Buy Adani Ports shares, earning upgrades likely on D-St post Q3 results; stock target Rs 1,415: Nuvama

Adani Ports & Special Economic Zone Ltd (Adani Ports) could see earnings upgrades post Q3 results, says Nuvama Institutional Equites, which has upped its target on the Adani group stock to Rs 1,415 from Rs 958. The domestic brokerage said the FY24 guidance upgrade suggested the growth momentum is accelerating and, thus, it upped FY24 and FY25 earnings estimates for Adani Ports by 13 per cent and 18 per cent, respectively.

The Gautam Adani-led company had on Thursday clocked a 67.87 per cent year-on-year (YoY) rise in net profit at Rs 2,208.41 crore for the December quarter on a 44.58 per cent rise in sales at Rs 6,920.10 crore. Ebitda for the Adani firm was up 59 per cent YoY at Rs 4,293 crore.

Nuvama said Adani Ports reported its highest-ever cargo volumes of 311 mmt for the nine months ended December 31, and revised up its guidance to 400 mmt for FY24 against the earlier guidance of 370–390 mmt). Adani Ports also achieved its highest ever rail (22 per cent) and GPWIS (46 per cent) volumes in 9MFY24. Net debt-to-Ebitda stood at 2.5 times (targeted level) versus 3.1 times at end-FY23.

"APSEZ has also completed the sale of Myanmar assets and the acquisition of Karaikal Port. The company is mitigating the concentration risk with non-Mundra volumes contributing 46 per cent in 9MFY24 (versus 44 per cent YoY). APSEZ also indicated that so far it has not faced any volume disruption for its Haifa port in the backdrop of the geopolitical conflict thereof," Nuvama said.

The domestic brokerage said Nuvama incurred capex of Rs 5,500 crore over 9MFY24 and expects a total capex outflow of Rs 7,000–7,500 crore for FY24. With robust growth and prudent spending on capex, it expects the returns ratios and debt metrics to improve over the next couple of years.

"Improving net leverage levels should also spur earnings. Growth has been visible across ports with healthy volumes driving growth. APSEZ is focusing on reducing its net debt, and targets to sustain 2.5 times net debt-to-Ebitda levels in the future. Furthermore, on the logistics side, APSEZ plans to achieve warehousing capacity of 60 million sqft with an annual addition of 10 milion sqft. Acquisition on the port side along with multi-fold capacity creation in the logistic business should unleash multi-year growth prospects for APSEZ," it said.

Nuvama noted that Adani Ports' logistics business continued to outpace peers with a total of 10 MMLPs, and two more to come.