APSEZ reproduces an inorganic strategy to achieve transport goals

Adani Ports and Special Economic Zone Ltd (APSEZ) said its “inorganic” port-buying strategy is expanding to include acquisitions of transportation supply companies and services as India’s largest private port operator aims to become the world’s leading transportation supplier by 2025, aiming to grow cargo volumes from 339.2 million tonnes (mt) in FY23 to 1 billion tonnes by 2030.

The ports division of the diversified Adani Group said its investments outside of India will be made in “operational ports and with limited equity commitment” and that it will work with a “strong local partner with financial participation” in the venture.

By 2030, APSEZ aims to become the world’s largest port company.

The 12 ports/terminals operated by APSEZ currently have the capacity to handle 580 tons of cargo per year.

“At APSEZ, we will expand our inorganic approach to port acquisitions to include acquiring businesses and services in the transportation supply space,” the company said in its annual report for fiscal 2023, noting that the “continued focus will be on acquisitions at deep discounts.”

“We have expanded from Indian ports to include investments in Haifa (Israel) and Colombo (container terminal) with the goal of providing a global transportation service solution,” the company said, adding that it is exploring global opportunities with a particular focus on Asia, Africa and other markets.

Karan Adani, chief executive officer and full-time director of APSEZ, outlined three “particular areas” for deepening the robustness of its business model.

First, APSEZ will develop the industrial hinterland in some of its ports in close cooperation with state governments. This will spur industrial development and secure port volumes for the company in the years to come, he said.

APSEZ has created a land bank of more than 12,000 hectares to attract industry.

Second, APSEZ will continue to evolve from port brokerage to doorstep delivery, with a greater proportion of a customer’s logistics spend resulting in retirement income.

“Our approach isn’t just ‘if the customer grows, we grow’; Our goal is to create a competitive proposition that will make our customers more competitive and grow faster by playing the role of catalyst and beneficiary,” explained Karan Adani.

Third, APSEZ will gradually develop port holdings outside of India.

“We have acquired a stake in the Port of Haifa and are developing a terminal in the Port of Colombo. Due to our risk management strategy, the investments are more likely to be in operational ports outside of India and have limited equity exposure compared to the overall size of our balance sheet. We will also work with a strong local partner that has financial resources. This is the plan with which we aim to increase our cargo volume from about 340 million tons in FY23 to 1 billion tons by 2030, while becoming the largest port company in the world,” said Karan Adani.

Karan, the elder son of tycoon Gautam Adani, pointed to the next stage in the company’s development.

“If there has been one groundbreaking change in our existence in recent years, it is that we are structurally expanding our business model: we are evolving from a port company to a transport company that provides logistics infrastructure and services, thereby ensuring service reliability and efficiency,” he said.

The Adani scion also offered his views on ensuring a strong balance sheet, a question the company is regularly asked given its high level of debt and its impact on APSEZ’s investment grade rating.

“We are committed to sustainable business growth and returns for our investors. Therefore, while we increased our sales and profits, we also focused on creating a capital structure that is consistent with the nature of our business. This has allowed us to service our debt comfortably and invest in growth,” continued Karan Adani.

The company has now reached a critical mass of relationships and revenue, he said.

“Thanks to the improved internal provisions, our dependency on loans to finance our growth investments has decreased significantly. This is clearly reflected in our numbers, as the ratio of gross debt to net fixed assets has declined significantly in recent years. With most of our significant capital investments now complete, our cash position will continue to improve and our balance sheet will continue to strengthen,” he said.

APSEZ said its financial structure will focus on disciplined capital allocation, moderating capital expenditures, leveraging existing assets, generating higher free cash flows and de-leveraging the balance sheet.

APSEZ emphasized its commitment to “softening the transition between investment and return” and said it will make “ever larger investments to grow and expand the business.”

In line with its Vision 2030 blueprint, APSEZ will focus on initiatives and investments to increase Return on Capital Employed (RoCE), increase asset-light revenue (logistics), diversify existing cargo mix, focus on new growth assets such as LPG/LNG, focus on volume growth on the coast, develop assets across the logistics supply value chain, strengthen the “necklace” of subcontinental ports (organic/inorganic initiatives ) and increase the market share of cargo growth.

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