Detailed Rationale

CRISIL Ratings has assigned its ‘CRISIL AAA/Stable/CRISIL A1+’ ratings to the bank facilities and debt instruments of Adani Ports and Special Economic Zone Ltd (APSEZ).

 

The rating reflects APSEZ’s strong business risk profile. The company is the largest integrated port operator providing allied services as well in India with cargo handling capacity of 627 million metric tonnes (MMT; as of March 2024) spread over 15 domestic ports and terminals and 4 international ports. It has garnered 27% market share in overall cargo and 44% in container volumes handled by Indian ports. The operations are also run efficiently reflected in one of the lowest turnaround times at 0.7 days compared with ~2 days for state-owned major ports. APSEZ benefits from its integrated logistics network providing end-to-end logistics solutions to customers from the port to hinterland, which has led to stickiness; more than 50% of cargo is sticky in nature. Owing to regular expansion and acquisitions, operating income has more than doubled to Rs 26,978 crore in fiscal 2024 from Rs 12,629 crore in fiscal 2021. The increase in scale of operations has been achieved while maintaining operating margin above 60% and ROCE above 12%.

 

The financial risk profile is also healthy with net debt-to-earnings before interest, tax, depreciation and amortization (EBITDA) and gearing at 2.25 times and 0.85 time, respectively, as on March 31, 2024. Debt protection metrics are also comfortable with interest coverage ratio of 6.28 times for fiscal 2024. Healthy fund flow from operations of over Rs 14,000 crore in the medium term will adequately cover debt servicing obligations. Debt protection metrics are, hence, expected to remain comfortable with interest cover expected to improve to above 7 times over the medium term. While most of the debt is non-amortising, refinancing risk is minimal given APSEZ’s strong financial flexibility as demonstrated in strong fund-raising capabilities with relationships with multiple domestic and international banks as well as presence in domestic capital market. Additionally, long concessions for ports will support refinancing. These strengths are partially offset by susceptibility to trade related challenges and competition impacting volume growth.

Analytical Approach

CRISIL Ratings has considered the consolidated business and financial risk profiles of APSEZ and its subsidiaries and joint ventures (to the extent of shareholding), as these subsidiaries and joint ventures are in similar line of business and are under the same management. Also, majority of the debt lies at the APSEZ level and expected to be serviced through consolidated cash flows, and the debt terms are also defined at consolidated level.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Leadership position in the Indian ports and allied infrastructure: APSEZ has a portfolio of 15 domestic ports/terminals and 4 international ports with total cargo handling capacity of 627 MMT as of March 2024. The company commands a market share of ~27% in terms of overall cargo and ~44% in terms of the total container volume handled by Indian ports, with cargo handled of 420 MMT in fiscal 2024. It has gradually consolidated its position with volumes growing at a compound annual growth (CAGR) of 13.4% during fiscals 2017 and 2024. This has been driven by regular capital expenditure (capex) towards capacity expansion as well as acquisitions. With addition of ports such as Kattupalli, Krishnapatnam, Gangavaram and Karaikal to the company’s portfolio, it has diversified its presence across the western and eastern coast of India. It has also expanded its operations internationally with operations at Colombo (Sri Lanka), Dar-es-Salaam (Tanzania) and Haifa (Israel).   

 

Strong volume growth, at 24% for fiscal 2024, has supported revenue growth which increased by 28% to Rs 26,978 crore in fiscal 2024 from Rs 21,034 crore in fiscal 2023. APSEZ also benefits from its wide logistics network throughout the country comprising of 114 marine flotillas, rail tracks of 690 kilometer (km), 131 trains, 12 multi-modal logistics parks, grain silos with capacity of 1.2 MMT, warehousing space of 29 lakh square feet (sq. ft) and trucking fleet of 937 units (as of June 2024). This enables the company to provide end-to-end solutions to its customers leading to stickiness – more than 50% of the company’s cargo is sticky in nature.

