Mundra Port country s biggest private port - handled 82 MMT of cargo in FY 13 and is

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1 Adani Ports & Special Economic Zone Ltd. (APSEZ) ` (17/06/13) BUY Mundra Port country s biggest private port - handled 82 MMT of cargo in FY 13 and is expected to reach 100 MMT mark in the current fiscal, joining the league of few global ports which handle this quantity of cargo load. Being a private port, APSEZ has the flexibility to fix its own tariff, which results in higher profitability as compared to government regulated ports, where the regulator - Tariff Authority for Major Ports sets the rates. Mundra port is owned by Gujarat government and given to APSEZ for development and operations on a 30 year contract. In FY 13 Mundra overtook Chennai port as India s second biggest container gateway by loading 1.57 million standard containers as against JNPT, Mumbai which handled 4.26 million standard containers. Besides, the port also handled second largest cargo throughput of MMT in the country in FY 13. To comply with the requirement of minimum public shareholding of 25%, Company placed 6.67 Crs. shares with Qualified Institutional Buyers at ` 150/- per share (FV ` 2/-) to raise ` 1000 Crs. The issue was oversubscribed by 2.26 x. A CONSILIUM INFORES & ADVISORS INITIATIVE FOR BALANCE EQUITY BROKING (INDIA) PVT LTD

2 BSE SENSEX/S & P NIFTY 19326/5850 Sector Shareholding Pattern as on 7 June 13 (%) PE Band Port Market Cap./Free Float (Rs. Crs.) 31030/7757 Market Price as on 17/6/13 Rs.(FV Rs. 2/-) Week High/Low Rs. 175/ Equity Shares Outstanding (in Crs.) * 207 P/E Ratio (Times) (for March '13) 27.9 P/B (Times) (for March '13) 4.7 EV/EBITDA (Times) (for March '13) ROE (%) (March '13) * Including recent Offer for Sale 5% 6% 14% 75% Promoter FII DII Others Highlights u All ports of APSEZ have deep drafts ranging between 16 meters and 20 meters and have mechanized operations which are the USP of the Company. Through logistics, Company connects the port to the hinterland and beyond, in all multimodal ways possible, including railways. u Mundra port caters to the largest hinterland area of the country. At Mundra, Company operates World s largest coal unloading terminal and maximum number of berths to handle cape size vessels. Company is the only private port operator with largest number of multi cargo commercial berths with largest steel cargo handling and storage facilities. Besides these, Company runs country s longest railway grid under private ownership. u While major ports in the country are struggling with growth in volume, the smaller ones like ports owned by APSEZ, seem to be growing at a much faster clip. Company has provided for the major expansions in the master plan of its ports. u Cargo handled at Mundra port in FY 13 stood at MMT representing a growth of 21% y-o-y. In the current fiscal year, APSEZ is expected to handle about 100 MMT cargo at the port. u Fully integrated port and logistics services model, for diverse range of cargo creates a sustainable competitive advantage in attracting volumes and creating different streams of revenues. u Company has substantial dealings with related parties including its holding Company, Adani Enterprise and group company, Adani Power. It has lent ` 250 Crs. by way of loan to Adani Infra. Also, sale of Abbot Point Terminal to promoter entities with all guarantees etc. surviving the sale agreement is a cause of concern. Inspite of having heavy debt on the books, Company had advanced ` 1,212 Crs. of inter corporate deposits as on March 13 without recourse.

