These 2 brokerages have a ‘buy’ on Adani Ports; here’s why they see a 35% upside

JM Financial has initiated coverage on Adani Ports with a ‘buy’ rating and a target price of ₹800 – about 35% jump from the current market price of ₹591. This comes after the recent controversy around Gatam Adani and Adani Group of companies when US-based Hindenburg Research alleged the group of fraud and malpractices.

Adani Ports and SEZ (APSEZ), which has 13 ports across India with >600 million tonnes (mnt) total capacity, has demonstrated its ability to successfully construct /acquire assets in India and create significant value for stakeholders, said JM Financial in a report.

The share price of Adani Ports closed at ₹590 on February 28 as compared to the previous close of ₹562 – up 5%. The stock opened at ₹562.05, hit an intraday high of ₹614.60 and intraday low of ₹552.

Meanwhile, Jefferies also has a ‘buy’ rating on the stock with a target price of ₹800 in a base case scenario. The brokerage expects the company’s consolidated volume CAGR over FY22-25E to come in at 14%; 13x EV/EBITDA Sept’24E. The gradual monetization of SEZ is also expected over 20 years.

“On the back of aggressive expansion in logistics (container/bulk/ warehousing), APSEZ is transforming into India’s largest integrated transport utility, providing end-to-end logistics solutions to its enormous customer base,” the JM Financial report said.

“Mundra’s market share gain success story should be replicated across the acquired ports. Material inter-corporate deposits should not be seen in the medium term. Working capital and operating leverage should continue to improve P&L growth and balance sheet strength,” said Jefferies report.

APSEZ has delivered supreme market share gains in India in the past decade (10ppt+ in overall share; 16ppt+ in container cargo) and is expected to sustain that in future with organic and inorganic growth, said JM Financial.

“We initiate coverage on APSEZ with a BUY rating and a SoTP-based Mar’24 TP of INR 800. We estimate CMP implies zero value being assigned to 5 ports (constitute c.30% of total capacity). Key risks: Any significant slowdown in India and adverse developments in group companies.”

On January 25, Hindenburg Research posted a report alleging Adani of fraud and said that it holds short positions in the company stocks. The 10 stocks from the group have been very volatile since then. The company has taken many steps to fight out the research firm, and soothe the investors. 

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