 

• Strong operating efficiency with well diversified revenue profile: The increase in scale of operations over the years has been achieved with operating margin remaining consistently over 60% backed by efficient port operations. The efficiency of APSEZ’s port operations is reflected in turnaround time of 0.7 days compared to ~2 days for major ports in India. Return on capital employed has, hence, remained over 12% in the past three fiscals despite the capital-intensive nature of operations. While the operating margin has witnessed a decline to 60.1% in fiscal 2024 from 62.3% in fiscal 2023, it is due to increase in the share of non-port operations; margin for port operations remained strong at ~70%. 

 

The cargo mix handled by APSEZ is well-diversified with 38% coal, 37% containers, 7% crude and gas and remaining other types of cargo. The share of Mundra port in the total cargo has reduced consistently from 68% in fiscal 2018 to 43% in fiscal 2024 majorly on account of acquisitions of ports on east coast of India. Accordingly, the east coast now contributes 42% of the total cargo. Logistics and other related businesses also contribute around 10% of the total revenue.

 

• Healthy financial risk profile: APSEZ has witnessed improvement in leverage with net debt to earnings before interest, tax, depreciation and amortization (EBITDA) at 2.25 times as on March 31, 2024 compared to over 3 times as on March 31, 2023. Debt protection metrics are also comfortable with adjusted interest coverage at 6.28 times and net cash accruals to adjusted debt at 0.24 times as of fiscal 2024. Expected fund flow from operations at over Rs 14,000 crore will be adequate against debt repayment of Rs 6,000-8,500 crore. While most of the debt is non-amortising, refinancing risk is minimal. APSEZ has demonstrated strong fund-raising capabilities in the recent fiscals with relationships with multiple domestic and international banks as well as investors. It has more than 80% of debt in foreign currency with dollar denominated bonds contributing 64% of Rs 46,279 crore as on March 31, 2024 (foreign exchange risk is minimal given natural hedge available with 25-30% of revenue also coming in foreign currency in addition to use of derivative instruments for hedging). Additionally, long concessions for ports will support refinancing.

 

The leverage was elevated in the past due to debt-funded acquisitions. Going forward, the company is expected to continue its growth momentum, but leverage is expected to be capped at net debt to EBITDA below 2.5 times. Any significant debt-funded acquisition or higher-than-expected capex impacting financial risk profile will be a key monitorable.

 

Weakness:

• Susceptibility to trade related challenges and competition impacting volume growth: While APSEZ benefits from healthy volume handling capacity and its leadership position, any disruptions on trade routes given geopolitical or local issues and supply chain interference can hamper volume growth on ports. Also, adverse weather conditions such as cyclones can impact port operations for several days. Nevertheless, these risks are partially mitigated by APSEZ’s operational efficiency backed by robust infrastructure and lower turnaround time and strong relationships with customers.

 

APSEZ’s port network is surrounded by major state-owned and private ports. Though APSEZ has efficient operations, ports face strong competition from nearby major ports which may lead to cargo diversion to competing ports or downward pressure on tariffs.

Liquidity: Superior

Liquidity is supported by strong cash accrual, moderate bank limit utilisation and cash balance of Rs 9,817 crore as of March 2024. Fund flow from operations over Rs 14,000 crore will remain adequate against debt repayments of Rs 6,000-8,500 crore. The capex (including acquisitions) requirements are expected in the range of Rs 11,000-15,000 crore. While most of the debt is non-amortising, refinancing risk is minimal given healthy cash accruals and APSEZ’s fund raising ability given relationships with multiple domestic and international banks as well as bond markets.

Outlook: Stable

CRISIL Ratings believes APSEZ will benefit from its leading market position, healthy operating performance and robust port infrastructure in the medium term.

