Broker’s call: Adani Ports (OP)

Target: ₹1,562

CMP: ₹1,280.95

Adani Ports and SEZ (ADSEZ) has consistently gained market share, driven by organic growth from its Gujarat-based ports and through strategic acquisitions at reasonable valuations. The turnaround of these acquired assets has accelerated its market share gains. We expect market share gains to continue as new acquisitions have turned around (Karaikal and Dighi) and with the commissioning of new assets, namely Vizhinjam, Colombo and Haldia.

So far, ADSEZ has established a presence at Haifa (Israel), which is at one end of the proposed IMEC (India Middle East Corridor). If there are acquisitions at the EU end, ADSEZ’s ability to divert cargos from the geopolitically volatile Red Sea-Suez region to IMEC could drive volume growth. Additionally, as ADSEZ aims to be an integrated logistics player in India, we expect its market-share gain in container rail (container and bulk) and warehousing to accelerate in FY24-27.

We value port assets on a DCF basis and estimate capex at INR60b p.a. and ROCE level of 16 per cent to arrive at our TP of ₹1,562. We initiate coverage on ADSEZ with Outperformer.

Key risks are weaker-than-estimated volume delivery and deteriorating Group’s financials, leading to elevated share pledges.