Adani Ports and Special Economic Zone Ltd

NSE:ADANIPORTS

Earnings Call Analysis

Adani Ports Achieves Robust Growth with Strategic Plans for FY25

Adani Ports and Special Economic Zone (APSEZ) reported a 28% year-over-year revenue growth, reaching INR 26,711 crores, driven by a 24% increase in cargo volumes to 420 million metric tons. EBITDA grew 24% to INR 15,864 crores, with domestic ports' EBITDA margin expanding to 71%. Profit after tax surged 50% to INR 8,104 crores. The company acquired two new ports and entered a joint venture, with plans for balanced 10-15% growth across coal, containers, and other cargo segments in FY25. Revenue is projected to rise to INR 29,000-31,000 crores, and EBITDA to INR 17,000-18,000 crores.

Strong Financial Performance

Adani Ports and Special Economic Zone (APSEZ) reported an impressive fiscal year ending March 31, 2024. The company's operating revenue surged by 28% year-on-year to INR 26,711 crores, driven by a 24% increase in cargo volumes. EBITDA, excluding the foreign exchange impact, rose by 24% to INR 15,864 crores, reflecting an expansion in the domestic ports EBITDA margin by 150 basis points to 71%. Notably, the profit after tax saw a remarkable 50% growth, reaching INR 8,104 crores despite a substantial write-off in the second quarter due to a subsidiary’s tax regime switch .

Operational Achievements

APSEZ handled a record cargo volume of 420 million metric tons, marking a 24% year-on-year growth across all major cargo categories: dry bulk (29%), containers (20%), and liquid & gas (15%). The company managed to handle 27% of India’s total cargo and 44% of its container cargo. The Mundra port achieved a significant milestone, handling 180 million metric tons, up 16% from the previous year, with the container terminal reaching a record 7.4 million TEUs. Furthermore, APSEZ expanded its portfolio by acquiring Gopalpur and Karaikal ports and entering a joint venture with MSC for the Ennore Container Terminal .

Strategic Expansions and Investments

The company commissioned three new logistics parks, increasing its total to 12, and added substantial warehousing capacity and train fleet. APSEZ's logistics segment saw rail volumes grow by 19% and GPAWIS volumes by 40%. A significant highlight is the launch of the trucking business, which currently operates 900 trucks on an asset-light model to ensure last-mile connectivity. The marine services segment also showed strong growth, with wins in Sri Lanka, Mexico, and Oman, increasing the count of owned tugs to 111 .

Guidance and Future Outlook

For FY 2025, APSEZ has set an optimistic guidance, expecting cargo volumes to increase to between 460-480 million metric tons, translating to revenue between INR 29,000 to INR 31,000 crores. EBITDA is anticipated to be in the range of INR 17,000 to INR 18,000 crores. The company plans to maintain its net debt-to-EBITDA ratio between 2.2x and 2.5x while undertaking capital expenditure of INR 10,500 to 11,500 crores .

Financial Discipline and Capital Allocation

APSEZ delivered operational excellence by optimizing asset utilization while making substantial investments for future growth. This approach is reflected in the rise of capital expenditure from INR 7,400 crores last year to a planned INR 11,500 crores for FY 2025. This increase will support ongoing projects, including the completion of greenfield projects like Vizhinjam and WCT, and further expansions in existing ports such as Mundra, Dhamra, Hazira-Dahej combination, Gangavaram, and Krishnapatnam ports .

Focus on Decarbonization

APSEZ remains committed to its decarbonization plan, investing approximately INR 1,500 crores in renewable energy. This initiative aims to set up a 1,000 MW capacity through solar and wind energy, leveraging the scale of Adani Green to achieve cost-effective decarbonization. This strategic move not only aligns with the company’s ESG objectives but also ensures competitive energy costs .

Future Growth and Expansion

Looking ahead, APSEZ is poised to continue its growth across various segments. With plans to grow its land banks, increase port connectivity, and improve logistics through strategic investments in infrastructure, the company is well-positioned to capitalize on future opportunities. The management is confident about balanced growth across commodities and ports, aiming for substantial domestic and international expansions .

Earnings Call Transcript 2024-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to the Adani Ports and SEZ Q4 FY '24 Earnings Conference Call, hosted by BNP Paribas Securities. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Priyankar Biswas from BNP Paribas Securities. Thank you, and over to you, sir.

[Priyankar Biswas, analyst]

Thanks, Rohail, and thanks to the management of Adani Ports for giving us the opportunity to host this results phone call.

So we have the management team represented here by Mr. Ashwani Gupta, Whole-Time Director and CEO, Adani Ports and SEZ; Mr. Subrat Tripathy, the former CEO of Ports business; Mr. Pranav Chaudhry, CEO of the Ports business; Mr. Sushant Kumar Mishra, CEO of Adani Logistics; Mr. D. Muthukumaran, CFO of Adani Ports; and Mr. Charanjit Singh, Head of Investor Relations and ESG at Adani Ports.

So without any further delay, let me hand over the floor to the management for their opening remarks, post which we will have the Q&A session. So Charanjit, over to you.

[Charanjit Singh, executive]

Thank you, Priyankar. Good evening, everyone, and a very warm welcome on behalf of Adani Ports and SEZ. With regards to this engagement, from our side, there are a couple of changes versus the last call. Firstly, it is our new CEO, Mr. Ashwani Gupta, who will be leading this engagement for Adani Ports. While he was present on the last call, along with Mr. Karan Adani.

