Adani Enterprises Gets A New 'Buy' Rating As Jefferies Bets On 'Industry-Leading' Businesses

Jefferies initiated coverage on Adani Enterprises Ltd. with a 'buy' and a potential upside of 20%, as it expects the diversified conglomerate's businesses to emerge as industry leaders.

The Adani Group flagship has incubated multiple industry-leading businesses over the past decade and has come to be known for its execution of infrastructure projects, Jefferies said in a report on Feb. 13.

The research firm set a target price of Rs 3,800 apiece, implying an upside of 20%. In the best-case upside, the brokerage set a target price of Rs 5,000, implying a potential surge of 58% from the current prices.

"We believe that the new businesses under Adani Enterprises will emerge as industry leaders and that AEL will be key beneficiaries," the report said.

The next set of its strategic business investments (maturing and nascent businesses) are centered on airport operations, green hydrogen, roads, data centers, copper, aerospace and defence, PVC, and water infrastructure, the note said.

According to Jefferies, here are the key sectors where Adani Enterprises stands to benefit:

Play On Green Hydrogen

The Adani Group company is hoping to tap the segment by setting up India's largest green hydrogen ecosystem—Adani New Industries Ltd.—Jefferies said.

Adani New Industries is planning to tap the emerging green hydrogen opportunity by installing up to 3MMT capacity over the next decade at an investment of about $50 billion in the entire supply chain, the note said. "Adani New Industries plans to make this investment over the next decade, with the company investing through a mix of equity and debt."

The green hydrogen ecosystem covers the making of equipment required for the manufacturing of renewable power and green hydrogen, the manufacture of green hydrogen and the renewable power required for it, as well as the manufacture of downstream products.

Key Beneficiaries In Aviation

The conglomerate stands to gain from the high-growth aviation market, according to Jefferies. The government's support for the sector, and privatisation of airports would bring new opportunities for Adani Airports, the research firm said.

The Adani Group currently has an integrated network with eight airports spread across India, handling about 23% of the pan-India traffic.

In line with the group's vision to hold a leadership position in integrated infrastructure and transport logistics, the Adani Group made its maiden venture into the airports sector by emerging as the highest bidder for the operation, management, and development of six airports.

Foray Into Data Center 

Adani Enterprises entered the business in 2021 via a 50:50 partnership with EdgeConnex (leading U.S.-based global data center firm) to develop and operate data centers across India.

The brokerage firm said that it will receive a tailwind from the strong growth that is expected in the Indian data center industry.

Adani Enterprises initially started with a plan to set up a data center in Vizag and extended the plan to move to other cities. It also plans to build data centers across India, starting with Chennai, Noida, Hyderabad, Navi Mumbai and Vizag, among other cities.

Government's Impetus On Infrastructure

The Adani Group flagship is expected to gain from the government's impetus on developing infrastructure, Jefferies said.

The company intends to emerge among the three leading players in the roads and construction business. As of FY23-end, four road assets are operational, and the others are under various stages of development. Adani Enterprises develops and operates road assets under three models, the note said.

The company intends to continue maintaining a comprehensive mix of road assets, targeting to build a portfolio of 12,000 lane km of road assets, it said.

Digital Presence 

Adani Enterprises announced the incorporation of wholly owned subsidiary Adani Digital Labs Pvt., aimed at transforming consumer businesses into digital-first segments.

The company envisions connecting with 400 million users through the super-app by 2030 through various Adani portfolio and partner services.

This platform can, at the margin, enhance synergies across consumers of the Adani Group portfolio companies, with improved customer engagement, increased monetisation and faster time to market.

Balance Sheet Well-Placed To Take Up Rise In Capex

The brokerage exports $5-7 billion in capital expenditure annually over FY24-28 as the company builds out new businesses. Net debt/Ebitda for Adani Enterprises came down to 3.2 time in FY23, from an average of over 6 times in FY14-18, it noted.

"While net debt/Ebitda may again touch 6 times in the near-term, we believe fund-raising opportunities at the business level may partly assuage it," it said.

Key risks for brokerage assessments include delay in project execution and re-emergence of leverage issues.

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