With three big acquisitions having a combined value of ₹14,659 crore in five months, Gautam Adani-led Adani Ports and Special Economic Zone Ltd (APSEZ) is on a roll.

On March 3, APSEZ acquired a 31.5% stake in Gangavaram Port Ltd (GPL) from a unit of private equity firm Warburg Pincus LLC for ₹1,954 crore and said it was in talks with D V S Raju and family, the promoters of the port located in Visakhapatnam, for buying their 58.1% stake in GPL.

Gangavaram is APSEZ’s second big acquisition in Andhra Pradesh, India’s second biggest maritime state by cargo volumes handled, after picking up a 75% stake in Krishnapatnam Port Co Ltd (KPCL) for an enterprise value of Rs12,000 crore on October 5.

On February 16, APSEZ said it has completed the acquisition of Dighi Port Ltd, located close to state-owned Jawaharlal Nehru Port Trust (JNPT), for ₹705 crore under India’s bankruptcy law.

A consortium led by Adani Ports and Special Economic Zone Ltd (APSEZ) will soon announce a deal to develop the West Container Terminal (WCT) at Colombo Port with an investment of over $1 billion under a government-to-government agreement.

The three Indian acquisitions expand APSEZ’s market share to 30 per cent on a pan-India basis, a level many believe will not make it a monopoly, adversely impacting competition. This is because the 12 major ports owned by the Centre controls more than half of the country’s ports traffic.

Yet, many smaller, single terminal operators are frightened at the scale at which APSEZ is expanding. “I told my promoter let us pack up and leave”, said the CEO of a company operating a single berth at a port on the eastern coast.

Takeover targets

Industry sources said that only Adani has the money and the appetite to buy ports and terminals. “Because of its demonstrated capability to run ports efficiently, banks are also comfortable in lending money to APSEZ for acquisitions,” said an investment banker.

The stress facing many single terminal or stand-alone single port operators, in the wake of the Covid, are making them sitting targets for take over at reasonable valuations, particularly reflected in the case of Krishnapatnam and Gangavaram.

In 2010, Gautam Adani agreed to buy D V S Raju’s stake in Gangavaram for ₹10,000 crore, said Ramesh Singhal, Director at i-maritime Consultancy Pvt Ltd.

“As part of some conditions, Adani asked D V S Raju to give an indemnity for ₹100 crore on account of some liabilities that might crop up after the deal. D V S Raju was not willing to give the indemnity and the deal collapsed,” said a person aware of the development.

After ten years, Adani bought 31.5% stake from the Warburg Pincus unit for ₹120 a share, valuing (equity) Gangavaram port at ₹6,204 crore instead of ₹10,000 crore in 2010 which would have been worth ₹30,000 crore today on 10% CAGR. So, in 2021, Adani is paying effectively 20% of what it was willing to pay in 2010 for the same asset, Singhal said.

On October 5 last year, APSEZ closed the deal to buy a 75 per cent stake in Krishnapatnam Port Co Ltd (KPCL) at a 38.9 per cent reduction or ₹2,125 crore lower than the equity value assessed when the deal was first announced in January 2020.

The equity portion of the Krishnapatnam deal (excluding the debt held by the port operating company of about ₹6,212 crore) was valued in January at ₹7,360 crore of which 75 per cent stake translated into ₹5,520 core.

But, the deal was closed in October at an enterprise value of ₹12,000 crore. After factoring in the net liabilities including debt of ₹7,500 crore, the total equity value was ₹4,500 crore and APSEZ paid ₹3,395 crores for a 75 per cent stake, the company said.

APSEZ’s size and capability

Despite the industry fears over the growing size of the APSEZ empire, Singhal opines that it could become “even bigger”. “Even today, APSEZ is under-estimated,”

“The port and logistics field are open to all, but others Indian business houses could not make it because they did not have the management capability and the vision to grow bigger. It is not Adani’s fault,” he said referring to concerns that rivals have been left far behind.

For instance, the erstwhile UK port operator P&O Ports (which was later acquired by D P World) approached the Tata Group for a partnership when it was building India’s first private container terminal at JNPT in the late 1990’s. “But Tatas declined the offer and lost the opportunity to enter a sector which would have fetched high value proposition to the Group and made it a big player,” the executive who made the offer to Tatas said.

APSEZ’s model, according to Singhal, is to offer integrated solutions to customers. “The game is not just ports, the game is ports, hinterland transport and logistics parks to provide single window supply chain solutions to industrial clients,” he said.

APSEZ is efficient, can raise huge capital and has integrated into the entire logistics chain encompassing ports, container trains, dry ports and multi-modal logistics parks, he said.

“If ports give X revenues, hinterland logistics could give 3-4 times more revenue,” he noted. In contrast, the margin from port business is as high as 70 per cent whereas in inland logistics, it could be about 15per cent.

Once APSEZ has control over the hinterland cargo, Adani would control large swathes of national supply chain which in turn would augment Adani port volumes and port profit margins creating a value enhancing virtuous circle. That’s the game plan,” he added.