Adani Ports To Acquire 75% Stake In Krishnapatnam Port

India’s largest multi-port operator has agreed to acquire a majority stake in Krishnapatnam Port Co. Ltd. from Hyderabad-based CVR Group for Rs 5,520 crore.

Adani Ports And Special Economic Zone Ltd. will buy a 75 percent stake in the all-weather deep-water port in Andhra Pradesh at an enterprise value Rs 13,572 crore, according to its filing with stock exchanges. The deal is EPS (earnings per share) accretive from day one with a payback period of four years, the company said, adding that it will be funded by internal accruals and cash.

The acquisition fits well with Adani Ports’ strategy to increase its footprint in Andhra Pradesh and nearly double its cargo throughput to 400 million metric tonnes by financial year 2024-25 via expansion and acquisitions.

The CVR Group holds 90.6 percent stake in Krishnapatnam Port, while the rest is owned by London-based private equity firm 3i Group.

Deal Valuation

Given Krishnapatnam Port’s net debt of Rs 6,212 crore, its equity value stands at Rs 7,360 crore. That values a 75 percent stake in the port operator at Rs 5,520 crore.

• The enterprise value of Rs 13,572 crore works out to 10.2 times its operating profit for 2018-19. That’s a discount since Adani Ports trades at nearly 13.5 times its FY19 Ebitda.
• According to the company’s statement, the deal is valued at an estimated FY21 EV-to-Ebitda ratio of 8.6 times.

Adani Ports doesn’t expect its leverage to worsen after the acquisition. It estimates the FY21 net debt-Ebitda ration at 3.2 times compared with 3.1 times in FY19. The company seeks to maintain an investment grade credit rating, for which it has to keep its leverage below 5 times.

Krishnapatnam Port handles dry bulk, liquid, container cargo, roll-on/roll-off ships that handle wheeled cargo, and provides other marine services for clients that include JSW Group, Zuari Cement, 3F Industries, Gemini Edibles and Fats, Adani Wilmar, APGENCO and Sembcorp Industries among others.

A 30-year concession agreement for the port was signed in 2004 which can be extended by another 20 years. The company handled 54.37 MMT of cargo in FY19 and plans to increase the same to 200 MMT, according to information on its website. However, during the first seven months of the ongoing fiscal, its cargo throughput was 28.22 MMT—slightly lower than the 33.66 MMT it handled during the same period last year, reflecting the slowdown in the Indian economy. The port has 11 operational berths and has the provision to increase it to 42.

Krishnapatnam Port’s revenue has grown steadily on the back of rising cargo volumes. Its margins expanded over the period as port handling charges as a percentage of total costs have fallen.

This will be Adani Ports’ fifth port on India’s eastern coast and its first in Andhra Pradesh. Adani Ports won a bid to set up the Bhavanapadu Port project in the state in FY18—which would have otherwise marked its entry in the state as a full-fledged port operator.

Until FY14, Adani Ports had a strong presence on the western coast through its ports at Mundra, Hazira and Dahej in Gujarat. Over the past five-six years, it has developed presence on the eastern coast as well.