Hello, everyone, and thank you for joining us on short notice. Welcome to APSEZ's conference call this evening to discuss the Evos transaction that we announced earlier today. My name is Rahul Agarwal from the APSEZ investor team. Along with me on this call, we have participants from APSEZ joining. First, we have Mr. Ashwani Gupta, Whole-Time Director and CEO. We have Mr. Krishna Menon, CFO. We have Mr. Chirag Vakharia, Head of our M&A team. We have Ms. Anna Jaga, our Head of Liquid Marketing. And we have Mr. Rohil Vashist, our Head of Legal. We will begin today's call with opening remarks from Mr. Ashwani Gupta, and then open the floor for Q&A. All participants will be on mute during the call. Please raise your hand post the opening remarks, and then we will let you post your question.
With that, I will hand over the call to Mr. Ashwani Gupta for the opening remarks. Sir, over to you.
Yeah. Thank you, Rahul. Hello, everyone. Thank you for joining our conference call to discuss the recent Evos transaction. APSEZ agrees to acquire 100% in Evos B.V. from Igneo Infrastructure Partners for an enterprise value of EUR 2.56 billion. The equity value of the transaction is at EUR 1.18 billion, implying a multiple of 11.7x of CY25 EV by EBITDA. Evos is a highly profitable business with EUR 392 million in revenue and an EBITDA margin of 56% in CY25. The regulatory approval process and the works council consultation process will start immediately. This is an all-cash transaction that will be funded via debt. And on a pro forma basis, we expect APSEZ net debt to EBITDA to be at 2.76x, but revert to our guidance of 2.5x net debt to EBITDA by end of FY 2027. Evos is an extremely strategic asset for APSEZ.
Evos is the second-largest independent liquid storage operator in Europe, with eight port-based terminals in five countries: Netherlands, Germany, Spain, Belgium, and Malta. These terminals, with a capacity of 6.3 million cu m , are in the heart of most important energy and industrial hubs in Europe, including the ARA region. These terminals store, transfer, blend, and deliver other value-added services for a variety of traditional and transition sustainable fuels. Importantly, while traditional fuels has been always Evos' stronghold, it is also an earlier mover in the transition fuel storage space. Evos has strong capabilities across many new-age liquids, including SAF, biofuels, methanol, bioethanol, et cetera, and is set to play a crucial role in Europe's energy transition trajectory. Evos' value proposition is further strengthened by excellent pipeline connectivity to customers and various pipeline networks. Why we acquired Evos? Number one is the location in the macro.
EVOS operates in a stable macro and currency environment, offering strong top-down stability to its overall operations. Moreover, EVOS operates in regions that are at the heart of world's liquid storage and energy hubs. Number two, EVOS' core competency. EVOS' extensive liquid storage portfolio across traditional and transition fuels and offers high revenue and operating cash visibility. EVOS is also the preferred storage partner for many Tier-1 blue-chip customers. APSEZ has access to the local funding, including foreign currency bank facilities. Number four, which is extremely important, EVOS' competent leadership team. We are committed to ensuring the management continuity post-acquisition, retaining the leadership and expertise that have been instrumental in EVOS' success and will be instrumental in take it to the next level. EVOS ticks all the boxes, which I always explain in our analyst call and whenever I meet you all, of our international M&A strategy.
Number one, EVOS will continue contribute immediately to our top line and bottom line without diluting the APSEZ's EBITDA profile. During our Ambition 2031 timeframe, the ROCE of the asset will be increased to double digits in line with APSEZ overall ROCE profile driven by revenue growth, operating efficiency, and efficient CapEx deployment. Pro forma consolidated debt for the transaction will also be within our guided 2.5x net debt to EBITDA. Last but not the least, sustainability is a core component of EVOS' profile, and EVOS' advanced sustainability credentials will further enhance APSEZ overall ESG profile across various environmental and social KPIs. Now, let me share with you how Evos will contribute to APSEZ moving forward. First, Evos will translate into significant upside in the future driven by price realization, export potential of key liquids, including diesel, and transition to high-value liquids, including methanol, biomethanol, SAF, et cetera.
