2025.
As Patel put it: No one is expanding ports at such a massive scale like Adani.