Adani Ports 'Long-Term Proxy' For India's Trade Growth, HSBC Raises Target Price

HSBC Global Research views Adani Ports and Special Economic Zone Ltd. as a "long-term proxy" for India's trade and infrastructure growth.

The research firm raised its target price on the company to Rs 1,250 apiece from Rs 920 per share, implying an upside return potential of 1.25%. It has maintained its 'buy' rating on the stock, according to a note on Wednesday.

"Its diverse and sticky cargo should buffer the impact of trade uncertainties, while vertical integration and the addition of Vizhinjam and Colombo terminals should strengthen its capacity and pricing power," HSBC said.

The ports company's throughput rose 42% year-on-year to 35.6 million tonne in December, the third consecutive month of over 35-MT throughput. The growth was broad-based, driven by a 63% increase in dry bulk and 28% growth in container, it said.

For the current financial year, the company raised its throughput guidance and now expects to post over 400 MT versus its previous range of 370–390 MT. The throughput in first nine months of the fiscal stands at 78% of the revised guidance.

HSBC raised its throughput forecast from 407 MT previously to 411 MT, which is 3% above the company's guidance. Adani Ports will need to deliver an average of 33 MT of throughput per month in the remaining three months of the fiscal.

Earnings Estimate

HSBC marginally increased the recurring earnings forecasts by 2% for 2023–24 and by 1% each for the next two fiscals.

It expects a 17% compound annual growth rate in Adani Ports' Ebitda for fiscal 2023–26 and the return on invested capital to rise from 13% in the 2022–23 to 17% in fiscal 2026.

Favourable Supreme Court Verdict

The Supreme Court rejected pleas on Wednesday for further investigation into the allegations raised by Hindenburg Research and backed investigations by SEBI, which had already cleared the group on 20 of the 22 issues raised.

"This verdict should ease any further refinancing," it said. "The Adani Group has already demonstrated strong backing from investors, with $3.5 billion refinancing, including investments from GQG Partners and Qatar Investment Authority."

"Notably, Adani Ports has secured funding for its Colombo project from a US government-backed financier," HSBC said.

Adani Ports' stock rose as much as 2.24% during the day to Rs 1,118 apiece on the NSE. It was trading 1.99% higher at Rs 1,116 apiece, compared to a 0.60% advance in the benchmark Nifty 50 at 12:15 p.m.

The stock has risen over 37% in the last 12 months. Nineteen out of the 21 analysts tracking the company have a 'buy' rating on the stock and two recommend a 'hold', according to Bloomberg data. The average of 12-month analyst price targets implies a potential downside of 8.3%.

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