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Adani Ports and Special Economic Zone Ltd (APSEZ) paid about 2.5 times more to buy the 25 per cent stake it does not already own in Krishnapatnam Port Co Ltd (KPCL) for Rs 2,800 crore, making it the most expensive by equity value of the five ports the Ahmedabad-based infrastructure conglomerate has purchased since 2014.
Gangavaram Port Ltd, in which it acquired 89.6 per cent stake for Rs 5,558 crore in March, was the most expensive deal thus far. But the residual stake buy in Krishnapatnam has trumped that, with APSEZ paying Rs 6,195 crore for 100 per cent equity.
On October 5 last year, APSEZ closed the deal to buy a 75 per cent stake in Krishnapatnam Port Co Ltd (KPCL) at an enterprise value of Rs 12,000 crore, at 10 times the expected FY21 EBITDA of around Rs 1,200 crore.
After factoring in the net liabilities, including debt of Rs 7,500 crore, the total equity value was Rs 4,500 crore and APSEZ paid Rs 3,395 crores for a 75 per cent stake then.
At this equity valuation, the residual 25 per cent stake would have been valued at Rs 1,132 crore.
However, on Monday, APSEZ said it had purchased the balance 25 per cent stake in Krishnapatnam Port Co Ltd for Rs 2,800 crore, implying that it spent some 2.5 times more to buy the residual stake than it did for the first 75 per cent.
The residual stake purchase was worked out at 10.3 times the expected FY21 EBITDA of Rs 1,325 crore, translating into an enterprise value of Rs 13,675 crore.
KPCL handled about 38 million tonnes (mt) of cargo in FY21, lower than the 48 mt in FY20, earning Rs 1,840 crore.
Since the acquisition of 75 per cent stake, Krishnapatnam Port has focused on business process re-engineering, which has resulted in EBITDA margins improving to 72 per cent in FY21 from 57 per cent in FY20.
“The consolidation of our ownership in Krishnapatnam Port reinforces APSEZ’s stride towards a 500 mt cargo handling capacity by 2025, and achieving our broader strategy of cargo parity between the West and East coasts of India,” said Karan Adani, Chief Executive Officer and Whole Time Director of APSEZ.
“Krishnapatnam Port is on track to handle double the traffic and triple the EBITDA by 2025 and to deliver high growth through a multi-product cargo enhancement strategy, while improving return on capital employed. We are committed to making Krishnapatnam Port the gateway port for South Andhra Pradesh and Karnataka. With its large industrial land bank, we will transform Krishnapatnam into a manufacturing and industrial hub,” Karan added.
However, industry experts are less optimistic about growth in cargo, especially bulk cargo at Krishnapatnam.
“Volume growth in bulk cargo, particularly coal, may be limited over the next five years,” said a port industry consultant. “Coal imports have come down and would come down further, more so in thermal coal, with the ongoing switch to renewable power from coal-based power,” he added.