Rating sensitivity factors

Downward factors

• Higher-than-expected debt leading to deterioration in financial risk profile such that net debt-to-EBITDA above 3.0 times on a sustained basis
• Lower-than-expected growth in revenue or material decline in profitability on a sustained basis leading to weakening in business risk profile
• Any adverse outcome for pending regulatory investigation impacting financial flexibility of Adani Group, including APSEZ

About the Company

APSEZ is the largest private port operator in India with capacity of 627 MMT and handled 420 MMT cargo in fiscal 2024. APSEZ operates a portfolio of 15 domestic ports/terminals (12 operational, 2 under-development and 1 to-be-acquired) with international presence at 4 global ports (one operational port each in Haifa, Israel and Dar es salaam port, Tanzania, 1 maintenance contract in Australia and 1 under-development port in Columbo, Sri Lanka).

 

Along with its port operations, it has its wide logistics network and offers various port based marine services to its owned ports/terminals as well as other ports. APSEZ has its logistics presence throughout the country with 114 marine flotillas, rail tracks of 690 km, 131 trains, 12 multi-modal logistics parks, grain silos with capacity of 1.2 MMT, warehousing space of 2.9 million sq. ft. and trucking fleet of 937 units as of June 2024.

Key Financial Indicators (CRISIL Ratings adjusted)

Particulars	Unit	2024	2023
Revenue	Rs crore	26,978	21,034
Profit after tax (PAT)	Rs crore	8,104	5,393
PAT margin	%	30.0	25.6
Adjusted gearing	Times	0.85	1.08
Adjusted interest coverage	Times	6.28	6.14

Note: The above-mentioned financials factors in CRISIL Ratings adjustments.

List of covenants

USD 10-year bond of $500 million

Debt/ Tangible Net Worth (TNW) =<3.0x

 

For Rs 100 crore and Rs 252 crore NCDs

FACR > 1.1, Debt/TNW<=3.0x, DSCR>=1.10x

 

For other NCDs,

FACR > 1 to 1.25x

 

For Rs 100 crore NCD at Ocean Sparkle Ltd (OSL)

DSCR > 1.2x (Subsidiary), DSCR > 1.5x (OSL Consolidated)

Any other information:

With respect to the release of Hindenburg Research report in January 2023, regulatory investigation is ongoing. The outcome of the investigation on some of the pending points and its impact on APSEZ will be a key monitorable.

