Adani Ports Stock Check: Up 41% in 7 months, should you still buy the stock?

With the recent launch of JSW Infra IPO, which is a part of JSW Group and the fastest-growing port-related infrastructure company that provides maritime-related services, its only listed competitor Adani Ports and Special Economic Zone has come into focus.

Despite a massive decline at the start of the year on the back of the Hindenburg report, Adani Group firm Adani Ports has rebounded strongly, giving positive returns in 7 straight months between March and September. In this period, it has already gained over 41 percent. Meanwhile, it shed over 27 percent just in the first 2 months of this year.

Overall, in 2023 YTD, the stock has given muted returns, underperforming the benchmark index. The stock has risen only 2.5 percent this year so far as against an over 8 percent rise in Nifty. In the last one year as well, it has been an underperformer, down around 2 percent in this period versus an over 16 percent jump in Nifty.

The stock shed the most in January, down over 25 percent and advanced the most in May, up 8.5 percent. It has also added almost 6 percent in September so far.

Currently trading at ₹830.50, the stock is over 9 percent away from its record high of ₹916, hit on November 16, 2022. Meanwhile, it has surged 110 percent from its 52-week low of ₹394.95, hit on February 3, 2023.

According to a MintGenie poll of 17 analysts, 9 have ‘strong buy’ and 8 have 'buy' recommendations on the stock. Let's look at the technical and fundamental outlook of the stock.

Earnings

In the June quarter, Adani Ports reported an 83 percent year-on-year (YoY) jump in its consolidated net profit at ₹2,115 crore versus ₹1,158 crore in the same quarter last year. Meanwhile, revenue from operations rose 24 percent YoY to ₹6,248 crore in the June quarter as against ₹5,058 crore in the same quarter last year.

On the operating front, the company's earnings before interest, taxes, depreciation, and amortisation (EBITDA) during the quarter under review advanced over 80 percent to ₹3,766 crore as compared to ₹2,089.3 crore in the same quarter last year. The EBITDA margin stood at 60.3 percent, compared to 41.3 percent in the year-ago period.

The company also recorded its highest-ever quarterly port cargo volumes at 101.4 million metric tonnes (MMT) in the first quarter, reflecting a 12 percent YoY jump.

For its guidance in FY24, Adani Ports said that its cargo volumes are expected at 370-390 MMT resulting in a revenue of ₹24,000-25,000 crore and EBITDA of ₹14,500-15,000 crore. The total capex during the year is expected to be ₹4,000-4,500 crore.

"Our continuous efforts on improving operational efficiencies have resulted in a domestic ports business EBITDA margin of 72 percent and logistics business EBITDA margin of 28 percent, which is higher than the reported margins of listed peers from India," said Karan Adani, CEO and Whole Time Director of Adani Ports.

Fundamental Views

Bernstein: The brokerage maintains ‘outperform’ rating on the stock and a target of ₹888, indicating an upside of 7 percent. According to Bernstein, Adani Ports continues to be a "prized asset" on the back of impressive volumes and EBITDA growth. It also said that the management's commitment to strengthening the balance sheet is commendable.

CLSA: The brokerage is also bullish on Adani Ports and has a ‘buy’ call with a target price of ₹878, implying an upside of 6 percent. The firm’s focus on optimising the cargo mix, tariff adjustments, and favourable currency exchange rates propelled its port margin higher, said the brokerage. It also noted that the CEO said the company is firmly focused on bringing down net debt/EBITDA to 2.5 times in FY24.

Jefferies: The brokerage, as well, has a ‘buy’ call on the stock with a target price of ₹890, which implies a potential upside of over 7 percent. The brokerage expects even better margins as the efficiency of acquired ports picks up. It has also adjusted its EBITDA estimates for FY24 and FY25, projecting a growth of 3-5 percent.

The report said that the company is India’s largest port operator by volume with a dominant 22 percent market share. Jefferies expects the medium-term double-digit growth to continue as it replicates the Mundra market share gain story at its acquired ports.

Citi: Citi is also positive on the stock and has one of the most bullish targets of ₹972 per share, suggesting a further upside of 17 percent. Given the strong Q1 performance, the broking firm believes there is some upside risk to FY24 volume guidance.

The valuations are attractive, with the stock trading at a one-year forward EV/EBITDA of 13x as against a historical average of 16x, said the brokerage, adding that the underlying business, competitive position, and cash generation ability remain by far the best.

Technical Views

Gaurav Bissa, VP, InCred Equities

"Adani Ports has been slowly gaining strength; however, it seems to be insufficient to push the stock to higher levels. The stock has witnessed a decline from the 88.6 percent retracement of the previous fall. Also, the stock is witnessing a negative divergence in rsi on the weekly charts. The RSI rise is trading near a major resistance of 70. Investors who bought the stock earlier can book partial profit and ride the trend for higher targets. Fresh entry is advised only once rsi gives a weekly close above 70 which can drive the price towards fresh life high levels."

Rajesh Palviya, SVP - Technical and Derivatives Research, Axis Securities

On the short-term chart, the stock is in a strong uptrend, forming a series of higher tops and bottoms, indicating positive bias. The stock is also well placed above its 20,50, 100 and 200-day SMA, which reconfirms bullish sentiments. However, since April 2021, the stock has been facing a stiff "multiple resistance" zone around 900-950 levels, which remains a crucial resistance zone. Hence, any weekly and monthly close above this mentioned resistance zone may result in a major breakout that could lead to upside momentum towards 1050-1100 levels. “We recommend traders and investors enter the stock above the breakout zone of 900-950 levels. The short-term support zone is placed around 770-700 levels. The weekly and monthly RSI is in bullish mode, which supports rising strength.”

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie. We advise investors to check with certified experts before taking any investment decisions.