Secondly, we also have our new Ports' CEO, Mr. Pranav Chaudhry, joining this call for the first time. Before taking over the responsibility of CEO ports, Pranav was the head of Container Marketing and has been with the company for close to 7 years. Mr. Subrat Tripathy, who has been the port CEO for the last 3 years, has taken a larger responsibility at the group level. APSEZ team wishes him all the best.

With this, now I hand over the line to Mr. Ashwani Gupta for his opening remarks. Over to you, Ashwani Ji.

[Ashwani Gupta, executive]

Thank you, Charanjit. Good evening, everyone, and welcome to the conference call for the quarter and 12 months ended 31st March 2024, to discuss the operational and the financial performance of APSEZ. I will first discuss the financial performance of the company, followed by the operation and business highlights of the year.

Starting with the financial performance during the year. Operating revenue for the year is INR 26,711 crores, which is a good 28% year-on-year growth, ahead of cargo volume growth of 24% year-on-year. EBITDA after excluding the ForEx impact is INR 15,864 crores, which is a healthy 24% year-on-year growth. Domestic ports EBITDA margin expanded by around 150 basis points to 71% during the year. Profit after tax increased by 50% year-on-year to INR 8,104 crores despite a write-off of INR 455 crores during second quarter resulting from the switch to the new tax regime in one of the subsidiaries, Krishnapatnam Port.

Now moving to the operational highlights of the year. APSEZ recorded a strong 24% year-on-year increase in cargo, handling volume at 420 million metric tons. The growth was reported across all 3 major cargo categories, where dry bulk registering a 29% year-on-year growth, container 20% year-on-year and liquids and gas increased by 15% year-on-year.

During the year, we have achieved various operational and business milestones, particularly -- during the year, APSEZ handled 27% of total cargo and 44% off the container cargo of India. APSEZ domestic cargo volume grew by 21%, which is around 3x the growth rate of all India cargo growth.

10 of our ports from the India portfolio recorded their lifetime high cargo volumes for the year. Our flagship port, Mundra handed 180 million metric tonne of cargo during the year, which is 16% up year-on-year. The port handled 7.4 million TEUs during the year, which is 15% higher than its nearest competitor. Our container terminal, CT3 in Mundra, 103.1 million TEUs, which is the highest-ever annual container cargo volumes done by the terminal -- any terminal in India.

APSEZ completed acquisition of Gopalpur and Karaikal Port, thereby increasing the total comps of our India portfolio to 15. We also entered into a joint venture with MSC for the Ennore Container Terminal. Our Colomba terminal received a financing commitment of USD 553 million from the U.S. DST. The port is scheduled for commissioning before end of current financial year.

Moving to operational performance of Logistics business. Adani Logistics Limited recorded its highest ever volumes across the segment with rail volumes of around 0.6 million TEUs up 19% year-on-year. While GPWIS volumes were at 20.1 million metric tons, up 40% year-on-year.

During FY '24, we commissioned 3 logistic parts taking the amount -- total amount of MMLPs to 12 from 9 at the start of the year. We added warehouses in Indore and Mumbai, thereby taking the total warehousing capacity to 2.4 million square feet. We have also added 34 rakes to our existing fleet, thereby taking the total count of trains to 127 as of March '24. Delivery of another 4 rakes is in pipeline.

More importantly, we have launched our trucking business segment to provide last-mile connectivity to customers from Port ICDs and customer premises. During the year, we operated 900 trucks, and currently, we are building this business on an asset-light model approach.

Some color on our third-party, marine service businesses. With contract wins in Srilanka, Mexico and Oman, the total count of tugs in our ownership now stands at 111. We are also prequalified for contracts with Saudi Aramco and in Oman, Kuwait and Qatar. This strong operational performance has translated into robust cash flow for the company.

As a result, our net debt-to-EBITDA ratio, as on 31st March '24, stood at 2.3x versus 3.1x at the beginning of the year, despite a CapEx of over INR 7,400 crores. For FY '24, the APSEZ port has recommended a dividend of INR 6 per share, in line with our capital allocation policy. This implies a payout of around INR 1,300 crores.

During the year, CARE Ratings assigned AAA, the highest possible credit trading in India to APSEZ, making company the first private corporate infrastructure developer to be rated AAA, while S&P and ICRA revised the credit outlook of APSEZ to stable from negative earlier.

Moving forward with regards to FY '25, we expect our cargo volumes to increase to 460 to 480 million metric tons, resulting in a revenue of INR 29,000 to INR 31,000 crores. EBITDA is expected to be in the range of INR 17,000 crores to INR 18,000 crores. Net debt to EBITDA is expected to remain between 2.2x to 2.5x, while CapEx is expected to range between INR 10,500 crores to INR 11,500 crores.

We can now open the forum for the Q&A.

[Operator]

[Operator Instructions] The first question is from Mohit Kumar from ICICI Securities.

[Mohit Kumar, analyst]

Congratulations on a very good quarter, and a good stupendous year. My first question is, have you taken tariff hikes across all your ports in the beginning of the fisal? And if yes, can you please quantify the risk hike?

[Charanjit Singh, executive]

Mohit, you are not audible. Can you kindly repeat the question and be a bit louder?

[Mohit Kumar, analyst]

Yes, sir. Sorry.

[Operator]

Mohit, I -- if you're using handsfree, request you to use the handset, we can't hear you.

[Mohit Kumar, analyst]

[indiscernible].

