Kotak Reduces Adani Ports’ Target Price To Rs 860 And Upgrades The Rating To ‘Buy.
The price target for Adani Ports has dropped from Rs 920 to Rs 860. As a result of macro headwinds and restrictions on export trade for specific commodities, Kotak has reduced its port’s volume, revenue, and Ebitda estimates by 5%.
Kotak Institutional Equities has raised its rating of Adani Ports & SEZ to “Buy” amid a broader selloff in Adani group stocks, citing favourable risk-reward factors. The same brokerage has lowered its target price for the Adani group stock from Rs 920 to Rs 860 at the same time.
According to Kotak, the stock is a strong bet on India’s port sector at its current valuation of 11.5 times FY2024 EV/Ebitda. It has appealing qualities like pricing power and privatization prospects. According to the statement, Adani Ports also has a “strong right to win” because it provides end-to-end logistics.
“Adani Ports is currently trading at 10 times FY2025 EV/Ebitda due to the recent decline in stock prices and our updated estimates. In a worst-case scenario, this compares to 10–16 times the one-year forward trading range and indicates a flat year for stock returns. Our projections factor in a volume CAGR of under 7% for existing assets throughout FY2020–25E and a volume CAGR of 16% for total volumes, “It read.
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According to Kotak Institutional Equities, recent acquisitions (Krishnaptnam, Dighi, and Gangavaram) and the possibility of additional port privatizations provide support (Haldia and Tajpur announced, and more to come).
“Our DCF-implied 12.5 times EV/Ebitda includes a high 13.5 per cent cost of equity, punishing Adani Ports annually for unanticipated risks to 1.5% of market capitalization. We observe that the port industry is generally attractive and has strong pricing power, as evidenced by the sharp 10% increase in realizations taken by Adani Ports in FY2023, “It read.
Given a portfolio offering performing better for contracts with shipping lines and recent instances of promoters of smaller ports ceding assets to larger platforms such as Adani Ports, Kotak claimed there might be a case for the big getting bigger.
The brokerage has, however, reduced its projections for port volume, revenue, and Ebitda by 5% due to macroeconomic uncertainty and restrictions on the export of some commodities.
The statement read, “We reduce our December 2023E DCF-based fair value to Rs 860 from Rs 920.”
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