Adani Ports Share: Mulls Rs 20,000 Cr Capacity Boost By 2030; Fear Of Backlog At Israel's Hafia Airport Looms

Adani Ports Share Price: Investors were jittery in Adani Group-backed ports flagship company on Monday. The second largest Adani stock in the conglomerate in terms of market share traded in red, and has tumbled by over a per cent. Concerns related to the back-log of ships increasing at Israeli ports due to the conflict with Hamas, offset the positive impact of the Group's plan to invest Rs 20,000 crore in boosting the capacity of its port by four-times by 2030.

Adani Ports has recently acquired the Hafia port in Israel this year. Hence, the growing tension between Israel and Hamas has impacted many business activities on the most controversial soil of the Middle East.

Adani Ports ended at Rs 805.60 apiece, down by 1% on BSE. The stock was near its intraday low of Rs 804.00 apiece. Its market cap stood near Rs 1.74 lakh crore.

In an interaction on Sunday, when Zhen Hua 15, the heavy load cargo vessel unloaded at the Vizhinjam International Seaport in Kerala, Adani Ports chief executive officer Karan Adani revealed that the Group is planning to infuse Rs Rs 20,000 crore for expanding its cargo capacity at ports. Business Standard reported that it would be four times capacity expansion to 1 billion tonnes by 2030 to emerge as the world's largest company in this field.

Adani revealed that the group is mulling to acquire ports in East Africa (Kenya and Tanzania), Vietnam, and some in the Mediterranean Sea.

The Zhen Hua 15 vessel is part of Adani Ports Rs 7,700 crore (around $925 million) mega infrastructure project.

On the vessel's arrival, Adani tweeted saying, "Our journey began in 2015 when the people of Kerala & Thiruvananthapuram entrusted us with their dream of this port. Today, as the 1st vessel berths at VizhinjamPort, the trust & love shown by all have brought us to this momentous day. My heartfelt salutation to each one of you."

However, the positive impact of this development was overshadowed by the worries of backlog ships at Israeli ports on the backdrop of military preparations for launching a ground assault in the Gaza Strip which is controlled by Hamas.

Hamas, which is recognised as a terrorist group by Israel, launched an all-out attack on the country during the Jewish holiday of Shemini Atzeret and Simchat Torah on Saturday 7th. The coordinated attacks of the Palestinian Islamist militant group Hamas are called Operation Al-Aqsa Flood. However, Israel has retaliated since then with hundreds of air strikes into the Gaza Strip, while bringing its many troops to the southern border of the strip as expectations of ground assault are higher by Israel.

Amidst such a scenario, Reuters reported on Sunday that the backlog of ships is growing at Israeli ports while operations continue at most terminals amid preparations by the military to launch a ground assault in the Hamas-controlled Gaza Strip, according to data and sources.

Due to a heavy rocket barrage in the south of the country, Israel's Ashkelon port was pushed to closure. Also, the report said that Ashdod port has imposed restrictions on the transport of hazardous materials which has meant slower transits.

Notably, Reuters cited the data of MarineTraffic which showed that that at least three cargo and dry bulk ships carrying cargo bound for Ashdod had stopped in waters nearby, with a further three vessels including an oil tanker and a container ship heading for the port. That being said, about 13 ships including cargo, container and dry bulk vessels are currently docked inside Ashdod port

Apart from this, another report revealed that at least three laden dry bulk ships are currently waiting off Haifa in northern Israel.

Both Ashdod and Haifa are Israel's largest and most significant ports. Haifa port alone handles nearly half of Israel's container cargo.

Last week, on October 9th, Adani Ports issued a statement saying, "We are closely monitoring the action on ground which is concentrated in South Israel, whereas Haifa port is situated in the North. We have taken measures to ensure the safety of our employees and all of them are safe. We remain fully alert and prepared with a business continuity plan that will enable us to respond effectively to any eventuality."

According to Adani Ports, the overall contribution of Haifa in APSEZ's numbers is relatively small at 3% of the total cargo volume. For the current financial year (Apr 23-Mar 24), we have guided for Haifa Cargo volumes range of 10-12 MMT and APSEZ's total cargo volume guidance of 370-390 MMT. In the initial six months (Apr-Sep 23), APSEZ's total cargo volume was ~203 MMT, of which the Haifa share is ~6 MMT.

It added, "We stay confident of APSEZ's business performance." In the fiscal year end FY23, the company acquired 70% stake in Israel's Haifa Port in consortium with Israel's Gadot Group for a consideration of $1.2 billion.

The Gautam Adani-backed ports and shipping company is currently India's largest private port operator with more than 24% market share in cargo handling.

Earlier, on October 11th, in its research note, Motilal Oswal explained that APSEZ has been increasing its presence along the eastern coast in a bid to achieve east-west parity.

The brokerage added, "With 1) the recent acquisitions of Krishnapatnam and Gangavaram ports, coupled with APSEZ's ability to scale up operations and implement efficiency measures, as well as 2) the trans-shipment potential led by the commissioning of Vizinjham, the eastern coast is poised to significantly boost its volumes. We estimate the three ports to contribute ~95mmt to APSEZ's volumes in FY25."

Motilal believes that Adani Ports is ideally positioned to capitalise on the growth opportunities. It said, "With the addition of new ports, improvement in utilization levels of existing ports and a moderating capex, the cash flow generation is expected to remain strong. We expect APSEZ to generate Rs 383 billion of cumulative CFO over FY23-25, which would help keep its debt in check despite the recent acquisitions."

According, to Motilal's note said, "We initiate coverage on the stock with a BUY rating and a TP of Rs 1,010 (premised on 15x FY25E EV/EBITDA, in line with its historical average of 14x). The company's: a) market leadership in the ports segment, b) focus on value-added areas such as logistics, and c) focus on strategic acquisitions place it in a sweet spot. APSEZ is extremely well-positioned to capitalize on the growth opportunities in the transportation industry."

Among the key risks for Adani Ports, Motilal highlighted that as the largest private port operator in India, a slowdown in domestic and global trade due to geopolitical disruptions could adversely impact the company's operations at its various ports. Further, our growth assumptions could be hampered by increased competition from other domestic port operators as the government is looking to modernize and improve the efficiency of Indian ports. In addition, a large part of the company's debt is in foreign currency which could pose foreign exchange risk in case of any severe slowdown in its business.

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