Kotak cuts Adani Ports price target to Rs 860, upgrades rating to 'Buy'

Amid a broader selloff in Adani group stocks, Kotak Institutional Equities has upgraded its rating of Adani Ports & SEZ to 'Buy', citing favourable risk reward.  This is even as the same brokerage has reduced its target price for the Adani group stock to Rs 860 from Rs 920 earlier.

Kotak said the stock at its current valuations of 11.5 times FY2024 EV/Ebitda is a strong play on India’s port sector, having attractive characteristics such as pricing power and prospects of privatisation. Adani Ports, it said, also has a "strong right to win" in offering an end-to-end logistics offering.

"After the recent fall in stock prices and on our revised estimates, Adani Ports is trading at 10 times FY2025 EV/Ebitda. This compares to 10-16 times one-year forward trading range, suggesting a flat year for stock returns in a bear-case scenario. Our estimates bake in sub-7 per cent volume CAGR over FY2020-25E in existing assets and 16 per cent CAGR in overall volumes," it said.

Kotak Institutional Equities said that the support is coming from recent acquisitions (Krishnaptnam, Dighi, Gangavaram) and the prospects of more port privatisations (Haldia and Tajpur announced, and more to come).

"Our DCF-implied 12.5 times EV/Ebitda factors in a high 13.5 per cent cost of equity, punishing Adani Ports to the extent of 1.5 per cent of market capitalisation on an annual basis for unforeseen risks. We note that the ports business is otherwise an attractive one with pricing power, well-demonstrated by a sharp 10 per cent increase in realisations taken by Adani Ports in FY2023," it said.

Kotak said the there could  be a case for the big getting bigger given a portfolio offering faring better for contracts with shipping lines and recent instances of promoters of smaller ports ceding assets to larger platforms such as Adani Ports.

The brokerage has, however, cut its port volume, revenue and Ebitda estimates by 5 per cent on macro headwinds and curbs on Exim trade for select commodities.

"We lower our December 2023E DCF-based fair value to Rs 860 from Rs 920," it said.
 

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