Adani Ports: This Adani Stock Is Superhit, At New Highs, Up 194% From 1-Year Lows; Buy For More Upside!

After a robust bullish long week, Adani Group-backed stocks will be in focus on the onset of the Q3 earnings season. While all Adani shares saw significant upside in the trading week of January 1-5, however, there was one specific stock that was on a super roll, hitting back-to-back new 52-week highs, and emerging as a multibagger. This will be Adani's cash cow Adani Ports which has seen huge demand from both domestic and foreign investors.

Adani Ports stock touched a new 52-week high of Rs 1,159.90 apiece on January 5, while the share ended the week with a massive 12.5% upside. Currently, the stock is trading higher by 194% from its 52-week low of Rs 394.95 apiece that was recorded on February 3, 2023, after a bandwagon of selling in Adani stocks due to the Hindenburg report.

Currently, Adani Ports' share is at Rs 1,154.10 apiece on BSE.

In its latest research note, Kotak Institutional Equities said, "We take stock of recent developments that bode well for ADSEZ-(1) the market is set to grow 8% for the second consecutive year, (2) ADSEZ having a majority share in growth volumes (2X of its market share) in FYTD24 organically, (3) prospects of adding Gopalpur and compete with the last of the key major ports in Vizag and (4) the group's improving financial health."

According to Kotak's note, ADSEZ is closing in on ~20% organic volume growth in FY2024 in a market growing 8%. This will imply a commendable ~60% share of growth volumes versus ~28% share in annual India volumes.

It added, "We note prospects of market growth further accelerating from the current 8% print, making ADSEZ well-placed to garner a meaningful part of the incremental growth. This is the second year of 8% for the country. We note that India's port volumes have reported a CAGR of 12% over FY2004-08 and have increased at a CAGR of 5% since."

Furthermore, ADSEZ has strengthened its portfolio through acquisitions, particularly on the East Coast. The potential addition of Gopalpur would further add to its positioning, as it would enable competing in the hinterland around the Vizag Port, the only remaining key major port where ADSEZ is not present.

If and when such a transaction happens, Kotak's note said, "it may happen at attractive terms for the bidder-port is levered at >10X gross debt/EBITDA on FY2023 basis, though it has the prospects of growing capacity 4-5X, according to the company's website. An unconfirmed news report suggests a potential equity deal valuation of Rs11-12 bn (Rs25-26 bn EV) in favour of ADSEZ."

Broadly, on a group-level, Adani shares situation is improving. The recently released results compendium of the Adani Group suggests debt-toEBITDA of the listed entities (based on annualized 1HFY24 performance) in the range of 1X-3X, barring Adani Energy (4.5X)-please note that the EBITDA includes other income. Also, gross debt has flattened out over 1HFY24, while TTM EBITDA has grown more than 20%.

Kotak's assessment of pledged levels suggests insignificant pledging levels at 3%/4% of overall/promoter shareholding. Thus, it lowers their WACC assumption a tad to 11% from 11.25%.

Nonetheless, Kotak has increased port EBITDA estimates by 5% due to strong 3QFY24 performance on volumes and higher contribution from new asset wins. It added, "We assume 12.5%/11.0% volume CAGR on overall/organic basis over FY224E-26E. We also increase our FY2026E-36E volume CAGR to 7% (from 6%), long-term growth estimate beyond FY2036 to 6% (from 5%) and lower 11% WACC."

On the valuation, Kotak's note said, "We increase the FV to Rs1,340 (from Rs1,060) on 5% higher near-term EBITDA estimates, higher LT growth estimate (7%), higher terminal growth rate (6%), 25 bps lower WACC (11%) and roll-forward. Our DCF-based FV implies 14X one-year forward EV/EBITDA versus the historical range of 10X16X. ADSEZ remains our preferred bet in the transportation space. BUY."

Earlier this month, the board of directors were restructured and it plans to fundraise up to Rs 5,000 crore via NCDs.

Also, Adani Ports elevated CEO Karan Adani to the role of Managing Director, a position which was held by Gautam Adani, Chairman of the Adani Group. Gautam is re-designated as 'Executive Chairman' of APSEZ, one of the fastest-growing integrated transport utilities in the world. The company also roped in Ashwani Gupta, the former global Chief Operating Officer at Nissan Motors, as the new Chief Executive Officer.

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