Annexure – List of entities consolidated

Name of entities consolidated	Extent of consolidation	Rationale of consolidation
Adani Logistics Limited	Full consolidation	Subsidiaries/step-down subsidiaries with 100% or majority shareholding
Karnavati Aviation Private Limited
Mundra SEZ Textile and Apparel Park Private Limited
Adani Murmugao Port Terminal Private Limited
Mundra International Airport Limited
Adani Hazira Port Limited
Adani Petronet (Dahej) Port Limited
Hazira Infrastructure Limited
Madurai Infrastructure Limited
Adani Vizag Coal Terminal Private Limited
Adani Kandla Bulk Terminal Private Limited
Adani Warehousing Services Limited
Adani Ennore Container Terminal Private Limited
Adani Hospitals Mundra Limited
The Dhamra Port Company Limited
Shanti Sagar International Dredging Limited
Abbot Point Operations Pty Limited
Adani Vizhinjam Port Private Limited
Adani Kattupalli Port Limited
Abbot Point Bulkcoal Pty Limited
Adani Harbour Services Limited
Adinath Polyfills Private Limited India
Adani Ports Technologies Private Limited
Coastal International Terminals Pte Limited
Blue Star Realtors Limited
Mundra Crude Oil Terminal Limited
Marine Infrastructure Developer Private Limited
Anchor Port Holding Pte. Limited
Pearl Port Pte. Limited
Noble Port Pte. Limited
Adani Yangon International Terminal Company Limited
Dermot Infracon Limited
Adani Agri Logistics Limited
Adani Agri Logistics (MP) Limited
Adani Agri Logistics (Harda) Limited
Adani Agri Logistics (Hoshangabad) Limited
Adani Agri Logistics (Satna) Limited
Adani Agri Logistics (Ujjain) Limited
Adani Agri Logistics (Dewas) Limited
Adani Agri Logistics (Katihar) Limited
Adani Agri Logistics (Kotkapura) Limited
Adani Agri Logistics (Kannauj) Limited
Adani Agri Logistics (Panipat) Limited
Adani Agri Logistics (Raman) Limited
Adani Agri Logistics (Nakodar) Limited
Adani Agri Logistics (Barnala) Limited
Adani Bulk Terminals (Mundra) Limited
Adani Agri Logistics (Mansa) Limited
Adani Agri Logistics (Moga) Limited
Adani Warehousing Limited
Adani Agri Logistics (Dahod) Limited
Adani Agri Logistics (Dhamora) Limited
Adani Agri Logistics (Samastipur) Limited
Adani Agri Logistics (Darbhanga) Limited
Dhamra Infrastructure Limited
Adani Logistics Services Limited
Adani Noble Limited
Adani Forwarding Agent Limited
Adani Container Manufacturing Limited
Adani Logistics Infrastructure Limited
Adani Container Terminal Limited
Adani Bangladesh Ports Private Limited
Adani Krishnapatnam Port Limited
Adani Krishnapatnam Container Terminal Private Limited
Dighi Port Limited
Aqua Desilting Private Limited
Shankheshwar Buildwell Limited
Sulochana Pedestal Limited
NRC Limited
Adani International Ports Holdings Pte Limited
AYN Logistics Infra Private Limited
Adani Gangavaram Port Limited
Adani Tracks Management Services Limited
Seabird Distriparks (Krishnapatnam) Limited
HDC Bulk Terminal Limited
Colombo West International Terminal (Private) Limited
Savi Jana Sea Foods Private Limited
Ocean Sparkle Limited
Sparkle Terminal and Towage Services Limited
Sea Sparkle Harbour Services Limited
Sparkle Port Services Limited
Sparkle Overseas Pte. Limited
Saptati Build Estate Limited
Adani Aviation Fuels Limited
Gangavaram Port Services (India) Limited
Tajpur Sagar Port Limited
Mediterranean International Ports A.D.G.D. Limited
Adani Agri Logistics (Sandila) Limited
Adani Agri Logistics (Gonda) Limited
Adani Agri Logistics (Chandari) Limited
Adani Agri Logistics Katihar Two Limited
The Adani Harbour International DMCC
Haifa Port Company Limited
Port Harbour Services International Pte. Limited
HM Agri Logistics Limited
PU Agri Logistics Limited
BU Agri Logistics Limited
Karaikal Port Private Limited
Griptronics Enterprises Private Limited
Nabhganga Enterprises Private Limited
Agratas Projects Private Limited
Adrita Realtors Private Limited
Dependencia Infrastructure Private Limited
Udanvat Leasing IFSC Limited
Mandhata Build Estate Private Limited
Poseidon Leasing IFSC Limited
Dholera Infrastructure Private Limited	Minority shareholding but management and operational control
Dholera Port and Special Economic Zone Limited
Mundra Solar Technopark Private Limited
Mundra LPG Terminal Private Limited
East Africa Gateway Limited
Adani International Container Terminal Private Limited	To the extent of shareholding	Joint venture entities
Adani CMA Mundra Terminal Private Limited
Adani NYK Auto Logistics Solutions Private Limited
Adani Total Private Limited
Dhamra LNG Terminal Private Limited
Dighi Roha Rail Limited
Adani KP Agriwarehousing Private Limited
EZR Technologies Private Limited
Khimji Sparkle Marine Services Co. SOAC
Indianoil Adani Ventures Limited
IAV Utkarsh Limited
IAV Engineering Projects Limited
IAV Engineering & Construction Services Limited
IAV Infrastructures Private Limited
IAV Biogas Private Limited
Kazakhstancaspishelf India Private Limited
IOT Utkal Energy Services Limited
Zuari IAV Private Limited
KN IAV Private Limited
IOT Vito Muhendislik Insaat ve Taahhut AS
Indian Oiltanking Engineering and Construction Services LLC
PT IOT EPC Indonesia
JSC Kazakhstancapishelf
IAV Urja Services Limited
Veracity Supply Chain Private Limited
Harbour Servics Lanka (Private) Limited

As of March 31, 2024