3 Sale of Abbot Point As on 30th March 13, APSEZ concluded the transaction to sale Abbot Point Terminal operations to entities owned by Adani family for a consideration of AUD235.7 million. This asset was acquired in June 11. For giving effect to the transaction, Company divested its entire equity holding in Adani Abbot Point Terminal Holdings Pty Ltd. (AAPTHPL) and entire Red. Pref. shares holding in Mundra Port Pty Ltd. (MPPL) to promoter Company, Abbot Point Holdings Pte Ltd., Singapore. Sale has resulted in APSEZ booking a profit of ` 420 Crs. (` 70 Crs. forex gain and loss write back of ` 334 Crs.). Also, consolidated debt has reduced by Rs.8,804 Crs., significantly reducing gearing levels(from 3.8 times to 1.7 times). As on March 13 APSEZ s consolidated debt (long-term borrowings plus short-term borrowings) dropped to ` 10,662 Crs. from ` 19,466 Crs. as on Sept. 12. Since the share purchase agreement was signed on 30th March 2013, AAPTHPL and MPPL figures have not been consolidated for FY 13. Background Adani group was founded in 1988 and today operates in areas like Resources (Coal mining and trading), Logistics (Ports and Logistics, Shipping and Rail), and Energy (Power generation and transmission, Oil & Gas Exploration and Gas distribution) and other ancillary industries, with a presence in India, Indonesia, Singapore, Australia, China and the Middle East. Its year 2020 vision includes handling of 200 MMT of Coal, 200 MMT in Logistics and Ports and generation of 20,000 MW of Power. APSEZ is one of India s largest private developers and operators of ports and related infrastructure and provide fully integrated port and logistics services. Company has developed and operate the port at Mundra, Gujarat, the largest Non-major Port in India by volume, handling 82 MMT for the FY 13, a dry bulk terminal at the port at Dahej, Gujarat, and a multi-purpose terminal and a container terminal at the port at Hazira, Gujarat. The Mundra Port, the Dahej Port and the Hazira Port are all close to the proposed dedicated high-speed freight corridor connecting Delhi and Mumbai. It is developing a coal handling terminal at the port at Mormugao, Goa, a coal handling terminal at the port at Visakhapatnam, AP and a bulk cargo terminal at the port at Kandla, Gujarat. Three operational facilities in Gujarat are all weather ports and terminals and capable of handling capsize bulk vessels and container vessels with capacities of up to 10,000 TEUs (Twenty-foot Equivalent Unit). Company also provides other services, including infrastructure, leasing and logistics services at the Mundra Port and through its surrounding infrastructure, including a multi product Special Economic Zone in the area surrounding the Mundra Port.

4 As per the latest placement document, Company has developed and operates six bulk terminals, four container terminals, automobile handling and coal handling facilities and two single-point mooring facilities across the Mundra Port, the Dahej Port and the Hazira Port, that together enables providing port services for dry and liquid bulk (including coal), container, crude oil and other cargo. Total cargo volume handled was 51 MMT, 65 MMT and 91 MMT for the fiscal years 11, 12 & 13 respectively, representing a CAGR of 33.6%. Ports handle approximately 95% of India s total trade in terms of volume and 70% in terms of value. About 70% of India s trade is in commodities such as crude oil, coal, fertilizers, food grains and container cargo is accounted for by cargo originating and destined for centers in North and North-Western India including the Delhi National Capital Region apart from Gujarat, Rajasthan, Haryana, Punjab and Western Uttar Pradesh. Adani Ports & Special Economic Zone Limited MUNDRA Multi Cargo & Container Terminals, SPMs,Storage, Rail & Road Special Economic Zone AKBTPL AHPPL APPPL AMPTPL AVCTPL ALL HRPL HIPL BDRCL KRCL AICTPL KAPL

