Adani Ports - Sailing Toward New Horizons: Motilal Oswal Initiates Coverage With A 'Buy'

Motilal Oswal Report

With the addition of new ports, improvement in utilisation levels of existing ports and a moderating capex, the cash flow generation is expected to remain strong. We expect Adani Ports and Special Economic Zone Ltd. to generate ~Rs 383 billion of cumulative cash flow form operations over FY23–25, which would help keep its debt in check despite the recent acquisitions.

We initiate coverage on the stock with a 'Buy' rating and a target price of Rs 1,010 (premised on 15 times FY25E enterprise value/Ebitda, in line with its historical average of 14 times).

Adani Ports’ market leadership in the ports segment, focus on value-added areas such as logistics, and focus on strategic acquisitions place it in a sweet spot.

Adani Ports is extremely well positioned to capitalise on the growth opportunities in the transportation industry.

Key risks

As the largest private port operator in India, slowdown in domestic and global trade due to geopolitical disruptions could adversely impact the company’s operations at its various ports.

Further, our growth assumptions could be hampered by increased competition from other domestic port operators as the government is looking to modernise and improve efficiency of Indian ports.

In addition, a large part of Adani Ports’ debt is in foreign currency that could pose foreign exchange risk in case of any severe slowdown in its business.

About the company

Adani Ports is India’s largest private port operator with more than 24% market share in cargo handling.

Adani Ports has evolved from operating just two ports (Mundra and Dahej) in FY11 to a portfolio spanning 14 ports across India.

Improved reach, strategic port locations, operational efficiencies, and a comprehensive range of integrated service offerings (logistics, special economic zones, etc.) have contributed to Adani Ports’ remarkable growth, with volumes soaring to more than four times the levels recorded in FY11.

With continued growth levers at its existing ports and an expanding portfolio, we expect Adani Ports to strengthen its market dominance, achieving a 12% volume compound annual growth rate over FY23–25. This would, in turn, propel a corresponding 15% CAGR in both revenue and Ebitda.

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