Buy Adani Enterprises shares, target price Rs 3,800: Jefferies on Adani group flagship

Adani Enterprises target price: Foreign brokerage Jefferies has initiated coverage on Adani Enterprises Ltd with a 'Buy' rating and a target of Rs 3,800, as it expects Ebitda for the Adani group flagship to double from FY23 to FY26 and grow over three times by FY23. Jefferies said Adani Enterprises' balance sheet is well-placed to take up rise in capex, as it sees contribution from new businesses namely Airport and Green Hydrogen to rise to 85 per cent of consolidated Ebitda by FY28 from 40 per cent in FY23. Adani Enterprises, Jefferies said, is riding on the strong industry tailwinds in New Energy, sustainability, infra, airports, digitisation and import substitution in India.

Jefferies sees value unlocking opportunities in some of the new businesses via demergers over the next decade. It said the recent Supreme Court order has an positive outcome on Adani group's year-long investigation related to short seller report. While Sebi is still completing its investigation, the order did suggest no further escalation in the case, Jefferies suggested.

The foreign brokerage is expecting 47 per cent growth in Airport Ebitda compounded annually over FY24-FY28E. Adani Airports has a cumulative 23 per cent share in pax traffic in India, with 8 airports under control, including under commissioning Navi Mumbai Airport (NMIAL).

"Airport is an attractive monopolistic business slated to benefit from the underpenetrated Indian aviation story, lucrative non-aero business (proxy consumer play), recent revision in aero tariffs at its select airports, rollout of City side land development projects, and contributions from to be commissioned NMIAL Airport," Jefferies said.

Jefferies sees a similar 50 per cent Ebitda CAGR for ANIL (new Industries/green energy biz). The foreign brokerage noted that Adani group is known for its scale and execution of infrastructure projects and that Adani Enterprises is now building a large scale vertically integrated GH2 ecosystem and is slated to benefit from the green energy/ sustainability push by the government.

"With GH2 (and derivatives) production slated to start by FY27, ANIL's biz will be a leading value driver for the stock," it said.

Jefferies said Adani Enterprises' balance sheet is well-placed to take up rise in capex. It is building in $5-7 billion capex annually over FY24-28. This is against its expectation of $3-3.5 billion capex in FY24, as the Adani flagship builds out new business.

Jefferies said net debt to Ebitda for Adani Enterprises came down to 3.2 times in FY23 from an average 6 times in FY14-18, and that its balance sheet is ripe to undertake capex again.

"While Net Debt/EBITDA may again touch 6x in near term, we believe fund-raising opportunities at the business level may partly assuage it," it said.

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