[Operator]

We seem to have lost the line for Mohit.

The next question is from the line of Alok Deora from Motilal Oswal.

[Alok Deora, analyst]

So just had a couple of questions. First is on the volume guidance. So I just wanted to understand this, are we facing any issues related to Red Sea, any slippage of volumes, which we are seeing because last time you had mentioned about 10% of the volumes are through that -- are through that route. So any update you can provide on that, please?

[Priyankar Biswas, analyst]

Thank you for your question. Absolutely, we are not facing any challenge, which should impact our growth. And whatever risk we have, we are covering it with the additional opportunities. And especially if you can see the trend of the growth which we are seeing in the cargo volume, the results from the April are itself demonstrating that in April, we showed 12% growth with respect to the last year month. So obviously, starting the year, we are keeping a range between 460 million metric ton to 480 million metric ton. And moving forward, we are minimizing the risk and maximizing the opportunity. And we are very confident of delivering that growth trend.

[Alok Deora, analyst]

Sure. And also the CapEx, which you have guided for FY '25, if you could just elaborate some of the key areas where you're looking for this CapEx -- spending this CapEx?

[Priyankar Biswas, analyst]

Yes. No, I think last year, we did INR 7,400 crores of CapEx. And as -- on one side, we are delivering the operational excellence by utilizing the assets. But on the other side, we are investing for the future. And this -- and for next year, we decided to have an increase. We have given the range. So -- but if I take the higher part of the range, which is 11,500, we are going to invest roughly 7,300 in the ports.

In the marine services, as we said, 111 tugs we have, and we are going to allocate roughly INR 400 crores in the marine services. Logistics business which consists of the agro silos, but also, as I said, that one of the most important strategies we have for FY '25 is about the last mile connectivity. And last mile connectivity is all about warehousing. It's all about the trucking. And as we have started the trucking and the logistics parks, we are allocating roughly 2,300 for the logistics.

Having said that, we are on our track for the decarbonization, and we are investing in the renewal energy approximately INR 1,500 crores. So clearly, on one side, improving the operational excellence. On other side, investing for the future and finally, working for the decarbonization. All put together, we are allocating CapEx of 11,500, which is much higher than 7,400, which we considered last year. Having said that, because of our financial discipline with the maximum utilization of our assets, our net debt-to-EBITDA ratio, we are keeping still between 2.2% to 2.5%. That's the overall CapEx allocation strategy which we have for FY '25.

[Alok Deora, analyst]

Sure. Thanks for the elaborate answer. Just one last question from my side. So in the logistics business, we have seen, especially in the fourth quarter, the growth has been pretty muted and even the margins have come out quite materially, if you look at Y-o-Y or even if we compare it with the full year performance. So what's happening on the logistics side? Is it more of a one quarter thing? Or how do we see this go ahead in logistics or in terms of revenue also and where could the margins settle now?

[Priyankar Biswas, analyst]

So the trucking business is a business which should not be considered stand-alone because it connects the dot. It connects the dots with the end customer and user which means using the truck more and more consignments will come to our ICDs and once more and more consignment comes to our ICDs, definitely, they come to our port.

So there are 2 ways of increasing the cargo volume. One is getting from first mile to the last mile. But another way, which is also very important and considering the way India is growing on EXIM to also connect the last mile to the first mile. That's why the trucking stand-alone business is sufficient enough to bring additional businesses to our ICDs and the ports. So that's the strategy behind the last mile connectivity.

[Charanjit Singh, executive]

Also look into the overall numbers for the full year, you will see that the revenue growth is in line with the cargo growth for the logistics business. So it's only in Q4, that is a bit of an impact, which is primarily because some of the agri silos contracts, which has completed 10 years, their billing is reduced, which is as per the contract. Otherwise, if you look at the full year numbers, both from a revenue perspective and also, if you look in to the 9-year number from the margin perspective, the numbers have been relatively strong and aligned with the volume growth.

[Alok Deora, analyst]

Got it, sir. So next year, we could be looking at a 15% sort of growth here or could be higher?

[Charanjit Singh, executive]

So it is baked in our overall guidance because we don't give segment-wise guidance.

[Ashwani Gupta, executive]

So as I said, the trucking business is to connect the dot, the last dot. So that's why it's consolidated in the overall increase of volume, revenue and EBITDA.

[Alok Deora, analyst]

Got it. That's all from my side. Congratulations again on very good numbers. All the best.

[Operator]

The next question is from the line of Atul Tiwari from Citigroup.

[Atul Tiwari, analyst]

Congratulations on a good set of numbers. Question is on the trucking business again. So these 900 trucks you have bought on your balance sheet or you are just like hiring them and running?

[Ashwani Gupta, executive]

Yes, these 900 -- so basically, the strategy for the trucking business is, is asset-light. When I say asset-light, which means where we have a confirmed mid- to long-term contracts for the last mile. And we see that based on the TAT, which is the truck turnaround time, we can maximize the usage and minimize the depreciation, we are going for our own assets.

Where we believe that there is a flexibility, and the last mile is case by case, we are going for aggregator model. So because we have started, at present, I would say, we are setting up the processes, we are setting up the end-to-end digital platform, which should connect from our port to our yards, to our trains and to our ICDs and finally to the truck and finally to the customer. So this is what we are preparing.

As and when we move forward, the way this business will evolve, we will see what would be the best mix in the asset-light model and what would be the mix, which we will own and what will be the mix, which will go on the aggregated model. As of today, these 900 trucks we bought because there is a mid- to long-term commitment from the customer for the last mile delivery.