APSEZ can also use this platform to expand its presence in energy transition within Europe and beyond Europe, around the world. Evos will add sizable EUR-denominated hard currency earnings from A-minus rated sovereign family in Europe that will enhance overall APSEZ's risk profile. Evos will scale and expand APSEZ liquid business to more than double the contribution as it is today from Mundra, Hazira terminals. That will give a very balanced mix of commodities between container, liquid, dry, and other commodities. Other benefits include access to the cutting-edge technology and a great engineering talent pool within Evos with strong innovation and R&D capabilities that will also be needed in India moving forward following the energy transition in near future. Moreover, India-Europe FTA will also accelerate the further business opportunities. We are delighted to welcome Evos to the APSEZ family.
We are very excited to partner with Evos team as we integrate our operations and execute the next phase in its corporate journey. I would like to thank you for having the strong confidence in APSEZ and for your patience, and now I will answer your queries. Thank you.
Thank you, Ashwani. Participants wishing to ask any queries can now start to raise their hand. We can see some participants who have already posted questions. We will begin with Alok Deora from Motilal Oswal. Alok, please go ahead and ask your question. Alok? Alok, can you hear us? Okay, we will come back to Alok. Ankita, could you ask your question, please? Ankita from Elara.
Yeah, Alok here. Am I audible now?
Oh, yes. You are back.
Yeah. Sorry, I think there was some technical glitch. Firstly, just wanted to congratulate on this acquisition, but just wanted to also understand more details on this. First is, what is the tonnage we are looking to handle here? I see in the presentation there is some 37 million tons which were kind of handled in the last calendar year. What is the trajectory there, and are there any take-or-pay contracts here like we have in NQXT? If you can just explain those dynamics.
Yeah.
I have some further question.
Thank you, Alok, for your question. APSEZ do today approximately 5.5 million cubic meters with Hazira, Mundra, and couple of more. With this 6.3, we will be close to 11.5. That is what, if you convert into million metric ton, that is exactly what we have said. It is around 37 million metric ton. The second question is on the take-or-pay. Answer is yes. Significant amount of contracts are take-or-pay, but also CPI-linked with mid-to-long-term customer contracts.
Got it. How should we see this? Whatever 37, 38 million ton the entity had posted in CY25, that should kind of continue for CY26, CY27. Minimum, that is the capacity or the volume that we should get revenue for.
There are two things to it. It is exactly the same how we operate in Mundra and Hazira. There are total 452 tanks. There are total 63 vessel and barges berths all put together in the whole infrastructure of eight port-based terminals. Volume is a key driver, but more than volume, what is the key driver is the evolution of the flow, and how the flow will be evolved moving forward. It has already started evolving since two to three years. What is this evolution? This evolution is following the energy transition, which more and more the traditional fuels are transiting towards a sustainable liquid. Today, overall Europe is 80% conventional and 20% sustainable.
In 15-20 years, it would be around 50/50, which means more and more sustainable fuels, which attract high value, driven by the higher revenue and the higher margins, will drive the profitable growth. The number two is the capacities will also, has already been started using for the export with all the demands of conventional fuel coming up in the countries like Africa, where still the capacity in case of refineries are far from the reality. Those exports of the conventional flows have already started, and it will increase. Overall, the profitable growth will come from, A, transition to the value-added sustainable fuels with the higher margins, and B, by the export potential, which already started to the countries which are having demand but less supply.
Got it. Thanks for that. Second question is on the margin profile. The entity is currently doing around 55%, 56%. Once we get into the play, then what kind of margin ramp-up could this see? Would that be the key driver for earnings, or there could be some sort of a capacity enhancement also possible here, once we get operational?
I think the first driver is the utilization of the tanks and the turnaround ratio. This is exactly how we measure that efficiency in our liquid terminals, especially in Hazira. That is more than the capacity. It is the turnaround of the storage will be the driver in increasing the overall output. Number two is the operational efficiency. With all the latest technology from the world, these terminals are positioned to deliver one of the highest operational efficiency moving forward. The third one, we will expect, and this is what we will start working on from now with the leadership team to prepare the detailed business plan. We expect that because of the transition to the high value-added flows, the EBITDA % margin expansion will also take place. So we clearly see the upside based on the assets, asset utilization, but also the product flow evolution.
