Adani Ports shares: Motilal Oswal sees 20% upside on Adani stock. Here's why

Motilal Oswal in its latest note said Adani Ports & Special Economic Zone Ltd (APSEZ) has been consistently improving its balance sheet position, backed by strong cash flow generation. It said the Adani group firm is gaining market share, driven by operational efficiencies and cargo diversification. As APSEZ targets to become India’s largest integrated transport

utility and the world’s largest private port company by 2030, Motilal Oswal maintained its 'Buy' rating on the stock with a target price of Rs 1,590, based on 17 times its estimated FY26 EV/Ebitda.

On Tuesday, Adani Ports shares rose 0.65 per cent to Rs 1,329.60 on BSE. At this price, Motilal's target price on Adani Ports suggest a 19.6 per cent potential upside.

Motilal Oswal said Adani Ports has a diversified cargo mix and is looking to increase cargo share of port on the east coast. The operational ramp-up at the recently acquired ports is expected to drive a 10 per cent growth in cargo volumes over FY24-26. "This would drive a revenue/Ebitda/PAT CAGR of 14 per cent/15 per cent/19 per cent over FY24-26," the brokerage said.

The domestic brokerage believes that Adani Ports' cash flow from operations may grow at 13 per cent compounded annually over FY24-26. This, it believes, will be used to fund capex and reduce debt. Adani Ports continues to be on the lookout for opportunities outside India via the joint venture (JV) mode with a strong local partner, either in South Asia, Southeast Asia, Middle East, and Africa, it noted.

"APSEZ continues to gain market share while generating strong cash flows and maintaining its leverage position, with a net debt-to-Ebitda ratio of 2.5 times as of December 2023. With consistent outperformance in cargo volumes, we reiterate our BUY rating with a target price of Rs 1,590," it said.

Adani Ports ended FY24 with 24 per cent volume growth, taking total volumes to 420 mmt, surpassing its revised guidance of 400 mmt. Motilal Oswal noted that 25 per cent of all-India cargo volumes in FY24 were routed through APSEZ ports. For FY25, the company is targeting cargo volumes of 500 mmt.

"APSEZ is continuously investing in building infrastructure for its logistics business. With 11 multi-modal logistics parks, 116 trains, 2.4 million square feet of warehousing space, and 1.1 million metric tonnes of grain silos, ALL aims to establish a nationwide presence by further developing logistic parks and warehouses," it said.