[Atul Tiwari, analyst]

Okay. And sir, my second question is on the renewal energy investment of INR 1,500 crores. So what kind of investment Adani Ports will be doing? Like is it setting up its own solar power or what kind of [indiscernible] investment do that?

[D. Muthukumaran, executive]

This is Muthukumaran. We have said that we will do 1,000 megawatts. It's a combination of solar and wind. And in order to actually leverage the group's capability, we will put it up in an existing solar park in [Chapda]. So that's the progress that is already happening. So we have started putting it, and we should see that come through during the course of the year and next year.

[Atul Tiwari, analyst]

Okay. And then from there, it can probably scale up?

[D. Muthukumaran, executive]

We are talking about 1,000 megawatts. So we are actually good for a while to come now. So we don't necessarily need to scale up, but we will keep an open eye and if there is a good opportunity, we'll react at that point in time. There is no [indiscernible].

[Atul Tiwari, analyst]

1000 megawatt should cost about like INR 40 billion, INR 50 billion, right? So basically, the investment will happen over a number of years, like INR 15 million [indiscernible] and then.

[D. Muthukumaran, executive]

Correct. Correct. We have invested already some, okay? And we will invest some more. We will actually have about 250 megawatts coming through in the quarter 1 and the rest over a period of time. So it's being done in parts. You're right.

[Atul Tiwari, analyst]

Okay. And the power generated will be used by Adani Ports for a captive purpose or is it for sale?

[D. Muthukumaran, executive]

So it is for captive and if there is extra, we will sell it.

[Operator]

The next question is from the line of [indiscernible] from Bearings.

[Unknown Analyst]

I just want to ask, what's your plan for the July '24 bonds and also any plan to come to the dollar or pound market near term? And I have another question, I also want to know what's your thought on the international M&A next year because previously, I think you were talking about growth overseas. But I think in the latest CapEx, it's all about expanding the existing port. I wonder what's your thought on the acquisition side?

[D. Muthukumaran, executive]

Yes, sure. Thanks a lot. As far as your question on our July bonds are concerned, we already have cash in the balance sheet of the company, as you would have noticed. So we will actually pay it off on the due date, and it is already there in the balance sheet today, and we keep generating cash as well as we go forward. So we have no intention to come to the bond market in the near term.

And as far as your question on international M&A is concerned, go ahead.

[Ashwani Gupta, executive]

Thank you, Ashwani here. So thank you for that question. So as you correctly said, we are maximizing the cargo coverage in India. And of course, we have Israel Haifa, which is growing. We have Sri Lanka [indiscernible], which should be ready for taking up the cargoes. And moving forward, now we are studying and under discussion of further expansion in the international ports. And as and when, we will be finalizing it, we will be very happy to share with you in the near future.

[Operator]

The next question is from Asmeeta Sidhu from MetLife Investment Management.

[Asmeeta Sidhu, analyst]

I just have a quick question regarding the current audit opinion. I noticed it is still qualified at this point. Could you share if there is anything the auditors are looking for or sort of waiting for before we can [indiscernible] in the opinion?

[D. Muthukumaran, executive]

Sure. Thank you. Yes, as for the qualification is concerned, it just is continuing with what you have seen in the past. And a definitive conclusion has happened when Supreme Court on 3rd of January dismissed all the plea other than what [indiscernible] is currently investigating and they have suggested that we should bring this to closure in an expedited manner. Because there is no time period defined as an auditor limit, and it is only 3 months or about thereabouts since this has come -- the qualification is continuing.

It's only a matter of time before the qualification should get dropped. And we are, from our point of view and from our side, working sort of towards closure of these outstanding [indiscernible] investigation. And we look forward to seeing this drop off in times to come.

[Operator]

The next question is from the line of Bharanidhar Vijayakumar from Avendus Spark.

[Bharanidhar Vijayakumar, analyst]

My question is on the volume guidance for '25. So the lower and the upper end of the guidance, you indicate that we are [fencing] about 10% to 14% year-on-year growth. So -- and looking at the sequential growth of, say, container, coal, so it is single-digit impact in coal year-on-year -- sorry, the sequential growth is flat. So can you highlight what is your view on, say, container and coal volume growth in FY '25? Definitely, I think there is some moderation and assumptions you have made, which you think is going to grow at the least accordingly?

[D. Muthukumaran, executive]

Yes, I think it's important to highlight the background with which we are entering the coming year. This year, we have actually achieved a 23% -- I mean, 24% growth when the market has actually grown 7-odd percent. So -- and if you see our growth this year, we have grown across. We have grown in the areas that you mentioned, which is coal container, and we've also grown in other areas, liquid, in new LPG that has come, new LNG that has come.

And as far as FY '25 is concerned, we expect a reasonably well-distributed growth across coal and sort of container cargo. There is no spike from any particular commodities other than the new facilities coming in, LNG will ramp up a little bit. That is there in Dhamra. But otherwise, there is no unique characteristic of this growth that we have seen.

[Charanjit Singh, executive]

No, I think to add on -- what's very important that we are focusing on 2x2, which means how to have a balanced mix of the commodities and number 2 is how to have the balanced mix of our ports. So if you please see our results of FY '24, you will see that all the 3 main cargoes have grown double digits. Then when it comes to the ports, we can see now a good trend between the West Coast and the East Coast and the South. And this is how we are moving forward, that how we maximize all of our this 7,800 coastal lines of ports by the ports connectivity so that we connect to the last dot of the India growth.