Sure. Just last question, if I can. The entire funding will be debt-funded, and it will be taken in the local currency there?
Yes, that is what we plan to do. If you could see today, the cost of capital here is between 4.5% to somewhere around 4.5%. By having the assets in hard currency-denominated markets with the revenue in hard currency, we are also lowering down our cost of capital with a higher sovereign rating, which will uplift the APSEZ balance sheet in a significant direction and position APSEZ as a really globally asset allocation or capital allocation company. Thank you.
Sure. Thank you so much for that. Thank you. All the best.
Thank you, Alok. Achal, can you please. Achal, can. Sorry, Ankita. Go ahead, please.
Yes, sir. Thank you, and congratulations on the acquisition. I have a couple of questions. Basically, first is, how has been the growth in the volumes in the past, and how do you see the storage volumes going up?
Thank you, Ankita. That's really a great question. I would say that when we talk about markets like Europe, more than the volume, it is driven by the value. When we talk about countries like us in India, our growth is more driven by GDP-denominated. But when we talk about matured markets like Europe, the growth is more driven by the value creation. Here, if you can see the revenue as well as the EBITDA growth, is mainly driven by how much value we are creating. The value which is created is because of two. Number one, the export potential because of the supply-demand gap. Number two, by transiting towards the higher sustainable liquids moving forward. We do not expect any CapEx to increase the capacity in very near future.
However, as you can see in the last two years and moving forward, our growth in revenue and EBITDA will be coming by more and more value creation, which this company has already demonstrated.
Got it. Why, I mean, given there is debt on this asset. You already mentioned 4.5% of cost of debt. What is the reason? I mean, the asset is good. It's very strategic in nature. Why is Igneo Infrastructure Partners looking to sell the asset? If you can-
Yeah. No, that's a great question, Ankita. We have positioned ourselves as a strategic investor and not a financial investor. As I shared in last analyst call, we are evaluating more than 20 assets around the world, but as a strategic investor. What a strategic investor means is when we are entering a country, a business, we are entering with a very long-term view, and our capital allocation is for the growth. However, the expectations of the financial investor to get into the infrastructure is different. That's why with Igneo, who have really done extremely well in establishing a great profile of Evos, we were interested, and of course, this asset followed the process, and finally, we were the winner in acquisition of these assets. As a strategic investor, yeah.
Who will be the global competitors to this kind of a business?
We can count on fingers, but we have Vopak, we have VTTI, but every company has got their own flow. Every company have got their own geographical advantage. But Evos, being in ARA region, which is the world's most strategic liquid storage hub, Evos is in a very, very important location. On top of that, most of the contracts are take-or-pay, most of the contracts are CPI-linked, and most of the contracts are with tier 1 blue chip customers, including the value-added services, whether it is blending or the pipeline connectivity with the airport and so on and so on.
Got it. One last, very basic thing. Will we get only storage revenue from this, or we will also be getting terminal handling of volumes or liquid volumes also here?
Yeah. It depends, Ankita. I think we will still get into it. As you know that always we think of the ecosystem, but it's too early for me to say that because we just closed the transaction few hours before.
Okay. It will be more storage-led for, I mean, given the-
Yes, mainly. I would say not only storage, but in the storage also, Evos do a lot of value addition, including blending. In some of the thing, it may include the distribution, but it is too early for me to say. But today, you can consider the baseline as storage and the value-added services inside the storage or outside the storage.
Got it. Thank you so much, sir, and wish you all the best.
Thank you, Ankita. I appreciate.
Thanks.
Thank you, Ankita. Achal, if you can go next, please.
Good evening, sir. Can you hear me?
Yeah.
Am I audible?
Yes.
Yeah. Congratulations for the transaction, sir. Two, three questions if I may ask. First, given it's a privately held company, any sense you can provide us in terms of the PAT number, what kind of? You have talked about EBITDA, but if you could help us with respect to PAT and whether in year one, let's say in CY27, will it be EPS accretive or would there be an EPS dilution at consol APSEZ level, sir?
