Maintain ‘buy’ on APSEZ with revised FV of Rs 600

APSEZAggregate share pledges amount to ~12% of overall market capitalization of Adani group’s listed entities as of today.

The $2 billion proceeds from the Total deal for the Adani group would help it better manage its mandates of reducing share pledges, financing ambitions in Australia and airports, and bid for Concor. We reduce our cost of equity assumption for Adani Ports to 12.75% from 13.25% and bring monthly volume run-rate for FY2022 to levels reported in December 2020. Retain ‘buy’ with revised FV of Rs 600 (from Rs 535 earlier).


Total Renewables has acquired a 16.4% stake in Adani Green Energy, as per a recent BSE release. Unauthenticated media reports separately suggest that the French oil and energy group Total plans to buy 20% stake for a quantum of $2 billion. To put this in perspective, the $2 billion quantum is equivalent to a combination of the past three instances of monetisation by the promoter group in Adani Gas, Adani Green Energy and Adani Transmission.

The promoter group may allocate the large $2 billion proceeds across three key areas. Reducing share pledges across listed entities — ($3 billion aggregate promoter-level debt). Part of the proceeds from the Total deal may go towards reducing the group’s share pledges. We note past commitment of the promoter group to reduce share pledges to insignificant levels by September 2021. Aggregate share pledges amount to ~12% of overall market capitalization of Adani group’s listed entities as of today.

Financing capex/equity requirement in Australia/airports prior to external funding coming in ($2.5 billion near-term requirement). Part of the proceeds from the Total deal can be used to support any shortfall in financing for the group’s ambitions.

Two key areas of investment in such aspects are Australia coal mine and rail where $1.4 billion of near-term capex are there (SBI is considering lending) and airports financing of US$1.2 bn of equity (PE investors may consider investing up to US$0.7 bn over time in our view).

Potential funding of Concor bid (~US$2.5 bn enterprise value for 56% stake). Promoter may consider bidding for Concor from an entity beyond Adani Ports. Probability of such an event increases based on prospects of external funding support opening up for the ventures in Australia (SBI) and airports (private equity) prior to the Concor bid.

Independent of how the proceeds are split within the three buckets, proceeds of US$2 bn for the promoter group is a positive for Adani Ports. Apart from lower cost of capital, we also align our FY2022 volumes to monthly run-rate for December 2020.

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