Brokerage house Ventura Securities expects Adani Group firm Adani Enterprises' (AEL) net profit to rise at a CAGR (compounded annual growth rate) of 107.3 percent during FY22-25E to ₹6,917 crore due to various strategic advantages. It sees AEL's revenue growing at 19.5 percent CAGR to ₹1.18 lakh crore in the same period.
The brokerage noted that Adani Enterprises alone can give investors instant exposure to investment themes such as Green Hydrogen, Airports, Roads, Defence, Data Centers, etc.
Its businesses in the domains of Airports, Data Centers, Roads and Defence are on the verge of gaining traction and should be value accretive in the short to medium term, said the brokerage in its report. It added that AEL’s new incubating forays into copper and green PVC have significant drivers in place to ensure long-term profitability and the equity contribution is expected to be funded from internal accruals.
Given the favourable outlook across all business segments, the brokerage has a 'buy' call on the stock and a target price of ₹2,821 per share, indicating an upside of 25 percent.
Commenting on various business segments of the company, Ventura noted that Adani Airports, which manages an enviable portfolio, offers clear revenue visibility for the next 50 to 70 years, at least. It expects the airport business to be the next value-unlocking story that should play out over the next couple of years.
Further, the company's foray into the green hydrogen space is not only about being a first mover in India but is a platform on which Adani is primed to scale globally, it added.
Meanwhile, the Data Centres are another mushrooming space and prime opportunity given India's demographic and offer clearly visible potential for AEL, stated the brokerage.
It also pointed out that with India's focus on self-sufficiency in the Defence sector, AEL's vertical for production of small arms, UAVs, drones & aircraft parts is also strategically placed and the cherry on the cake is the capital and cash flow management capabilities of the firm.
"Adani Enterprises will demonstrate India’s preparedness to become a manufacturing hub in sunrise industries. AEL is building scale that would instill confidence in global corporations/governments looking to diversify their supply-chains away from China," the brokerage said in its report. Most of its new businesses are still in an investment phase or at a nascent stage of profitability and thus financials don’t reflect the true potential of each business vertical AEL caters to, added the brokerage.
According to Ventura Research’s estimates, India alone will require 11.2 million tonnes of green hydrogen by 2030 which translates into an opportunity of over ₹1.75 lakh crore. Adani Enterprises is targeting 2.5 million tonnes of capacity which can roughly meet 22 percent of India’s green H2 demand, it noted. However, the company doesn’t want to remain just a commodity player and will utilize 60 percent production for captive purposes—to manufacture value-added products, highlighted the report.
Other reasons to be bullish on the firm, as per the brokerage are: 1) Proven execution record of large projects, 2) Strategic collaborations for access to the best-in-class technology, 3) Low-cost funding, and 4) Proven record of value-unlocking at the right time.
However, key risks to its upside thesis are (i) unexpected downturn in the economy, (ii) delay in project execution and (iii) project finance.
Historically, the company has been a good play for investors. It has risen 65 percent in the last 1 year but has surged over 2800 percent in the past 5 years, giving its long-term investors a sure-shot reason to smile.
In 2022 so far, while the Indian markets have witnessed massive correction, the stock has added 39 percent.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.