And that's why our focus is, in addition to the ports, how we maximize the ports connectivity with railways, warehouses and the trucking. Especially on the container, definitely because we are starting the T3 in Mundra, and definitely, that is also bringing the additional growth in the container segment. So that's why the commodity mix and the port mix, both are very important to capture the maximum growth.

[Bharanidhar Vijayakumar, analyst]

Sure. So to summarize, you're expecting balanced growth in both containers and coal, which is a tune of 10% to 15%.

[Charanjit Singh, executive]

Yes.

[Bharanidhar Vijayakumar, analyst]

Okay. So coming to the next question on...

[Charanjit Singh, executive]

Before we jump to the next question, because your question is being driven by the single-digit growth at the all India cargo, right?

[Bharanidhar Vijayakumar, analyst]

Also our single-digit growth in -- so when you compare last quarter to this quarter?

[Charanjit Singh, executive]

No, no, no. I think what you need to look at is more as a Y-o-Y basis. And if we look from a Y-o-Y basis, and that's what Muthu and Ashwani, both referred to that we have seen a double-digit growth. Whether even if you remove Haifa of the picture, right, our cargo volume growth is 21%. And in that, if you look at what the bulk has been driven, it is 27%. If you look to liquid and gas, it is 15%. If you look to containers, that is 16%, right?

So for us, while the Indian cargo growth was 7%, we were at 21% within the domestic market, so 3x that. And that's what I'm saying is just with addition of one single port, which is Karaikal at the start of the year. Even if you remove Karaikal out of the picture, one of the -- you can say, more like an apples-to-apples comparison of what we had -- the assets, what we had in FY '23 and the assets in FY '24, the same port, our growth was 18%.

And therein, if you look to the 3 cargo types, broadly, then the dry bulk was 20%, liquid was 15% and containers was 16%. So all 3 segments have grown, and we have grown much faster on an organic basis in comparison to the average of India market, which has also been the case in the past years when there was no acquisition.

[Bharanidhar Vijayakumar, analyst]

So I appreciate Charanjit. So, of course, I will take this offline. My major part of the question was answered. So the second part of the question was on this under construction core projects that we have, we have told that INR 7,300 crores is what we would spend on CapEx in ports. But does this mean all our port under construction capacities would be over or get commissioned this year? Or what would be there happening in the subsequent years? Meaning I just want to know what are all the under construction projects and what will be the CapEx till it gets completed until it's commission, over the next 1 or 2, 3 years?

[D. Muthukumaran, executive]

Yes, sure. See, there are new 2 projects which are being worked on, both Colombo and Vizhinjam, both are going full stream and we have given broad guidance of when they will actually start. As far as the expansions in the existing ports are concerned, the major expansion actually will happen in big ports that we have, which is Mundra, Dhamra, Hazira-Dahej combination and on the East Coast, a little bit on Gangavaram and Krishnapatnam. So frankly, once again, growth is happening across.

And to your question specifically on greenfield projects, by the time we exit next year, both the ports should commence commercial operation, and what we will be left with in terms of CapEx is only the post-completion payment -- the retained payments that we need to do. So everything else will be paid in this year.

[Bharanidhar Vijayakumar, analyst]

Last question, have we paid for the Gopalpur acquisition? Is it in the cash flow statement in the '24 balance sheet?

[D. Muthukumaran, executive]

No, it's not been paid yet. We are waiting for approval for the government -- from the government of Orissa. So we expect that Q1, we should actually close this transaction. And the cash balance that we have, again, sort of is sufficient to pay for this as well as for the earlier point that I made, which is July bond, which is maturing. So we have cash on the balance sheet to pay from our cash balance.

[Bharanidhar Vijayakumar, analyst]

Okay. And I see about INR 3,100 crores of cash that has gone towards acquisition of subsidiaries in '24. What is that for?

[D. Muthukumaran, executive]

So it's basically land acquisitions and advance for acquisitions that we have actually paid. So it's all for logistics business.

[Operator]

The next question is from the line of Ankita Shah from Elara Capital.

[Ankita Shah, analyst]

Congratulations on good set of numbers. Sir, I wanted to understand on the SEZ income, why is it that [structurally] possibly coming down? And what is the view on that going forward?

[D. Muthukumaran, executive]

Sorry, we didn't get you. Can you please repeat?

[Ankita Shah, analyst]

Sure. Definitely. My -- I wanted to get your thoughts on SEZ income, sir, earlier, it used to be a big number, then that [indiscernible].

[D. Muthukumaran, executive]

You talked about SEZ income?

[Ankita Shah, analyst]

Yes, yes, yes. So this is the thought on it, why is that structurally coming down and where it will go going forward?

[D. Muthukumaran, executive]

Yes, yes, sure. Okay. See, there are 2 parts of income from SEZ. One is what we get on an annuity basis whenever we actually give the SEZ piece of the land to one unit, that we are actually forecasting and it is there in the numbers that you see.

Then we also get -- whenever we do either advance payments on lease or actually when we sell the land on SEZ, we actually monetize rather. So we have assumed that next year, there is going to be no big monetization. Fundamentally, because there is a captive demand and the total actual sort of units coming up in the current sort of year from already committed leases are pretty large. So therefore, we are not working on monetizing any more land.

