Shares of Adani Ports are up 3% as brokerages anticipate an increase of up to 28%

 Shares of Adani Ports are up 3% as brokerages anticipate an increase of up to 28%

The share price of Adani Ports & Special Economic Zone Ltd. increased by more than 3% on Tuesday after falling by about 5% on Monday as a result of worries about the violence in Israel, where the firm controls a significant port. On the BSE, the share price of Adani Ports opened at an intraday low of $799.95 per unit. The share price of Adani Ports & SEZ reached an intraday high of 817.  

The increasing trend of the Adani Ports stock price was caused by analysts' predictions that even in the worst case, the effects of events in Israel would be minimal on Adani Ports & Special Economic Zone.

In a Monday exchange filing, Adani Ports stated that it is actively monitoring the issue in Israel and has a business continuity plan in place.

While Haifa port is located in the north, we are keenly watching the on-the-ground activity that is concentrated in southern Israel. All of our employees are safe since we took the necessary precautions. We are constantly on high alert and have a business continuity plan in place that will allow us to react quickly to any situation.

At 3% of the total cargo volume, Haifa's overall contribution to APSEZ's statistics is quite minor. We have predicted that Haifa cargo volumes will range between 10 and 12 MMT for the current fiscal year (April 23 through March 24), and that APSEZ's total cargo volume will be between 370 and 390 MMT. The overall freight volume handled by APSEZ in the first six months (Apr. – Sep. 23) was around 203 MMT, with a part of nearly 6 MMT going to Haifa. We continue to be optimistic about APSEZ's financial performance, the company stated in its statement.

Today, other Adani Group stocks were also trading positively. On Tuesday's trading, shares of NDTV, ACC, Ambuja Cements, Adani Enterprises, Adani Power, Adani Energy Solutions, Adani Green Energy, Adani Total Gas, Adani Wilmar, and a number of other companies saw gains ranging from 0.5% to 3%.

Let's examine what the brokerages have to say about how the hostilities in Israel have affected Adani Ports.

Conflict is a learning opportunity (CLSA) 

According to global brokerage CLSA, a 5% drop in the share price of Adani Ports & SEZ as a result of war worries presents an even better opportunity to buy this significant asset with long-term concessions across India, as Haifa Port only contributes 1.3%.

"We think that's because the crisis in Israel could harm its recently acquired Haifa port. In Israel's privatization efforts, ADSEZ acquired the Haifa Port Co. (HPC) through a 70:30 JV with Gadot Group for an EV of US$530m. With a profit-making port that specializes in bulk and containers, HPC has the potential to increase operating leverage by lowering labor expenses thanks to its retirement plan and long-term real estate development potential. According to base case/worst case scenarios, HPC contributed 3% of ADSEZ's 1HFY24 volume and is anticipated to pay for itself in 4–6 years, according to CLSA's research. 

The company has a 'buy' rating from the international firm, which has a price target of $878 and expects potential growth of 11% from the current market price of $789.90. 

Investment Equities 

The brokerage asserted in its study that the effects of the events in Israel on Adani Port would be negligible, even under the worst-case scenario.

"Israel has 5 ports, all under “Israel Port Authority" . Haifa, Ashdod, and Eilat are the three most important commercial ports. Cargo has expanded at a 2.7% CAGR from 2011 to 21. Israel's port cargo (60MT) in 2021 was made up of 52% containers (31MT), which rose at a 2.6% CAGR. North Israel's multi-cargo port of Haifa will handle 56% of all cargo for Israel in 2021.

Any brief interruption in Haifa's volume should not have a significant effect on APSEZ's volume total for FY24. According to the brokerage, the greatest potential impact or write-off in the event of port damage would be restricted to Rs30/sh (3-4% of CMP of APSEZ).

The firm has assigned the company a 'hold' rating and set a target price of $868.

Financial Services by Motilal Oswal

The domestic brokerage rates the company as a "buy," has a price objective of $1,010, and anticipates a 28% gain from the firm's current market price of $790.

With a BUY rating and a target price of $1,010 (based on 15x FY25E EV/EBITDA, in line with its historical average of 14x), we begin coverage of the stock. The company is in a good position because of its: a) market leadership in the ports category; b) concentration on value-added industries like logistics; and c) focus on strategic acquisitions. 

In a $1.2 billion joint venture with the Israeli Gadot Group, Adani Ports purchased a 70% stake in Israel's Haifa Port in FY23. Nearly half of Israel's container freight passes through Haifa, one of the country's two largest commercial ports, the brokerage reported.