Adani Ports shares have 28% upside potential, says Motilal Oswal Securities

Domestic brokerage Motilal Oswal Securities has initiated coverage on Adani Ports & SEZ Ltd with a 'Buy' rating and a share price target Rs 1,010. The target price suggests a potential 28 per cent upside. The Gautam Adani-led company's  market leadership in the ports segment, focus on value-added areas such as logistics, and focus on strategic acquisitions places it in a sweet spot, the domestic brokerage said.

Adani Ports is India's largest private port operator with more than 24 per cent market share in cargo handling. Motilal Oswal noted that Adani Ports has evolved from operating just two ports (Mundra and Dahej) in FY11 to a portfolio spanning 14 ports across the country.

Improved reach, operational efficiencies, strategic port locations and a comprehensive range of integrated service offerings have contributed to Adani Ports' remarkable growth, with volumes soaring to more than four times the levels recorded in FY11, Motilal Oswal said.

"With continued growth levers at its existing ports and an expanding portfolio, we expect Adani Ports to strengthen its market dominance, achieving a 12 per cent volume CAGR over FY23–25. This would, in turn, propel a corresponding 15 per cent CAGR in both revenue and Ebitda. Cash flow generation should remain strong and help keep debt in check despite the acquisitions," it said. Motilal Oswal said its target price is premised on 15 times estimated FY25 EV/Ebitda, which is in line with its historical average of 14 times.

Motilal Oswal expects Adani Ports' revenue to rise 15 per cent compounded annually over FY23–25, led by a 12 per cent volume CAGR at its ports, SEZ income of Rs 400-500 crore per annum and an uptick in its logistics business.

"Ebitda margin has been at 62–64 per cent over the past five years. With operating leverage and efficiency measures, overall Ebitda margin is likely to remain steady at similar levels over FY23–25. This would lead to 15 per cent CAGR in Ebitda over FY23–25. PAT, conversely, would register 22 per cent CAGR over FY23–25," it said.

Among key risks, Motilal Oswal said a 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 the company’s debt is in foreign currency that could pose foreign exchange risk in case of any severe slowdown in its business," it said.

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