I think I will answer the first one. The second one, please give us a little bit more time as a follow-up because we just finished the transaction this morning. The first one is, I think if you do the benchmark on these kind of infrastructure assets, when they are run by a strategic investor versus they are run by the financial investors, the objectives are different. The strategic investor always, and especially APSEZ, if you see our profile, always invest the operational cash for the future growth, right? Whether it is five years, seven years, 10 years, 15 years, 20 years, we see Vizhinjam, we see Mundra, all these assets we have acquired considering what would be the maximum potential 10, 20, 30 years after.
However, if I'm a financial investor, I am looking at what is the leverage CapEx with which I can take out the return on the capital which I'm expecting because I'm a financial investor. That's why, if you look at the general profile today, the PAT is double- digit of this asset, which you may say that not in line with what APSEZ is delivering. However, if you take out the cash out, which is not for the growth of the business, very soon you will hit the figure that it will be in line with the APSEZ average PAT profile. I think what we have to see, not the PAT from yesterday, because that was driven by a different financial objective.
What we have to see is the capability of APSEZ to make it at the average APSEZ PAT profile because of the revenue and the EBITDA percentage, which is one of the benchmark in the global, that too in the hard currency. If we are reinvesting the operational cash and using the same balance sheet with a less cost of capital, definitely it's not a challenge to hit that number. Rahul, just before anticipating that question, I asked you to say that. What is the PAT if we do it as per our hypothesis?
PAT will trend into the double-digit contribution as percentage of revenue going forward. As you rightly said, we will actually have surplus cash that we can consider towards balance sheet reorganizations to be able to have a healthier PAT figure.
Because today, the leverage ratio is at six because of, as I said, the financial objectives. But once we start the operations by ourself, definitely we will restructure our balance sheet to maximize, let me say, to minimize the leverage ratio and maximize the PAT. Hope it answers the question.
Absolutely, sir. The second question I have, in a passing remark, you did mention that it is very similar to Mundra, Hazira, right? So, are these like assets on lease? What kind of lease period it has? B, is there any scope to add more capacity at the existing location?
Yeah.
And C-
So-
Yeah.
Yeah.
Yes, please.
No, I think it is mix of both, because they are in the different regions, on lease, but also on the freehold. These are long, stable assets, so definitely no issues in that. Because these are not only the storage, these are the port terminals, right? The second thing is, what did you ask? Sorry. Second question?
In terms of the adjacencies, is there any scope to go into adjacent-
Yeah. Land is available.
Yes.
Land is available. So if we want to expand, we can. But I think more than that, what is important is the evolution of the liquids and conversion of these storage and handling capacities into a value-added liquids, which Evos has already started doing it. I think the first priority will be there, instead of having the new CapEx, that how with the existing asset, we can sweat the asset using the utilization, but more than utilization, the revenue and the coming from the value-added services.
Got it. Just a clarification, if I may, sir. With respect to the exports angle, if you could elaborate a little bit, how does it change? What is the current mix and what kind of change are you looking at when you are talking about one is the value-added fuel liquid, and the other was about the exports, the flows.
Yeah. See,
So the second aspect, if you could elaborate.
Yeah. See, we will start preparing that. When we do the due diligence, when we close the transaction, obviously we follow the process. As you know, it is a well-structured and organized process when you go through these kind of bids. We will get with the leadership team to prepare the business plan, and when we will be closing, definitely we will be sharing with you. But I can give you an overall figure of Europe, which comes from the statistics, which is public. Diesel may go down by 36%, but the biodiesel and the equivalent and the export may go more than 36% up. That is how the transition towards the sustainable fuel, including the exports, will take place.
But details we will be sharing with you when we will be closing and sharing with you the next five-year business plan, which we normally do after doing the acquisition and before closing the final transaction. Hope it answers the questions. Thank you.
Yeah. Sounds great, sir. Thank you so much.
Thank you.
Thank you, Achal. Aditya, if you would like to go next, please.
Yeah. Thanks, sir. Thanks for the opportunity. I hope I am audible to you.
Yes.
Yes, Aditya.
Okay. Thanks. The first thing over here, what is the capital employed in this business, and the starting ROCE of the business as it is getting acquired at a certain market value?
The first is ROCE. This is exactly what I said before. I would say that ROCE is at a very good starting level. And with no new CapEx planned and the planned increase in revenue and increase in EBITDA, will very soon take it to the double-digit ROCE, which is in line with our Ambition 2031. It could take, I don't know, two years, three years, but not more than that. But this is what we will share with you when we will talk about the business plan. But once again, we have to see the fundamental of operating this business.