But that said, it will be appropriate for me to highlight that as far as the land bank on SEZ is concerned, across ports, the 3 main ones, that is actually presented in their investor deck, we have been sort of increasing our land bank and Mundra have pretty large sort of unutilized SEZ that is being sort of put in the market, as well as the other ports, Krishnapatnam and Kattupalli. We also are working on Dhamra. So we are working across. So our land bank is increasing. So therefore, our long-term sort of plan for this is going as per what we've explained in the past.

[Ankita Shah, analyst]

Got it. Got it. Also, sir, are we trying to be a bit conservative on the growth rate that we are assuming for the next year in terms of cargo volume growth?

[D. Muthukumaran, executive]

I think, I would say that, I will not call it conservative, I will not call it optimistic. I will call it neutral, which means we have already started April and we have finished April with more than 12% growth. So definitely, we are keeping our guidance to start with. And definitely, as we move forward, we minimize the risk, maximize the opportunities as we can already start seeing the opportunities in our ports, whether it is Dhamra or it is Krishnapatnam or it is Mundra. We already started seeing the opportunities, but also we have some small risk.

So as we move forward, as we are very much confident to keep the growth trajectory, very balanced between West, East and South and very balanced between the 3 commodities.

[Operator]

The next question is from the line of Rajarshi Maitra from Axis Capital.

[Rajarshi Maitra]

I just wanted to make sure when you're giving the guidance for next year, how much are you factoring in from Gopalpur? And any other acquisitions or new project completions, which will contribute to your volumes in the next year that you factored in?

[D. Muthukumaran, executive]

Yes. So in the guidance of -- we target to get all the approvals in the quarter 1. So roughly, we have taken an estimate for the 9 months which is between 9 -- around 9 million metric tons. Of course, this is estimate based on what we know today about the Gopalpur. But once we will start managing it fully, definitely, we will see the further opportunities on it.

[Unknown Executive]

Also asked about the new greenfield project?

[D. Muthukumaran, executive]

So today, at present, we don't have any new greenfield projects, which are coming up as our CFO has expressed before. for us after starting the T3, then Vizhinjam and then the WCT. These are the projects which we are completing. Having said that, we are always open for any kind of opportunity, as I said before, especially internationally to capture any opportunity to bring the further growth in our portfolio.

[Operator]

The next question is from the line of Pulkit Patni from Goldman Sachs.

[Pulkit Patni, analyst]

A couple of questions, part of it you did answer Gopalpur what assumption you've taken. Are you also taking any numbers from Sri Lanka for next year in your guidance?

[D. Muthukumaran, executive]

Not material actually. We are expecting both Vizhinjam and Sri Lanka to come on stream this year but it will be a very small contribution to the volume.

[Pulkit Patni, analyst]

Got it. Sir, my second question is more longer term. I mean we're pretty much -- as I look to our presentation on the Indian map you have, there's not a place where you can put in one more dot to now acquire in India. So I'm just thinking about how should we look at the next 3, 4 years in terms of our growth strategy? What all international geographies are of interest for us from a trade perspective, et cetera. So if you just talk about how the next 3, 4 years for us are going to look like? Or if my question isn't right, is it true that bulk of our focus is going to be in ramping up the logistics business and in line logistics rather than grow our port portfolio overseas?

[D. Muthukumaran, executive]

So thank you. That's a great question. I would say any opportunity which comes up, definitely, we will assess it, and we will go for it. Now the point is, if we see what we have done is always delivered twice or thrice than the India growth. So if I say that India is going to grow around 6% to 6.5% in the cargo, definitely, with the operational excellence we have, with the customer base we have with the confidence of our stakeholders, whether the shipping lines or whoever and our strategic positioning of the port on the India coaster line, definitely, anything between twice and thrice is very credible looking at what we have delivered and we are delivering, which means if India's cargo is growing between 6% to 6.5%, for us to grow between 12% to 14% will not be a surprise. Because we are strategically positioned to cover that rate. That's the first part of it.

The second part of it, now where the additional growth will come from the additional growth will come from definitely, as we talk, the game changer, Vizhinjam, which is going to be a transshipment terminal, that is something which is untouched potential in India. And definitely, it will -- it will start with a transshipment, but I'm pretty sure that it will turn into a very high potential EXIM cargo in the near future. And with all the infrastructure ecosystem, which will be developed around that port, whether it is railways or logistics parks or the highways, definitely that untouched potential will come.

As the second thing, which I would like to say is, all the investments which we are doing on the port connectivity in collaboration, either with the central government or with the state government will help us in having more access to the cargos.

So as I said, trucking is a very small thing. We talk about the railways like the Dhamra, which we believe is the potential for the future. We are doubling our railway line. We are going for more investments over there. So which means 12% to 15% is not a surprise, if India is growing between 6% to 6.5%. So that's where we see in coming 3 to 5 years, the growth in India.

Having said that, our next -- our continued efforts are to go international. But to go international is not the objective, but to go international profitably, which can sustain the cargo traffic is the objective. And that's why the strategic positioning of Haifa, Israel, the strategic positioning of WCT in Sri Lanka, are the examples that we are choosing our bet for the international expansion is purely driven by the business opportunity.

And next, what we are studying is exactly the same cargo traffic, whether it is Middle East, whether it is Southeast Asia, whether it is Africa, or it could be Mediterranean, and that's where we will move forward so that we go for strategic acquisition/partnerships for these ports. So that's what is our 3 to 5 years strategic road map to grow sustainably every year.

