Adani Ports Stock Hits Record High As Analysts Raise Target Price
New acquisitions are boosting Adani Ports’ growth prospects, say analysts.
Shares of Adani Ports & Special Economic Zone Ltd. jumped to a record high after analysts raised their price targets on the private port operator, citing a faster-than-expected turnaround in the acquired Krishnapatnam Port Co.
“Adani Ports has turned around its Krishnapatnam acquisition significantly ahead of our previous estimates, leading to an earnings upgrade,” Nomura India analyst Priyankar Biswas said in a note. The brokerage has raised its estimates for earnings before interest, tax, depreciation and amortisation by 3-4% over FY21-23 on the strong operational turnaround.
Adani Ports had completed the acquisition of Krishnapatnam Port in October this year for an enterprise value of Rs 12,000 crore. The acquisition, according to a company statement, is expected to generate an operating income of about Rs 1,200 crore for the financial year ending March 2021.
Krishnapatnam Port’s margins rose to 68% in the first six months of 2020-21 from 58% a year earlier, according to Jefferies. The company intends to increase these levels to 80% by FY25. “Adani Ports’ market share will rise to 25% from 21% after the Krishnapatnam Port acquisition,” Lavina Quadros of Jefferies said in a note. “Continuing operational improvement and reduction in promoter pledges should drive further re-rating from current levels,” the research house said.
Kotak Institutional Equities valued Krishnapatnam Port’s asset at 13 times EV/Ebitda. “We consider such multiple reasonable in the context of the large 40-year residual life and first 20 years of static royalty regime. We note the scope for further value addition,” Aditya Mongia and Teena Virmani at the brokerage said in a report.
Shares of Adani Ports ended with gains of 3.9% to Rs 471.5 apiece. Post the Macquarie downgrade, 24 out of the 25 analysts tracking the stock have a ‘buy’ recommendation while Macquarie says ‘hold.’ The average of Bloomberg consensus 12-month price targets implies an upside of 2.7%.
Other highlights from analyst notes...
Nomura
- Maintains ‘buy’ rating; raises price target to Rs 530 from Rs 440 apiece
- Can deliver more than 12% return on capital employed on its acquisitions
- Third quarter appears promising with strong volume momentum
- A key downside risk is weaker-than-estimated volume growth
Jefferies
- Maintains ‘buy’ rating; hikes price target to Rs 525 from Rs 475 apiece
- Consolidated volumes CAGR over FY20-23 expected at 14%
- Gradual monetisation of SEZ over 20 years
- Robust volume growth, ramp-up in new port assets key catalysts
Kotak Institutional Equities
- Maintains ‘buy’ rating; raises price target to Rs 495 from Rs 425 apiece
- Cost savings realised and unbridled growth prospects ahead yield an asset worth 3 times invested value
- SBI funding the group's endeavor in Australia is the key upside risk to EV/Ebitda multiple for FY22