The fundamental of operations of this business is, with the existing asset, how we utilize more and how we create more value by transiting towards the sustainable liquids and the export, which are not only priced based on CPI, but which also have price premiums because they are one of the frontrunners to transit to the sustainable fuels, because already methanol, then SAF, biofuels, and bioethanol, they are already doing it.
Understood.
Thank you.
The second question that I had was on the number of bidders that were in the fray for this transaction. When you say that a financial investor is exiting and a strategic investor is buying, the value that gets created, was it kind of put on the table, or is still there with you? I am just trying to get a sense of the competitive landscape.
Sorry, can you come back? Sorry, can you come back with your question?
Sure. Just some sense on the number of bidders over here that were there, whether this asset was keenly fought for or not.
No, no, this is a structured, organized bidding process. I don't know how many bidders were there because that's confidential information run by the sell side. Yes, but there were bidders and just structured, transparent, organized process. What we know is we are the strategic investors, and as a winner, we are the strategic investors. We can talk about ourself.
Okay. And one last question from my side. Ashwani, I understand that the company is on the lookout for more deals. Let's say this transaction size, which is about EUR 3 billion, is this something that you would incrementally think through as the right size, or would you think of upsizing the quantum of the deal that you may think through the next time around? Part B of the question, should we expect something in the next two years to happen, or would there be a pause for now?
See, yeah. I think what I can say here is we are not after the deals, but we want deals to be after us. How? Because we are very clear in our international strategy or growth expansion strategy, which is we want profitable growth, but not at the cost of leverage. Then we want to have a structured balance sheet, which is well diversified, strong enough to maximize the opportunities and minimize the risk. Third, in terms of product mix, also, when we look at on one side container, that is our strength. On the other side, container is driven by industrialization. Industrialization is driven to the trade, which means this will be always upwards. When it comes to liquid, it is following the energy transition of the world.
Definitely, it will be always upwards, and sometime it can be maximized in terms of opportunity, as we have seen in the geopolitical situation just before. The third, I would say the dry cargo. Dry cargo is plus-minus, and it is not only in the hands of trade, but there are many other things which happens in the dry cargo. For example, last year we saw coal decline. This year we see coal upwards. If we look at the whole global trade, we will find container and the liquid are the two categories or the two commodities where we can maximize our profitable growth in a structured and organized way. If they are in the geographies where we can restructure our balance sheet to maximize the opportunity and minimize the risk, that's what it is.
As a conclusion, I would say that all the 20 assets which we are looking at are mainly driven by the strategic thinking we have to go for international expansion.
You may end up. The balance sheet allows you to bid for more assets over the next one, two years.
See, with this acquisition, we are at 2.5. I'm talking about 2.7 next year, right? We are at 2.5, right? I think we still have the appetite to go more, but once again, appetite in a way that it will contribute and increase our capability and capacity to go more. That's where we are very selective in going for acquisitions.
God bless. All the very best from my side. Those are my questions.
Thank you.
Thank you, Aditya. Priyankar, if you would like to go next, please. Priyankar?
Am I audible?
Yeah.
Yeah.
Yeah. Of course, congratulations to you for such a large deal. My first question is, as you said, there are spare land also on the terminals that you have.
Yeah.
What I am trying to understand is, let's say tomorrow if there is requirement for an expansion of your fuel farms over of, let's say, the storage tankage over there. So right now you are at roughly 6.5 million CUM. What is the extent you can expand up to? Any ballpark idea you can give?
See, we can extend significantly because there's significant lands on these terminals. But the question is, we are not evaluating that, because again, I repeat, developing countries are measured by GDP-denominated growth, and developed countries are measured by value-created growth. So for us, more and more value we can create with the existing CapEx, it will improve our ROCE, it will improve our PAT, it will reduce our leverage ratio. That's our first and first objective. Obviously, we as a strategic investor have entered for a longer run, and based on the balance sheet and based on the market demand, definitely we can go for the expansion of the capacities. Absolutely, there is no concern to increase the capacities. The point is when and what kind of capacity. But still, our first objective is to maximize the existing asset with the export as well as with the value-added sustainable fuels.