[Pulkit Patni, analyst]

Good luck for those endeavours.

[Operator]

The next question is from the line of [indiscernible] from Goldman Sachs Asset Management.

[Unknown Analyst]

So just maybe going back to your CapEx on the renewable energy front. So what I would like to understand on how you're thinking about doing the renewable energy itself, given that versus a company that renewable is kind of one of the largest player in this field. So what makes companies to get to your position decide to do this [indiscernible] yourself instead of sort of procuring or buying the energies from [indiscernible]? And my second question maybe can share what's the source of solar panels? As you may [indiscernible] what's probably solar energy?

[D. Muthukumaran, executive]

Sorry, your second question wasn't clear. Can you just repeat the second question?

[Unknown Executive]

Source of the solar panel.

[D. Muthukumaran, executive]

Solar panel, we are actually going to import from China.

To your question on first, why we are doing? I think it's the most responsible way as a corporate to own the renewable asset from ESG perspective than necessarily to actually have just a contract for supply. Because basically, our supply will come from the place where actually generation is sort of most efficient. So it will become too distant for us to actually do a contract or source it. So we want to own the assets and from ESG perspective.

[Unknown Executive]

So I mean, this is 2 very precise, there are 2 things. One is we want to go for decarbonization. That's what is APSEZ is looking for. Definitely, one of the most important contributor is energy, and that's why we want to go for renewable energy.

The second point is because Adani Green, what we need, we need a cost competitiveness for energy. So going decarbonization is important. But going for a cost competitive decarbonization is more important. And because they are going for an economy of scale to generate the renewable energy, that's why they are competitive. And that's where it's a win-win situation for us that our decarbonization objective is fulfilled by getting a cost competitiveness for our core, and that's why we are interested in the renewable energy.

[Operator]

The next question is from Aditya Mongia from Kotak Securities.

[Aditya Mongia, analyst]

Congratulations on the strong results. The first question that I had was more to do with the margin in Mundra that has expanded quite meaningfully from 50% to 55%. I wanted to get a sense that whether our margins in that area can further expand to, let's say, 68%, 69%, level that you think that you [own] or maybe higher given the recent price hikes by your competitors? And obviously, projects like Kandla have a large capital cost associated with it.

[Charanjit Singh, executive]

So Aditya, while your question was not fully audible, but in case I wouldn't answer it properly, you have to repeat the question. So I think you are talking about the expansion of margins at Mundra. So see, there are 2 things. One is, with the growth in the volumes, which we are seeing at Mundra. So that brings in economies of scale, and that helps in improving the margin. That's point number one.

Point number two, that given our container terminals, the higher the volume [indiscernible] the container terminal, which is fully owned by APSEZ, and it's not under the joint venture mechanism. The entire revenue share and the profit accrue to APSEZ. So as the volumes increase on the terminal, the profitability of APSEZ will -- or particularly Mundra Port will continue to improve.

I hope that answers your question. In case your's was a bit different then please repeat the question again.

[Aditya Mongia, analyst]

Yes. So just to kind of clarify more on the question [although your] response is very useful. Are the scope of taking [indiscernible] increases in Mundra more and more from [indiscernible] was the more important question.

[D. Muthukumaran, executive]

I think, you're asking whether there is scope to realize more, correct?

[Aditya Mongia, analyst]

Increase the pricing over there.

[D. Muthukumaran, executive]

So it will increase. The trend is it will increase. We expect the past trend to continue.

[Aditya Mongia, analyst]

Understood. The second question that I had was more on the -- not going to the breakup of the CapEx, it's kind of consuming 2/3 of your EBITDA for next year. This year, this ratio is roughly half and probably pre-COVID, these numbers were kind of less than half of your EBITDA. In this kind of scenario kind of sustaining, do you understand -- kind of returns improving only with the land? Or do you think that is the scope of improving, let's say, returns ratios for your portfolio and probably [expensive on the] logistics side?

[D. Muthukumaran, executive]

No. So we don't expect any lag in this. For example, INR 1,500 crores that you see for renewables, is actually going to start generate cash from on day 1, okay? That 15%, which in itself actually explains 2/3 versus half difference that you spoke about, right? And then our investment in ports continue to be the similar kind of assets that we have done expansion. The 2 big greenfield is coming actually to a closure next year, which is Vizhinjam and WCT. So we don't expect any lag to happen from a returns perspective.

[Unknown Executive]

You also see the data point in the presentation date right on the return on capital employed. And if you see the last 3 years of data, then you'll see that the return on capital employed is improving because as the asset base increases, because in the last 2 years, we have made a good amount of -- or last 3 years, you can say post-COVID, we have made a good amount of investments, right? And -- a considerable sizeable investments compared to the asset base that we were having prior to the COVID. So there was -- and given that majority of that was acquisition, right? So the revenue generation and the return started coming from the day 1.

And more importantly, these were acquired at the right price. So that is the reason why you are seeing improvement in the return on capital employed, as we have made efforts to monetize this asset, but it will only turn around in some of the assets in terms of increasing the revenue and the margin. So I think what Muthu said is that we will continue to see improvement in the return on capital employed, particularly given the 2 large Greenfield projects are coming for completion in the current financial year.

[Aditya Mongia, analyst]

Understood. Do you have to kind of clarify this to put CapEx and setup [indiscernible] path land which is for capital use, your port EBITDA margins should start kind of improving from late year to. Is that the right way of thinking through?

