Adani Ports Governance, Financials Support Shares, Nomura Says

(Bloomberg) -- Improved corporate governance and reduced financial support to group companies have helped shares in Adani Ports & Special Economic Zone Ltd. partly recover from last month's plunge, according to Nomura Holdings Inc. analysts.

The shares are now about 15% below their closing level before a media report, denied by the company, that equities in some of the ports-to-power group's companies had been frozen by the national stocks depository. The stock sank 23% in four days after the report was published on June 14.

“Adani Ports is adequately delinked from the group's operational and stock performance due to improved governance,” Nomura Group Global Equity Research analysts Priyankar Biswas and Neelotpal Sahu wrote in a note dated July 1.

The analysts raised the share-price target 3.5% to 890 rupees, implying 26% upside potential from Thursday's close, citing the value of the company's port assets and expected cash flows. They retained a buy rating on the stock.

While Adani Ports has been improving governance, it also reduced advances and loans to other group firms to 12.1 billion rupees ($160.1 million) in the year ended March from 35.1 billion six years earlier, the Nomura analysts said.

Adani Port's cash-flow generation and margin profile makes it a “compelling story,” said Prateek Kumar and Keshav Lahoti, analysts at Antique Stock Broking Ltd., in a note dated June 30 that kept a buy rating on the stock.

A continued reduction in the number of shares pledged by individual founders since 2015 is another bonus, highlighting that group companies can independently meet financial needs, the Nomura analysts said.

“We believe Adani Port's financial performance is largely insulated from the group entities,” they wrote.

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