Why Adani Ports Is A Buying Opportunity After Israel-Hamas War — CLSA Explains
The deal structuring offers a significant value accretion opportunity for Adani Ports shareholders, CLSA said.
Adani Ports and Special Economic Zone Ltd.'s selloff over threat of disruption at Haifa port amid the ongoing war between Israel and militant group Hamas makes it an even better opportunity to buy the stock, according to CLSA.
The war could potentially hurt the company's newly acquired Haifa port in Israel, the research firm said. The stock tumbled 5% intraday on Monday after the war broke out over the weekend. To be sure, the stock recovered some of the losses on Tuesday.
A 5% fall for a port that contributes 1.3% under the sum-of-the-parts valuation presents a buying opportunity for "this strategic asset, with long duration concessions", CLSA said in an Oct. 10 note. It accounted for 3% of Adani Port's volumes in the first half of fiscal 2024.
Haifa is located in the North of Israel as compared to the Gaza strip, which is in the South. So, CLSA expects minimal disruptions.
Adani Ports acquired the Haifa Port as a part of the country's privatisation efforts in a 70:30 joint venture with Gadot Group. The acquisition took place at a transaction value of $1.13 billion and an enterprise value of $530 million.
The deal structuring offers a significant value accretion opportunity for Adani Ports shareholders, given the concession period of 32 years, according to CLSA.
It is a also key component in the India-Middle East-Europe economic corridor launched during G20 summit held in India. Thus it is strategic port, offering innovative multi-modal network backed by the U.S. and the EU, according to CLSA.
Adani Ports trades at a discount to Container Corp. and its EV-Ebitda multiple is trading below its average of 13.5 times, according to CLSA. The brokerage maintained a 'buy' rating on the stock with a price target of Rs 878 apiece, presenting a potential upside of 11% to Oct. 9 closing price.
Other Key Highlights
With an expectation of Haifa Port’s cargo volume to rise 5% during 2021-2027, Adani Port's overall market share is estimated to be marginally higher than its 2021 level.
Given a lot of the traffic at Haifa Port consists importing coal and bulk materials, it should have reasonable stickiness, CLSA said.
With financial engineering of debt interest and principal repayments, Adani Ports expects its equity investments to recover in the initial four years.
On Tuesday, shares of Adani Ports rose as much as 3.41%, the most in a single day since Sept. 11, before paring gains to trade 2.94% higher at 9:35 a.m. This compares to a 0.52% advance in the benchmark NSE Nifty 50.
The stock has fallen 0.66% on a year-to-date basis. The total traded volume so far in the day stood at two times its 30-day average. The relative strength index was at 47.2.
Of the 20 analysts tracking the company, 19 maintain a 'buy' rating and one recommends a 'hold', according to Bloomberg data. The average of 12-month analyst price targets implies a potential upside of 11.5%.
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