From Adani Ports To Delhivery: UBS Initiates Coverage On Logistics Stocks
UBS initiated coverage on Adani Ports with a 'neutral, rating and a target price of Rs 1,175.
UBS has initiated coverage on Adani Ports and Special Economic Zone Ltd., Container Corp. of India and Delhivery Ltd.
The global investment bank has initiated a 'neutral' rating on Adani Ports, as its risk-reward is balanced given its valuation limits potential upside and modest organic volume growth trajectory, it said.
"We expect favourable industry structure with supply-side consolidation and incremental demand-side spread to support Delhivery's growth," it said in a Dec. 21 note.
UBS is cautious on Container Corp. of India, given its market share loss, a lack of shift towards rail traffic and relatively expensive valuations.
Adani Ports & SEZ
UBS initiated coverage with 'neutral' rating, with a target price of Rs 1,175.
Adani Ports trades at a premium to its regional peers, which is justifiable in UBS' view given its comparatively higher growth levels. Close comparison between different ports in different countries is difficult given potential differences in concession structure in terms of parameters like duration of concession and royalty payable to government etc.
Likely a modest organic volume growth trajectory in bulk commodities such as coal and crude.
It sees limited potential upside from its current valuation of 15 times one-year forward EV/Ebitda versus its historical average of 14.5 times one-year forward EV/Ebitda.
Adani Ports is trading close to its historic long-term one-year average EV/Ebitda level. "We think the risk-reward is balanced at the current valuation, as we expect a modest organic volume growth trajectory that is now broadly linked to sector growth," the note said.
Delhivery
Has a 'buy' rating on the stock with a price target of Rs 500.
Delhivery has consolidated on two key drivers' inflection; express parcel volume growth, and Spoton's integration issues.
Express parcel volume growth slowed materially in FY23 because of online buying behaviour normalising, as Covid has receded.
After almost doubling in FY22, FY23 volume growth was just 14%. This growth is recovering now with H1 FY24 growth of 16%, despite festival season pushing volumes back to Q3.
Similarly, Delhivery is recovering from Spoton's integration issues— network performance parameters and volumes.
There are multiple drivers to support Delhivery's profitability growth, including a favourable industry structure with supply-side consolidation and incremental demand-side spread; strong moat and leadership in physical assets, as well as technology led intellectual property; recent loss transitioning towards break-even; and diversified growth from e-commerce, as well as broader logistics, UBS said.
Container Corp. Of India
UBS has a 'sell' rating on the stock with a target price of Rs 770.
Concor's market share has been declining in key ports (e.g. Mundra and Pipavav) and is also reflected in its originating traffic growth trailing overall port-sector growth.
There has also been a lack of sectoral shift towards rail vs roads.
Export and import segment, contributing more than 80% of Concor's Ebit, remains weak.
UBS remains cautious on Concor given its continuing trend of market share loss in rail-based container transport, lack of meaningful shift towards rail from DFC so far and relatively expensive valuation for a government-owned company with low RoE.
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