That's the first objective.
Okay, sir. Let me understand the business model a bit correctly. Like in India, I am just contrasting these two things. Like in India, we often put up capacities, then gradually it gets utilized, so we hope for the cargo.
Yeah.
In Europe, is it like that-
No, no.
First of all, the customer comes to you-
Yeah
like there is an agreement, then you put up a tankage based on his requirements, and to support your CapEx, he does a take-or-pay long-term contract at certain fixed charges for this much duration. Does it work like that?
Exactly. The second one is the most important thing, and that's why the business is very sustainable, it's contracted, it's very stable, and it is very, very predictable. Second one-
It's like a growing annuity, almost.
Yeah, and that's why I again repeat, what we do in India is also good because the trade is driven by the GDP. But what we should do and we will do, or what we are doing in Australia and we are doing in Haifa, Israel, and we will do in Europe, is that value-driven capacity utilization. That's why first comes the business or the stability, and then the capacity is created. But in this case, business has already come, and the existing capacity needs to be transited towards a value-added capacity, which already started. That's the business model here. And I thank you for this question because this was the main thing during our due diligence, that how we will create the value out of these assets in a matured market.
So sir, because this is like a new type of model for us, especially investors in India.
Sure.
Just if you allow me just one more question on this. Is it right to say that once you get this annuity-type revenues, then you start doing, let's say, something akin to value-add, as in blending, liquids distribution, something of that, and that also further adds on to your EBITDA? So, like a sort of a distribution revenue/EBITDA. Is it the right way to look at? And if so, like in the EBITDA that you have given, what would be the share of this annuity-type revenues based on storage alone, and what is on distribution, and how much can we extend it by? What sort of growth you see? Just understanding the business model.
Looks like I am giving an examination for my PhD. You are asking great questions, and as I always say, your questions always educate me to learn more and more. But I think you are absolutely right. And here, what I would say, the reference is that. However, this is where APSEZ will bring its own strength. If you travel to Heathrow Airport or if you travel to JFK in New York, do we think that there is no opportunity to increase the capacity and deliver a better customer delight? I believe so, that there is an opportunity. Even if there are matured markets, there is an opportunity on the infrastructure. Now the question is, who is ready to invest in the infrastructure, not based on five, six, seven years, but based on 10, 20, 30, 40 years? And for us, we are exactly looking in that way.
We are taking the business, which is extremely strong in terms of operational efficiency, customer satisfaction, technology, the leadership team, and most important, the engineering capability, which absolutely we don't have it in India today, right? We are getting access to that. Now, how we will take this to the next level based on what we will bring as APSEZ to this value-driven. So it will be a combination of value-driven business and the learnings from a GDP-driven business. I will give you one example. It is not that we will start tomorrow, but when we started Mundra, we started Mundra with just one terminal. And I don't think at that time we would have thought that we will get into offshore marine, or we will get into warehousing, or we will get into trucking. But at the end, in 25 years, we are managing the full ecosystem.
Your question is absolutely right. It may not happen tomorrow, but at the end, as an integrated transport utility company, we would like to maximize the ecosystem presence using the core of the core of the business, which is the liquid storage and handling. Thank you.
Okay, sir. That answers my questions.
Thank you.
Thank you. Can we have Bharani go next, please?
Am I audible?
Yes, very well.
Good evening. My first question is regarding how the ownership of the land or the asset works there. In India, you have a concession agreement with the state or the government. How does it work there?
Okay.
What kind of ownership of the assets and the land exist with the existing government? How long is it for?
Yeah. Chirag, would you like to share? But it is, as I said, combination of lease and freehold. Chirag, would you like to share?
Yeah. Can you hear me?
Yeah. Chirag Vakharia is our Head of M&A. Yeah.
Yeah. I'll take this one. Basically, on most of the terminals, this is leasehold land. This is land that is leased from the port authorities, like the Port of Amsterdam or the Port of Rotterdam. These are generally very long-term leases, some of them going all the way up to even 2092 types. One terminal is where we have freehold land. This is generally the construct that they have. The lands are generally renewed, depending on where it is, every 25 to 30 years at revised rates.
