Karan Adani is on an acquisition spree. The chief executive officer and whole-time director of Adani Ports and Special Economic Zone Limited (APSEZ) is busy buying out strategic port assets on both the east and west coasts of India. Just a fortnight after he completed the acquisition of Dighi Port Ltd, which operates a port on the banks of the Rajpuri Creek, in Maharashtra’s Raigad District, he has quickly moved in with another mega deal.
He is acquiring 31.5% in Gangavaram Port Ltd (GPL) from the private equity investor Warburg Pincus for ₹1,954 crore, according to a regulatory filing by APSEZ on March 3, 2021. Discussions are also underway with promoter D.V.S. Raju and his family, who collectively hold 58.1% in GPL. Adani hopes to close the deal and make an announcement soon. The remaining 10.4% stake is held by the Andhra Pradesh government.
Gangavaram, a decade-old privately-owned port lying in close proximity to the government-owned Visakhapatnam Port, is not too far from Krishnapatnam Port, which APSEZ took over in October 2020 for an enterprise value of ₹12,000 crore. The deal, which was finally struck during the pandemic at nearly 13% lower than what was originally agreed upon, gave APSEZ a controlling stake of 75% in Krishnapatnam Port Company Ltd (KPCL).
So, wouldn’t it partly cannibalise itself serving the same catchment area?
“The location of GPL in the north of Andhra Pradesh is a strategic complement to our recent acquisition of the port of Krishnapatnam that serves the south of AP. We believe that GPL holds great potential to complement its bulk cargo terminals with new cargo categories that we intend to develop. The port provides us great access to an adjacent hinterland that was largely untapped by APSEZ. It will place us in a position to serve a broader set of port customers as well as expand our overall hinterland logistics footprint for a much larger base of customers,” says the junior Adani, son of Adani Group chairman Gautam Adani.
APSEZ, which operates 12 ports and terminals in India, accounts for nearly 24% of the country’s total port capacity, making it the largest port developer and operator in the country. The company is also developing a transhipment port at Vizhinjam in Kerala.
Located in the northern part of Andhra Pradesh, Gangavaram is the second largest non-major port in the southern state with a 64 million tonne (MT) per annum capacity established under concession from the AP government that extends till 2059. According to APSEZ, it functions as the gateway port for a hinterland spread over eight states across eastern, western, southern, and central India, and handles a diverse mix of dry and bulk commodities including coal, iron ore, fertiliser, limestone, bauxite, sugar, alumina, and steel.
What made Adani set his foot on the port? The all-weather, deep water, multi-purpose port is capable of handling fully-laden super Capesize vessels. Capesize vessels are large bulk carriers and called so because they cannot pass through the Panama Canal and have to sail around the Cape of Good Hope to sail between the Pacific and Atlantic oceans.
These ships can be of up to 200,000 deadweight tonnage (Deadweight tonnage, or DWT, means the total weight that a ship can carry, including the cargo, fuel, ballast water, passengers/crew and such). At present, GPL operates nine berths and has freehold land of about 1,800 acres. With a master plan capacity for 250 MTPA (million tonnes per annum) with 31 berths, GPL has sufficient headroom to support future growth.
According to a communiqué from APSEZ, GPL handled 34.5 MT of cargo in 2019-20 and generated revenue of ₹1,082 crore and net profit of ₹516 crore. GPL is debt-free with a cash balance of over ₹500 crore.
For Warburg Pincus, which made an early-stage investment in 2007, the exit is believed to have given a manifold increase in value. “From a greenfield project at the time of investment, Gangavaram has developed into a world-class port,” said Vishal Mahadevia, managing director and head of Warburg Pincus India, in the statement.
On the east coast, APSEZ operates half a dozen ports and terminals.
Dhamra Port, which it took over in 2014 from L&T Infrastructure Development Projects and Tata Steel, handled the highest cargo volume of around 30 MT in 2019-20. It holds 100% stake in Dhamra Port Company Ltd (DPCL), which was a 50:50 joint venture between L&T and Tata Steel. Six years ago, the port had a capacity of 24 MTPA. The deep draught, all-weather multi-user port which commenced operations in May 2011 and handled a total cargo of 14.3 MT in 2013-14 is touted to become the Mundra Port of the east coast.
In June, 2018, APSEZ executed a share purchase agreement between L&T, Marine Infrastructure Developer Pvt. Ltd (MIDPL), L&T Shipbuilding, and Adani Kattupalli Port to acquire 97% shares of MIDPL, the developer and operator of Kattupalli Port. Emerging as Chennai’s new gateway for export-import trade, the port is located 30 km north of Chennai and has connectivity with the hinterland of north Tamil Nadu, Chennai, Bengaluru region, and south Andhra Pradesh, locations which are highly industrialised.
Krishnapatnam Port in the southern part of Andhra Pradesh is the jewel in APSEZ’s crown. KPCL operates a multi-cargo facility port which handled 54 MT in 2018-19.
Then there is the container facility at Ennore, operated by Adani Ennore Container Terminal, the first such facility at Ennore port. APSEZ won a 30-year concession in 2014, having offered a 37% share of revenue as annual royalty to the landlord port in a public tender. The terminal features a 400-metre quay, four rail-mounted quay cranes, 12 rubber-tyred gantry cranes, and a capacity to handle 8 lakh TEU (TEU means 20-ft. equivalent unit of container, in shipping parlance) annually. The phase II will include a quay line of 330 metres and a capacity of 6 lakh TEU, taking total capacity to 1.4 million TEU per year.
APSEZ also operates a coal terminal at Vizag. Developed to handle steam coal in the inner harbour of Visakhapatnam Port, the Adani Vizag Port Terminal is a fully-mechanised facility with a coal storage yard of 25 acres. It is capable of handling fully-loaded Panamax vessels.
According to the APSEZ annual report of 2019-10, the west coast capacity stood at 327 MT while on the east coast, it was less than a third, at 99MT. With the acquisition of Krishnapatnam and Gangavaram, APSEZ is steadily implementing its stated strategy of cargo parity between the two coasts of India. Industry officials say that the two takeovers will surely accelerate APSEZ’s journey towards a capacity of 500 MT by 2025.
The company has reported the total cargo throughput during the last financial year at 223 MT, clocking a growth of 7%. It handled a record container volume of 6.25 million TEUs, registering 8% growth. Mundra has continued to be the largest commercial port in India, handling 139 MT of cargo volume during the year.
On February 9, APSEZ reported a 16.22% increase in its consolidated profit to ₹1,576.53 crore for the third quarter. Its total consolidated income increased to ₹4,274.79 crore.
Karan Adani said in a separate statement that the team at APSEZ continues to innovate and establish operational excellence as the key differentiator, thus improving margins. “For instance, at KPCL, which was acquired in October, we have improved the Ebitda margin from 55% to 71%. APSEZ is well on course to achieve 500 MT of cargo throughput by 2024-25,” he said.
He is also going to focus on the Dighi Port. “APSEZ plans to invest over ₹10,000 crore to develop the port into a multi-cargo port with world-class infrastructure as well as investing in the development of rail and road evacuation infrastructure for seamless and efficient cargo movement,” the company said in a regulatory filing.
On January 28, 2021, APSEZ said it had raised $500 million by selling 10-year bonds to international investors at a coupon of 3.10%. It said the senior unsecured U.S. dollar note was oversubscribed six times by marquee international investors, helping it fix the coupon at a low 3.10%. In July 2020, it had paid 4.2% for a similar issue of $750 million.
With its mergers and acquisitions (M&As) in place, APSEZ is set to sail smoothly towards its targets.