Adani Ports At Three-Month High: Why Kotak Says Rally Not Done Yet

Kotak Institutional Equities has raised Adani Ports and Special Economic Zone Ltd.'s Ebitda estimates, citing market share gains on operational efficiencies and cargo diversification at India's largest private ports operator.

Market share gains have been significant in FY24, with Adani Ports growing three times the 7% market growth on an overall basis, Kotak said in a Dec. 5 report. "This was driven by realisation and sharing of operational efficiencies, the offering of an integrated service and cargo diversification."

Shares of Adani Ports scaled the levels seen before the Hindenburg Research report as the group stocks surged because of multiple triggers

The brokerage maintains a 'buy' rating on the stock with a target price of Rs 1,060, implying an upside return potential of 20.5%. Kotak increased its fair value by 12% to Rs 1,060 on account of roll-forward and a lower cost of capital of 11.25%.

Higher volume growth for Mundra, Dhanraj and Ennore ports will lead to a 5-6% increase in Ebitda estimates, the brokerage said. "Over FY23-26, we expect 9%, 10%, and 15% volume CAGRs for Mundra, existing ports, and overall portfolio, respectively."

The sharp industry growth on an organic and overall basis for the company reflects the sharp focus on operational efficiencies, helping gain business by offering a better service level for the same price, the note said.

The market share gains also reflect the benefits of the addition of new cargo classes in Mundra and Dhamra ports, it said.

An integrated port-cum-logistics service is also helping it gain market share, and the sensitivity to select cargo classes (thermal coal, iron ore) is helping, as this starts to see normalised volume levels in select ports, Kotak said.

Adani Ports has demonstrated higher-than-expected port volume, revenue, and Ebitda growth in the past three years. Its FY30 volume target of 1,000 million tonnes suggests a healthy 16% volume CAGR over the next six years, the brokerage said.

History suggests the stock has traded in the range of 10–16 times one-year forward multiples for most of the past seven years, it said. "We value the company at an implied multiple of 13 times on a two-year forward basis."

Goldman Sachs Group Inc. also raised its earnings estimates for Adani Ports, citing healthy growth and potential market share gains and pricing power from a unique fully integrated logistics business.

Adani Group stocks have been rallying for the past week on the back of multiple positive triggers. The stocks surged, extending gains, on Tuesday after a report said that the U.S. provided financing to the conglomerate's port terminal in Sri Lanka after concluding that allegations by Hindenburg Research were not relevant.

Investors have also cheered the group's plan to invest Rs 7 lakh crore in the next decade and fresh $1.36-billion project finance from international investors for Adani Green. That complemented the market-wide rally after BJP's win in the three Hindi belt seats.

Shares of Adani Ports closed 15.3% higher at Rs 1,013.1 apiece, compared with a 0.81% advance in the Nifty 50.

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