Yeah. To answer the question very simply, I think when it comes to leasehold and the concessions, it is exactly the same way what we have in India. There, we could have state, here, we could have Amsterdam and Rotterdam and so on. But the leases are much more longer, as Chirag said, that some of the leases would be up to 2070 and maybe beyond that. So that is what is the situation.
Right. Okay.
Thank you.
Yeah. Thank you so much.
Koundinya, would you like to go next, please?
Yeah. Hi. Thanks for the opportunity. Sir, two, three questions from my end. Sorry, I think I briefly got disconnected. I do not know if you have answered one of those at least already. So my first question is if you can help us understand what is the PAT over here and how does the ROCEs look like? You did mention that you intend to go to double-digit ROCEs very soon. What is the current ROCE like? Is it like high single digits or is it like mid to low single digits? So that is the first question. Also, what is the payback period that you are looking at? Also, if you can briefly comment on the valuations that you are I mean, what was the valuation methodology used here when you say 11 and a half times?
What were the benchmarks, some of the benchmarks that you have used to arrive at that?
Okay. No, that is a great point. I may not be able to share our know-how, that how we do the valuation, because we have many more deals where we are working on. I will give you a broad answer, right? Today, the ROCE is 7%, right? 7%, which from my viewpoint, in a hard currency, in a matured market, for this business, is quite good. Moving forward, there is no new CapEx, but there is upside on the revenue as well as on the EBITDA, which means we will get to the double digit, right? So this is what the first answer I would give, and that is why I said that was one of the reason where we went for this asset. Now, when it comes to valuation, if we go by the valuation, we are 11.7 with respect to CY25, EV by EBITDA.
But when we do this kind of number, I go back to one of the box which I said that it should be contributing to the APSEZ average profile. We do our business plan, we do our forecast, which of course we cannot share today because we have to work with the leadership team and so on and so on, which means in coming two, three, four, five years, 11.7 should significantly go down. So that is what is the value creation without spending the CapEx.
Now, where we position this asset, knowing that it is a strategic location, knowing that it has got mid to long-term customer contracts, knowing that it has got competent leadership team, including the engineering capability, knowing that this has got long-term concessions, long-term leasing, knowing that it has already started engaging customers for the higher revenue, higher margin sustainable fuel, I would say that 11.7 on an average should be lower than the other deals which have been made around the world, and we can do the benchmark and you will find the figure.
Understood, sir. If you can comment on the payback period that you worked with, if possible. The other question is slightly a bit on the operational side. Correct me if I am wrong. I mean, my understanding was that you will drive up realizations through by handling new commodities, et cetera. Then there is also a large player in the form of Vopak, if I understand correctly, sitting in the same location. Has there been some benchmarking done with the market leader out there? Obviously, you are Number two. So, are there some white spaces which you thought can be worked around to improve it? If you can also briefly comment around the employee structure/unionization, et cetera, or the things around there.
At first, the leadership team and the employees are great. This morning itself, we had an engagement with them because we closed the deal this morning. So absolutely no issues on that. Of course, they are used to it. Number two, we have done the full market benchmark. We have done the competitors' benchmark, we have done the market, and we have also defined the energy roadmap till 2050. We know exactly what is the strength of Evos and what could be done in addition to what Evos is doing today. Once again, I would say, similar to the container business, liquid has also got its own catchment areas. If I want to replicate Hazira in Krishnapatnam, I will not be able to do that because the Hazira is connected to the north or to many customers around the Hazira area.
That is the strength of Evos, that it is at a strategic location where it has got its own catchment area, which is sustainable enough with the long-term customer contracts in mid to long run.
Sure. Okay, sir. Thank you very much and all the best.
Thank you.
Aditya, would you like to go next?
Hello. Am I audible?
Yeah.
Thanks for the opportunity. First of all, congratulations for the acquisition. I just wanted to clarify one thing. This debt that will be undertaking for the acquisition, that will be denominated in EUR, right? What would be the interest rate differential between our INR borrowings and this borrowing for the acquisition? If you could provide some color on that, please.
Yeah. We will restructure the balance sheet, but I can give you a thumb figure, I mean, high-level figure. Today, the cost of debt is 4.5% on these assets. If you look at APSEZ, the average cost of funding is between 6.4% to 6.6%, but that includes our funding in the foreign currencies. That is what I can share with you today. Maybe detailed, Rahul can share with you in offline later on.
