Adani Ports: Three Factors That Led To Goldman Earnings Upgrade

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

The management's focus is shifting towards balancing growth and debt, the research firm said. And it cited organic port volume growth, Myanmar port sale, fresh investments in Sri Lanka port, and minimal disruption for Haifa Port in Israel amid the ongoing conflict.

"We believe the stock should do well from hereon, especially if growth in 2H (second half) surprises," the research firm said in a note on Wednesday. Goldman Sachs expects the company to beat its fiscal 2024 volume guidance.

The brokerage maintains a 'buy' rating on the stock and increased the target price to Rs 855 from Rs 820, implying an upside return potential of 7.85%.

The research firm has updated its estimates after incorporating the second-quarter earnings, increasing volume estimates by 3%, given the stronger volumes and ramp-up in new ports. "As a result, our FY25–FY26 Ebitda and EPS estimates increase by 3–4%"

With volumes of 240 million tonnes achieved in the first seven months, Goldman Sachs sees the guidance of 370–390 million tonnes in the fiscal as conservative. Its estimate implies volumes of 33.5 MT a month, largely in line with the first-half run rate.

The company has maintained it Ebitda guidance of Rs 14,500–15,000 crore for the fiscal, a 19% year-on-year growth at mid-point. It has a capex guidance of Rs 4,000–4,500 crore—Rs 3,000 crore for ports and Rs 1,500 crore for logistics—and expects net debt-to-Ebitda to fall to 2.5 times from 3–3.5 times in the last fiscal.

Adani Ports has 43% and a 29% market share in the all-India container and overall port volumes. Hence, a sustained slowdown in export and import volumes could significantly impact the company, Goldman Sachs said.

Increases in capex or acquisitions could impact free cash-flow generation and keep the market perception of risk on cash flow high, it said.

Shares of Adani Ports were trading 0.14% higher at Rs 792.95 apiece on the NSE compared to almost unchanged Nifty 50 at 2:14 p.m.

19 out of the 20 analysts tracking Adani Ports maintain a 'buy' rating on the stock, while one recommends a 'hold', according to Bloomberg data. The average of 12-month analyst price targets implies a potential upside of 19%.