Adani stock: This consensus buy just received a 'reduce' rating; here's share price target

Adani Ports & Special Economic Zone Ltd (APSEZ), a consensus Buy, has received a 'Reduce' rating from InCred Equities as the brokerage trimmed its Ebitda estimates while maintaining margin projections for the Adani group firm. Adani Ports has 19 'Buy' calls, two 'hold' and no sell recommendation so far.

InCred Equities said APSEZ’s cargo may see 8.5 per cent growth annually over FY24-26. It said while its growth estimate for Adani Ports may seem at odds with 17.1 per cent compounded annually over FY20-24, but excluding acquisitions over FY21-24, volume CAGR was at 7.7 per cent.

In the case of Coal segment, it estimates 12 per cent CAGR (39 mt) over FY24-26 from 158 mt in FY24, above InCred's 6.2 per cent per annum estimated growth for the sector, partly driven by a further ramp-up of Adani Power and Tata Power plants.

In the case of Container, it estimates a 10 per cent CAGR against a 7 per cent CAGR for the sector.

Despite capex, APSEZ’s balance sheet is healthy. Over FY22-24, capex of Rs 46,500 crore (including Rs 27,600 crore of acquisitions) and Rs 4,200 crore of dividends were funded by Rs 28,100 crore cash profit, a Rs 10,000 crore rise in net debt, Rs 4,100 crore reduction in net
working capital or NWC and Rs83bn of share issuance for acquisitions.

"While the steady improvement (fall) in NWC/ sales from 51 per cent (FY21) to 9 per cent (FY24) is encouraging, we feel there is room for improvement as Gujarat Pipavav’s NWC/sales was (-) 34 per cent in FY24. 60 per cent of the capex over FY22-24 was funded via internal accruals. Despite a 55 per cent rise in assets, NED/Ebitda is benign. Related party dues were just Rs 1,300 crore in FY24," it said.

InCred Equities maintained its target price of R 1,329 on the stock but downgraded its rating to Reduce from Hold earlier.

"We cut our Ebitda estimates for FY25/26F by 3 per cent each but maintain our target price of Rs 1,329. We factor in an Ebitda CAGR of 14 per cent over FY24-26F. APSEZ trades at 18.2 times FY25F EV/Ebitda against a six-year average one-year forward EV/Ebitda of 14.1 times. Thus, we downgrade the stock’s rating to REDUCE (from HOLD earlier). Our target price implies 15x FY26F EV/Ebitda. Upside risk: Higher growth against our estimate," it said.