Understood, sir. Another question that I had was that I understand by end of this year, we will move back to that 2.5x net debt to EBITDA level. Going back to this 1.7x, 1.8x net debt to EBITDA level that we reached, or even 2x. Do you see a roadmap going forward for that, or would you be more comfortable remaining near this 2.5x net debt to EBITDA and probably looking at a few more acquisitions going forward?
No, that is great. If I have to deliver a CAGR of 18%-19%, I need to be on an average 2.5 in mid-term. Today, we will go up to 2.7, but next year, not this year, next year, we will come around 2.5. Then it will go down, and then we may have another acquisition, and we want to float around 2.5 in mid to long term sustainably. I think what is very important that we sustain the leverage ratio. If you look at all the matured markets and the assets in the matured markets, which are primarily held by the financial investors, because of the structure of the balance sheet and the return objectives, mostly they are around six. We were evaluating the ABP ports in U.K. That was also at a leverage ratio of six.
That is where we want to create the value, that we want to minimize the leverage ratio and maximize the return by investing the capital for the profitable growth. And why we can do that? Because we have the capability in terms of people and the business expertise, and also we have the capacity in terms of our strong balance sheet to do that, which makes us different than our competitors.
Understood, sir. And sir, my final question is regarding this asset itself. In the past, whenever we have acquired international assets, for example, Haifa, we have seen a very sharp turnaround and an improvement in the operating performance. For this asset, will that sort of upliftment in operating performance be driven only by a change in product mix, or do you have any other levers in place as well for driving that operating performance upwards?
Yeah. The leadership team is committed to deliver the operational excellence. I will introduce you to all after we close the transaction. But main uplift will come from the product mix. Of course, operation excellence will keep on improving and improving, but because the benchmark is so high in terms of quality of operations, we may not expect what we do after acquiring Karaikal or Gopalpur or Krishnapatnam.
Understood, sir. Thanks for answering my questions. That was helpful. Thanks and all the best, and happy Diwali and all.
Thank you.
Thank you.
Thank you. Vikram, would you like to go next, please? Vikram, are you there?
I am there. Am I audible?
Yeah, very well. Yes.
Okay, sir. Sir, you have been talking about engineering capabilities of the
Yeah
Acquired company. Do we also develop similar liquid storage business in India with the kind of engineering capabilities we will get?
Sir, I think you ask a very good question. Answer is yes. In India will also need the energy transition, and we see that India is one of the leader in energy transition, right? That's why our other companies are into green, our solar, wind. We started the green hydrogen plant. At the end, what we believe as APSEZ, that ports are not only the gateway to the trade, but ports are becoming gateway to the energy transition. That's why we want to capture this opportunity of having the energy transition in the ecosystem of ports. To do that, what will make us different is the engineering capability, not of building up the tank, but engineering capability of understanding that how the sustainable products are evolving and what kind of handling and the storage will be needed for handling those kind of products.
Got it. Thank you very much.
Rahul, is there any question?
No, sir. We are done with the question queue.
No, I-
You can make your closing call.
Thank you, everyone. I would say, I really want to say thank you for keeping faith and confidence in APSEZ. I also thank you for asking very, very good questions that help me to educate myself more and more, and I do my best to answer each and every question. If not, you can always send a follow-up question, and we're very happy to answer to your question. Number three is, I would like to conclude once again, is international acquisition is not the objective. It is the consequence of preparing a healthy, profitable growth for the future, which is driven by, Number one, it should contribute to top line and bottom line. Number two, it should be in a geopolitically stable macroeconomics.
Number three, we are able to raise the fund in that currency where we will be having the same currency of revenue, and we will be uplifting the strength of our P&L. Last but not the least, we should be able to have the competent local leadership team who knows the geography, who knows the business, who knows the customer, and become a one family of APSEZ, as we have today from Africa to Australia. With that note, I would like to say thank you, and definitely we'll see you in the next quarterly results. But if you have any questions, feel free to ask before. Thank you.
Thank you, Ashwani. Thank you, everyone, for taking the time to be on the call. We will close this conference call at this point. Thank you. Thank you and good night.