Adani Ports keeps analysts bullish as Q3 earnings beat estimates: Should you buy the stock?

Nuvama believes Adani Ports' Q3FY24 performance should lead to earnings upgrades on Street.

Adani Ports outgrew the Street estimates with a 64 percent surge in Q3 net profit and pushed the stock to a fresh 52-week high on the NSE on February 2.

The surge in the third-quarter bottomline to Rs 2,250 crore and a 47 percent spike in on-year revenue to Rs 7,426 crore were driven by robust power sales and higher capacity utilisation.

Analysts maintain a positive outlook on the stock, citing robust cargo volumes and a promising growth trajectory in the logistics sector.

Sustainable market share gains, expansion of LPG, LNG terminals at Mundra and Dhamra and the upcoming Vizhingham port are likely to keep Adani Ports volume growth ticking in double digits for the next 3-4 years, according to analysts at Nuvama Institutional Equities. The company is expected to benefit from consolidation of volumes.

As shipping lines deploy larger vessels and consolidate routes, the focus will move to ports with O&D demand over transshipment. "Thus, this consolidation will be a boost for APSEZ given its scale, pan-India presence and existing strong relationships with container liner companies," Nuvama said.

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Stock Call: Should you buy Adani Ports shares?

Adani Ports delivered another strong quarter across all metrics, from volume to net income, according to analysts at Bernstein. The management has upwardly revised its guidance for FY24. However, there are concerns about potential impacts from global turmoil in the Red Sea on near-term performance, the brokerage said. Bernstein has an 'outperform' rating on Adani Ports with a target price of Rs 1,243 per share.

According to analysts at HSBC, the company achieved record quarterly throughput and profit driven by strong container and dry bulk volumes.

The company's port EBITDA margin improved to 71.3 percent, driven by efficiency gains and better utilisation. The ports major also met its deleveraging target earlier than the end-FY24 goal, showcasing financial discipline, HSBC said as it put a 'buy' rating on the stock with a target price of Rs 1,370 per share.

"Robust cash flows are expected to support future growth ambitions," it said.

Jefferies said in a report that operationally, Adani Ports is continuing to move from strength to strength, with the market share moving up to 26 percent from 14 percent in FY15, and expected to be over 30 percent by FY25.

"As core port EBITDA growth remains upward of double digits, backed by volumes, we remain positive on the stock," the brokerage said, putting a 'buy' tag on the stock with a revised target price of Rs 1,425 (as against Rs 1,365 earlier) in the base case scenario.

In an upside scenario where Mundra cargo volume growth picks up, Faster ramp-up at the other ports in the portfolio and pickup in port realisation is seen, the stock may rally to Rs 1,630, Jefferies said.

Downside risks include incremental negative news flow on group leverage, and disappointing market share gains at acquired ports.

Also Read | Adani Ports surges 5% to 52-week high on robust Q3 results

After the acquisition of Krishnapatnam Port, Adani Ports revised upwards its cargo volume target for FY25 from 400MT to 500MT, a staggering 18 percent CAGR over FY20. "Though this is a tall ask, we believe execution capabilities and proven track record of volume ramp-up provides comfort on cargo growth visibility," said analysts at Nuvama.

Adani Ports' logistics business is the "dark horse" with a potential to deliver 30 percent CAGR over the next three-four years, according to the brokerage.

"Leveraging its relationships with shipping liners and its ability to offer end-to-end solutions can make ALL’s business sizable," Nuvama said as it put a 'buy' rating on the stock with a target price of Rs 1,415 per share.

As utilisation and volumes continue to ramp up the existing and newly acquired ports, analysts at Motilal Oswal expect strong growth to continue ahead for Adani Ports. "We marginally increase our estimates with improved growth outlook and reiterate our 'buy' rating with a revised target price of Rs 1,470 (premised on 16x FY26 EV/EBITDA)," the brokerage said.

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