Brokerages bullish on Adani Ports post acquisition of Snowman Logistics

In a deal expected to benefit both companies, Adani Ports and SEZ (ADSEZ) acquired India’s largest cold chain company Snowman Logistics from Gateway Distriparks.

The deal for a 40.25 per cent stake in Snowman for Rs 296 crore pegs the enterprise value at 11.6x its 2020-21 operating profit.

ADSEZ’s third logistics-related acquisition this year comes at a premium, largely due to the potential of the cold chain business and Snowman’s aggressive plans. The company plans to double the capacity over the next five years at a cost of Rs 580 crore. The acquisitions and expansion are in line with ADSEZ’s strategy of connecting the port to the customer.

Analysts at CLSA highlight that the cold chain market is highly unorganised at 84 per cent share, which is an opportunity for organised players with end-to-end solutions. The combined offerings of Snowman-ADSEZ should help gain share.

Most brokerages are bullish on the stock, given the recent correction and a 12 per cent discount to players such as Container Corporation of India.

While ADSEZ’s stock was up marginally, the gains were sharper for Gateway Distriparks, which ended 11.5 per cent higher.

The sale to ADSEZ is part of Gateway’s plan to divest its non-core assets, deleverage its balance sheet, and fund future capital expenditure plans in the rail segment.

Analysts at Antique Stock Broking say the debt pay-down from the proceeds would significantly improve the leverage position and business viability of Gateway in a fiercely competitive market, while moderately reducing the overhang on valuations.

The company’s consolidated net debt at the end of September quarter was Rs 700 crore. Net debt-to-operating profit, which was at 3x at the end of 2018-19, is expected to come down to 2x after the company’s deleveraging exercise.

Analysts have a ‘buy’ call on the stock, given the attractive valuations, gains from higher realisations, and benefits from the roll-out of the dedicated freight corridor. Though the stock has gained 11 per cent, given the target prices, there is an uptick of at least 25 per cent from these levels.

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel