1:5 Split: Adani’s Cash-Cow Stock’s Long Term Gains Robust, Motilal, 2 Others Raise Target, Highest At Rs 1600

Adani Ports, a cash-cow stock of port-to-power conglomerate, Adani Group, is all set to surpass its guidane level. The company is well on track to gain market share alongside generating robust cash flows and leveraging its position.

This led to Motilal Oswal raising its target price to the highest at Rs 1,600 on Adani Ports. Not just that 2 other brokerages namely Kotak Institutional Equities and HSBC have also recommended buying.

Rs 1,600 target price is the highest level predicted for Adani Ports. Many brokerages have raised their target prices on Adani Ports. Since its first stock split, Adani Ports has given impressive returns to its investors.

Adani Ports Share Price:

14 years ago, after the global recession, Adani Ports was trading at merely around Rs 140-150 levels in March 2010. The price levels are adjusted to its stock splits of 1:5 which was carried in the same year on September 23.

Adani Ports has carried only one stock split so far, and that was on September 23, 2010. The stock split from Rs 10 face value to Rs 5. On the ex-split day, the stock price was around Rs 165.65 apiece.

For example, you held 500 shares of Adani Ports before the ex-slit. Once the ratio of 1:5 is applied, your 500 shares are split by 5 times (500 X 5), which will take your shareholding to 2,500 shares in Adani Ports.

Adjusted to stock splits, 2,500 shares were valued at Rs 4,14,125 on the ex-split day. Assuming you have not modified your portfolio since then, then your corpus fund will come to around Rs 31,42,500 (2500 X Rs 1,256 an intraday high touched on March 14, 2024).

But Adani Ports touched its all-time high of Rs 1,356.55 on March 4, 2024. If you held till this level, then your gains were around Rs 33,91,250 from September 23, 2010, to March 4, 2024.

On March 14, 2024, Adani Ports share price traded at Rs 1,256 apiece, up by 3.84% on BSE with a market cap of Rs 2,71,497.06 crore. The stock was currently near its intraday high of Rs 1,257 apiece.

Adani Ports just like other Adani stocks and the broader market itself has seen a significant correction in recent days due to sharp selling in midcaps and small-caps as sentiments were overall turned bearish. This brings in the opportunity for buy-on-dips to fetch higher gains in Adani Ports.

As of now, Adani Ports’ share is still up by 120% from its 52-week low of Rs 571.35 apiece. Its 5-year gain is around 242% on BSE.

Why Buy Adani Ports Share?

Firstly, it’s noteworthy that Adani Ports were among the few Adani Group stocks that were unfazed by the bombshell Hindenburg report that was released in late January of 2023. Overall, in 2023, the stock has zoomed by 24.53% on BSE compared to double-digit declines of some of the major Adani shares due to the Hindenburg saga.

Secondly, Adani Ports’ financial books look robust with strong order inflows.

In its latest research report, Motilal Oswal said, “APSEZ clocked a cargo volume of 382 MMT in 11 months of FY24, recording 24% YoY growth on a YTD basis. With a monthly cargo run rate of ~35 MMT (APSEZ handled 35.4 MMT of cargo in Feb’24), we expect APSEZ to surpass even its revised cargo volume guidance of 400 MMT during FY24. The logistics business continues to do well, with YTD rail volume up 21% YoY in FY24.”

It further explained that APSEZ has an extensive pan-India presence, strong pricing power and a high proportion of sticky cargo (>50%). With robust volume driven by consistent market share gains, APSEZ recorded its strongest 9M performance in FY24, with the highest-ever revenue, EBITDA, and cargo volumes to date.

Also, Motilal pointed out that APSEZ is continuously investing in building infrastructure for its logistics business, which is expected to improve long-term cash flows and earnings for the company.

Accordingly, Motilal Oswal said, “APSEZ is well on track to cross its revised cargo volume guidance of 400 MMT during FY24. It continues to gain market share while generating strong cash flows and maintaining its leverage position, with a net debt-to-EBITDA ratio of 2.5x as of Dec’23. We increase our volume estimates by 2-3% for FY24-26. Over FY24-26, we expect APSEZ to register 10% volume growth and a CAGR of 15%/16%/18% in revenue/EBITDA/PAT. With consistent outperformance in cargo volumes, we increase the target multiple to 17x

EV/EBITDA (earlier 16x) and reiterate our BUY rating with a revised TP of INR1,600.”

Meanwhile, HSBC has also maintained a buy on Adani Ports but raised its target price to Rs 1560 per share. The outlook is positive.

Recently, Kotak Institutional Equities in its research note also said, “We increase our port EBITDA/PAT by 4%/5% owing to equal effects of higher volumes (Mundra, Dhamra) and EBITDA margin (Mundra). We increase our FV by a higher 8% on higher growth assumptions for Kattupalli (on track to achieve clearances for two more berths) and Dhamra (uptick in mining volumes), and roll forward. Our DCF-based FV implies ~16X two-year forward EV/EBITDA.” Kotak sets a target price of Rs 1,520 from earlier Rs 1,400.

During Q3FY24, Adani Ports’ revenue grew by 45% Y-o-Y to Rs 6,920 crore, PAT increased by 65% Y-o-Y to Rs 2,208 crore, and EBITDA jumped 59% Y-o-Y to Rs 4,293 crore. In the quarter, APSEZ achieved its highest-ever quarterly cargo volume of 108.6 MMT.

During the 11 months of FY24, the company has already handled 382 MMT of cargo, implying that it is well on track to surpass the 400 MMT mark before the end of the current financial year. The company achieved the milestone of surpassing the 350 MMT cargo volume mark at its domestic ports in 318 days.

Lastly, Adani Ports is also among dividend-paying shipping stock. As per Trendlyne data, since September 2008, the company delivered up to 20 dividends. In the last 12 months, the company paid Rs 5 dividend per share.