5 Mundra Port Mundra port is located 60 km apart on the Gulf of Kutch in Gujarat. It enjoys locational advantage of being near landlocked states of north and north western India. The location is also a gateway to Europe, the US, Africa and West Asia. Apart from location, overall logistics costs to the customers drives volumes at Mundra port. Besides port, Company also operates Mundra SEZ, a multiindustry Special Economic Zone adjoining the Mundra Port and related facilities. The Mundra Port has one of the deepest water draft depths on the west coast of India, ranging from approximately 16 meters to 20 meters berth side, and up to 32 meters at the single point mooring facilities, allowing APSEZ to accommodate capsize container cargo vessels of up to 10,000 TEUs, and VLCCs and ULCCs of up to 360,000 DWTs. The port facilities currently includes four multipurpose terminals with 16 berths, three container terminals with six berths, two single point mooring facilities, port craft and mechanization and related infrastructure and equipment. Port also has World s largest coal unloading facility with capacity of 60 MMT. It handled MMT in FY 13 crossing Paradip port s volumes of MMT. It has fully mechanized fertilizer cargo complex and steel yard. Port has multimodal connectivity to the North and North West India. It has also developed substantial infrastructure, including two inland container depots, 86 kilometers of railway track and a network of roads and flyovers connecting the Mundra Port to the regional road network. It is also connected by a railway line that is capable of handling double stack containers to Bathinda and the northern hinterland of India, and by branch lines to the Delhi-Mumbai freight corridor. Its two single-point mooring facilities are connected by pipeline to petroleum refineries in Panipat, Haryana and Bhatinda, Punjab and the regional pipeline network, and port s liquid cargo storage and handling facilities are connected by POL pipeline to Bahadurgarh, near Delhi. At Mundra, coal, containers and liquid cargo each accounted for one-third of the total loaded cargo in FY 13. Contribution of revenues from the port, although declining, still constitutes 85% of consolidated revenues in FY 13. The Port handled second highest cargo and container volumes in the country in FY 13. While volumes of cargo handled stood at MMT, containers cargo handled stood at 17, 38,000 TEUs. In March 13 quarter, the port handled MMT of cargo volumes as against MMT q-o-q and MMT in Dec. 12 quarter. Large waterfront is available for future development, capable of reaching 250 MMT cargo handling by Operational Highlights for Mundra Port Particulars UOM Q Q PoP (%) Vessels Counts GRT Million Cargo Handled MMT Dry Cargo MMT Liquid Cargo (Incl HPCL/Crude) MMT Bulk Cargo MMT Containers MMT

6 Dahej Port Dahej is also a deep draft multi-cargo port, in the Gulf of Khambat near Bharuch. It has capacity to handle 20 MMT of cargo comprising of coal, silica sand, rock phosphate, steel products, and project cargo. It has Two dry and break bulk berths and dedicated facilities for handling project cargo, which gets evacuated through Bharuch Dahej Railway Corporation Ltd. The location is connected to industrial hubs of Gujarat and neighboring states. Company handled 7.56 MMT cargo at Dahej port in FY 13. Hazira Port Hazira is deep draft port in Surat. It offers strategic location advantage for global container operators due to proximity to the upcoming Delhi-Mumbai Industrial Corridor (DMIC). It is a convenient international trade gateway to Europe, Africa, America and the Middle East. Facilities are being developed to handle containers, liquid, dry bulk, and break bulk cargo apart from 41 km connecting railway link. Five berths are fully operational out of 13 planned, which will have potential to handle 75 MMT of cargo. The port handled 1.02 MMT cargo in FY 13. Apart from three operational ports, Company is developing a port at Mormugao, Goa for Coal imports with capacity up to 7 MMT which is expected to be functional in the next fiscal. Also, a port at Vishakhapatnam, AP with similar capacity is being set up, which is expected to commence operations in FY 15. A port near Kandla Creek at Tuna is being set up with capacity of 20 MMT. APSEZ has recently divested its interest in Abbot Point Coal Terminal. Majority of capital expenditure on expansion in existing ports and Mormugao port has been incurred as per management. Company will now be spending on Vizag and Kandla ports and any other expansion which it may announce in future.

7 Logistics Company also has logistics division which helps in integrating ports with industrial business hubs. It provides logistic services through its wholly owned subsidiary Adani Logistics Ltd. It currently owns and operates six trains of container cars across India. It also operates two rail linked Inland Container Depots (ICD) at Patli, Punjab and Kishangarh, Rajasthan. ICD Patli is a multi-functional logistics park, the single largest in National Capital Region (NCR). Company has developed two container freight stations at Mundra and Hazira. Railways Company has developed and operates a private 64 kilometer double track railway line largest private railway link in the country - between Mundra and Adipur, connecting the Mundra Port to the Indian Railways network at Adipur, Gujarat. It has also constructed and operates a 22 kilometer railway line through the Mundra SEZ, connecting the Mundra Port to the Mundra-Adipur railway line and nearby power plants. It started double stacking of container rakes from Mundra apart from starting long haul python trains involves attaching two trains together and dispatching as one unit. Various industrial zones at Mundra Company is the primary developer of the Mundra SEZ, a multi-purpose Special Economic Zone in and around Mundra. APSEZ offers various options for setting up industrial units at Mundra with an area spanning 15,000 hectares. Mundra Special Economic Zone 6473 hectares is the largest port led multi product SEZ in the country. Its huge land bank will enable large scale industries to establish their base. It also has Free Trade Warehousing Zone allowing swift clearances of import and export cargo. It allows units to trade with or without labeling, packing or repacking or processing. The facilities also include domestic industrial zone. Company has received notification from Govt. of India for 6641 hectares for remaining land in its possession and new land which it may acquire. (incl. 168 hectares that are sector specific) and will continue to seek notification

