Adani Ports shares up 27% in 4 days. Kotak ups Ebitda estimates, suggests fair value for stock

Kotak Institutional Equities has increase its Ebitda estimates for Adani Ports & Special Economic Zone Ltd (Adani Ports) by 5-6 per cent, accounting for likely higher volume growth for Mundra, Dhanraj and Ennore ports. In its latest report on the Adani group stock, Kotak said it expects 9 per cent volume CAGR (compounded annual growth rate) for Mundra, 10 per cent per cent for existing ports and 15 per cent volume CAGR for the overall portfolio over FY2023-26.

Ebitda CAGR is seen at 21 per cent on account of realisation growth and margin expansion, Kotak said while suggesting a fair value of Rs 1,060 for the stock. Adani Ports, which gained 22.57 per cent in the last three sessions, rose another 3.77 per cent in Wednesday's trade to Rs 1,050 level. The stock has gained 27 per cent in four straight days of rally. 

Kotak said Adani Ports has demonstrated higher-than-expected port volume, revenue and Ebitda growth of in the past three years. Its FY2030 volume target of 1,000 million tonnes suggests a healthy 16 per cent volume CAGR over the next six years, the brokerage said. "We find the sub-12 times FY2025 EV/Ebitda trading multiple on FY2025 quite attractive in such a context," it said.

History suggests the Adani group stock has traded in the range of 10-16 times one-year forward multiple for most of the past seven years. Kotak values the company at an implied multiple of 13 times on a two-year forward basis. Kotak has increased its fair value on the stock by 12 per cent to Rs 1,060 on account of roll-forward and a lower (but still stiff) WACC of 11.25 per cent and called Adani Ports top pick within its transportation coverage. That said, the target suggests a mere 1 per cent upside over Wednesday's intraday price.

"Market share gains have been significant in FYTD24, with Adani Ports growing 2 times/3 times of the 7 per cent market growth on an organic/overall basis. This was driven by realization and sharing of operational efficiencies, the offering of an integrated service and cargo diversification. We increase our volume/Ebitda estimates by 4 per cent/6 per cent as Adani Ports continues to outperform in a market gaining momentum," the domestic brokerage said.

Adani Ports clocked a 42 per cent YoY growth in November volumes, with dry bulk, containers, liquids and gas growing at 60 per cent, 26 per cent and 23 per cent YoY. The tyear-to-date numbers are up a healthy 21 per cent YoY, with similar growth across the key segments.

"The organic component of this growth is healthy, at 13 per cent versus 7 per cent growth in the sector (March to October). Select ports standing out include (1) AICTPL crossing 0.3 million TEUS per month quantum, Dhamra port ramping up volumes to 4 million tonnes per month run-rate and a sharp increase in container volumes at the Ennore Port. Annualized FYTD volumes yield a full-year estimate of 412 million tonnes versus guidance of 370-390 million tonnes," Kotak said.