Shares of Adani Enterprises Ltd (AEL) climbed nearly 6 per cent in Monday's trade after US-based financial services firm Cantor Fitzgerald becomes the first broker to initiate coverage on the Adani group firm with a 51 per cent upside target, saying the Gautam Adani firm is central to India's economic ambitions. Cantor Fitzgerald suggested a target price of Rs 4,368 on the stock and said it is 'overweight' on Adani Enterprises, as it values the Adani flagship based on Adani Enterprises' airports, roads, and solar, wind and electrolysers segments. Following the development, the stock rose 5.89 per cent to hit a high of Rs 3,065.15 on BSE. The stock is up 22 per cent in the last six months.
"We believe AEL is at the core of everything India wants to accomplish," the US-based broker finds Adani Enterprises said. Cantor said AEL the most relied upon company for bringing energy resources into India. It cited Adani Enterprises' eight airports that account for 25 per cent of airline passenger traffic and 33 per cent of cargo.
Cantor Fitzgerald noted that Adani Enterprises is building several data centers throughout the country and "it is contracted to lay more than 5,000 km of roads, and is an integral manufacturer of solar and wind equipment for India's renewable energy ambitions, among numerous other businesses. We believe AEL's current valuation is largely driven by three main segments: airports, roads, and its new energy ecosystem, which in our view, means investors are getting a free call option on the rest of AEL's business."
The rest of Adani Enterprises businesses, Cantor said, account for 85 per cent-plus of revenue in FY23 and includes many businesses that are in incubation phase and will materially contribute to financials over the coming years. As such, the foreign broker believes the risk- reward on the Adani Enterprises stock is attractive at the prevailing levels.
The US-based broker said it sees Adani Enterprises' growth in each of the segments to outgrow that of peers, adding that airport segment could become multiples larger in coming years.
In its current portfolio, "we believe there are several businesses that will eventually be spun out," it said.
Cantor, the agency said, expects Adani Enterprises' Ebitda margin and funds from operations margin to improve further in coming years and that the Adani flagship to be relying less on outside capital going ahead.
Adani Enterprise is scheduled to report quarterly results later in the week.
India is now the most populous country in the world and has ambitions to be the world's third-largest economy by 2030. To get there, Cantor said, India needs to invest in both digital and physical infrastructure, in addition to increasing its energy production, as energy consumption will be meaningfully higher. It said these investments are paramount for India to drive productivity growth, as GDP per capita of $2,250 is meaningfully below that of China's $12,556.
The US-based broker's target of Rs 4,368 hinted at an upside potential of 51 per cent from Thursday’s close. It is the only one with an active recommendation on the stock, as per Bloomberg.
To recall, Ventura Securities recently suggested a 24-month target price of Rs 5,999 on Adani Enterprises. The domestic brokerage suggested "the turbulence in the energy market due to the Russia-Ukraine war and climate change issues necessitated a rapid switch to alternative clean fuel sources. It said green H2 has the most potential and Adani has made rapid progress to harness that opportunity."
This brokerage suggested Adani’s airport business growth was "on autopilot, the roads business was on fast lane and that coal business was mining handsome profit."
Also read: Sensex jumps over 1,000 points, Nifty tops 21,650; investor wealth jumps Rs 5L cr