8 Financials Company has declared consolidated results without including Abbot Point operations, although transaction was concluded on 30th March 13. Accordingly, FY 13 consolidated revenues over similar (without Abbot Point revenues) figure in previous year recorded growth of 32.6%, while EBITDA and net profit figures saw growth of 36% and 37.6% respectively. If one were to consider losses incurred in Abbot Point operations, net profit would have degrown by 2.2%. Losses at Abbot Point increased from ` 15.3 Crs. in FY 12 to ` Crs. in FY 13. March 13 quarter saw higher operating and other expenses and lower EBITDA and net profits as compared to Dec. 12 quarter. Although interest cost was lower compared to previous quarter, margins suffered due to all round increase in other expenses. For FY 13, Company handled 82.5 MMT cargo at Mundra, as against 64 MMT in previous year, a growth of 29%. For the quarter ended March 13, Mundra port handled MMT cargo, an increase of 38% q-o-q. This growth was driven by container and bulk (mainly crude and coal) volumes. APSEZ Cargo - Consolidated (MMT) Port Name FY FY YOY (Growth %) Mundra Dahej Hazira Total Cargo (India Ports) Abbot Point * Total Cargo *Note Abbot point was acquired on 1st June 11. Cargo for FY11-12 considered from June 11 to March 12 Abbot Point divested on 30th March 13

9 Comments u Company would be reporting better results in the coming quarters on divestment of loss making operations at Abbot Point in Australia to Promoter Company. This has also reduced the debt significantly from ` 19,466 Crs. in Sept. 12 to ` 10,662 Crs. in March 13, which will result in reduced interest costs. u in FY 13. Company expects to handle MMT of cargo in three operational ports of Mundra, Dahej & Hazira as against 90.7 MMT u The better financial performance and debt reduction have improved investor confidence as reflected in the 2.26x oversubscription of its recent QIP of ` 1,000 Crs. u Company has been quoting at a P/E of higher than 30x till early At present it is available at about 28x after considering losses on Abbot Point operations. With the improved workings in ensuing quarters, we feel that stock price should follow suit.

10 Consolidated Quarterly Financials Qtr. Ended (` Crs.) June '12 Sept. '12 Dec. '12 Mar. '13 Total Income Operating Expenses Employee Cost Other Expenses Net Foreign Exchange Loss/(Gain) Total Expenses EBITDA EBITDA Margin (%) Depreciation Interest Taxation Other Income Share of Minority shareholders Net Profit Net Profit after losses of Abbot Net Profit Margin (%) Equity Capital (FV ` 2/-) Equity Shares (in Crs.) EPS (`) Note: Loss from Abbot Point operations have been considered while calculating net profit. However, profit on sale of said operations have not been considered

11 Consolidated Annual Financials Year Ended (` Crs.) FY '10 FY '11 FY '12 FY '13 Total Income Operating Expenses Employee Cost Other Expenses Net Foreign Exchange Loss/(Gain) Total Expenses EBITDA EBITDA Margin (%) Depreciation Interest Taxation Other Income Share of Minority shareholders Net Profit Net Profit after loss of Abbot Net Profit Margin (%) Equity Capital (FV ` 2/-) Equity Shares (in Crs.) Reserves EPS (`) Book Value (`) ROE (%) Note: 1) FY 12 & 13 accounts have been prepared without consolidating Abott operatons. 2) Loss from Abbot Point operations have been considered while calculating net profit. However, profit on sale of said operations have not been considered 3) Profit on dilution of investment - converting AICTPL in to JV - ` Crs. not considered in Other Income in FY 13.

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