[D. Muthukumaran, executive]

Yes. yes. The answer is yes, to be very precise.

[Aditya Mongia, analyst]

Understood, sir. And just exactly on the logistics piece. I heard this comment coming from your side that the investment in subsidiaries and line item INR 2.5 crores, INR 3,000 crores is focused on logistics. Could you give us some sense of where this money has been spent, whether it's a land, equipment and which line of [indiscernible] ICD or something else. First to kind of better appreciate -- it's a large number and i'm just trying to get a better sense.

[D. Muthukumaran, executive]

Yes. So it's a combination of all. But this year, what you're seeing large part of it is land. I think we have explained some time ago that basically, the way to look at our balance sheet, is threefold. One is actually the port asset. One is the land bank that we are creating and third is the logistics. So land bank clearly is actually a big opportunity that we are working on. And we have mentioned that we are looking at creating multi-model LPs across industrial belts of India. So therefore, we are actually building land bank. So the large part of what you see in the investment in subsidiary that you're talking about this year has gone to land. But we have also invested in railway, rakes. We have actually bought -- you would have seen that our rakes have gone up to 127 and we have built 3 MMLPs this year. And we have also actually increased our warehouse to 2.4 million. So investments have gone in these assets as well.

[Operator]

Next question is from Ketan Jain from Avendus [indiscernible].

[Unknown Analyst]

One question, [indiscernible] adding free cash flow generation, what kind of [indiscernible] policy, pay out policy are you looking at.

Are you going to increase from 15% to 20% just currently in the next 2 to 3 years?

[D. Muthukumaran, executive]

Yes, by and large, that's what it is.

Yes, sorry. We're just saying that we are actually talking about being in the -- we have increased the dividend this year, you might have noticed. We've been giving INR 5 per share. We've now increased it to INR 6 per share. So it will keep increasing as we see a secular underlying growth in the cash that we generate.

[Operator]

The next question is from the line of Nikhil from Bernstein.

[Nikhil Nigania, analyst]

My first question is on volume growth guidance. So FY '24, good to see good support come from bulk cargo growth, especially coal. But now it seems it's -- I mean from a growth perspective, with coal India ramping up production, Captive coal hikes coming up. Do you expect container to bear the brunt of the entire growth or majority of the growth coming in to 25? Or is growth in bulk also built in to that volume.

[Charanjit Singh, executive]

Nikhil, if you look to the numbers in a bit of more detail for our FY '24 numbers, then you can see -- and I mentioned this earlier also, on a like-for-like basis, apple-to-apple comparison, our cargo volume growth rate, excluding Haifa and Karaikal, was 18%. And in that 18%, dry bulk was 20%, liquid gas, 15% and container was 16%.

So the growth in coal, which you are talking of, we have been saying this for the last 2 years. The thing is the demand remains -- the change is happening between EXIM and COSCO. With respect to, if you're talking of the containers, rather the container volume was subdued, given the global economic issues, timely Europe and U.S., we are seeing a recovery in the container demand also now, though we have done much better than the Indian average, but we are also seeing a recovery, and that's the reason why if you look at the growth of Mundra and the volumes which Mundra had delivered on the container side, we are being one of the best in the history of this company and in the history of Mundra. So with regards to -- I think we are seeing overall growth from all the 3 segments, and which Ashwani Ji also earlier referred to, that's what our objective is, and that's what we have been seeing also.

[Nikhil Nigania, analyst]

Okay. Understood. And my second question is from a forward view. I mean, if the government is looking to play more of a landlord model into -- in major ports, do you see any opportunities coming up for terminals or similar such opportunities within India on that side?

[Charanjit Singh, executive]

Yes. I think as I said before, we are always open for the opportunity if it is driven by the -- either by the business need or by the business potential.

[Nikhil Nigania, analyst]

Sorry. But any other discussion right now? Or is that still -- nothing to coming up [indiscernible]

[Charanjit Singh, executive]

We always keep opportunities on the table. So obviously, discussions are going on. But when it will be realized, definitely, we will be sharing with you.

[Operator]

That was the last question. I now hand the conference over to Mr. Priyankar Biswas.

[Priyankar Biswas, analyst]

We would want to thank the management for giving us this opportunity to host the call. I think some of the investors did wanted to ask this question and their lines got disconnected. So if the management can oblige, that would be great.

So one of the questions there was, for the new investments that you are making like the new CapEx, what is the sort of hurdle ROCE that you are expecting? And also, just like you get like targets for your logistics segment for FY '29. So is there some aspirational volume target for FY '29 for the ports business. So those are the questions.

[D. Muthukumaran, executive]

Two points. First one, as far as the hurdle rate is concerned, we look for equity return of 15%. And we work with 60-40 dedicated ratio. And our long-term cost of debt is 7%, 7.5%. The rest is math.

And as far as your question on long-term volume guidance, we have already said that actually the next milestone for us is 1 million tonnes. So the company is working on that.

[Priyankar Biswas, analyst]

Okay, sir. That's great to here. So I will hand it back over to you for any closing comments that you may have.

[Charanjit Singh, executive]

So we'd like to thank everyone for taking out the time to join this call. And we look forward to our next call, which will be towards end of July, early August, once with the Q1 numbers. While we continue to report the monthly volumes on an ongoing basis. So thanks, everyone, and looking forward to seeing you or always -- listening to you in the next report. Thanks, bye.

[Operator]

On behalf of BNP Paribas Securities, that concludes this conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.