JM Financial has initiated coverage on Adani Ports & SEZ with a ‘buy’ rating and a March 2024 target price of Rs 800, suggesting a potential 36 per cent upside over the prevailing price. The domestic brokerage said it expects Adani Ports to remain the market leader in India with volume growth of 16 per cent, translating into revenue growth of 15 per cent, Ebitda growth of 15 per cent and PAT growth of 13 per cent, compounded annually over FY23-25E.
JM Financial said Adani Ports Ltd may generate cumulative operating cash flow (OCF) of Rs 26,100 crore in FY24-25 and have a capex of Rs 12,000 crore, resulting in Rs 14,000 crore of free cash flow, substantially higher than its debt-repayment obligations of Rs 11,000 crore.
The scrip rose 4.57 per cent to hit a high of Rs 587.70. At this price, JM Financial’s target suggests a 36 per cent upside.
The brokerage sees operating cash flow-to-Ebitda for Adani Ports exceeding 80 per cent against a 10-year average 75 per cent. JM Financial said while Adani Ports’ fundamentals are extremely robust, it does provide sensitivity analysis to valuations to reflect uncertainties pertaining to group-related developments.
“Every 100 bps change in WACC lead to 15 per cent change in SoTP, as per our estimate. Our Mar’24 target price implies 12.5 times FY25 EV/Ebitda compared with a 5-year average of 12.8 times (current 9.3 times). Moreover, our estimates and target price do not reflect any future acquisitions’ value creation,” the brokerage said.
Adani Ports, it said, delivered supreme market share gains in India in the past decade and saw at least 10 percentage points gain in total share at 24 per cent. Adani Ports saw over 16 percentage points gain in container cargo market share that stands at 43 per cent. It is expected to sustain that in future with organic and inorganic growth, JM Financial said.
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