Adani stock that may deliver solid returns despite weak Q2

The firm reported a 31.38 per cent year-on-year (YoY) drop in consolidated net profit at Rs 951.70 crore in the September quarter, compared with Rs 1,387 crore in the corresponding quarter last year, which was quite lower than an ET NOW poll estimate of Rs 1,375 crore. While consolidated sales for the quarter rose 21.70 per cent to Rs 3,532.40 crore, it fell short of ET NOW’s poll estimate of Rs 3,877 crore.

Nomura said the results were below its estimates, led by a miss in Ebitda margin, while sales were in line with its estimates.

Adani Ports’ management maintained its FY22 cargo volume guidance at 350 million tonnes, including 39 million tonnes for the Gangavaram port. For the first half of the financial year, it recorded a cargo volume of 144 million tonnes. Nearly 70 per cent of Adani Ports’ revenues comes from its port operations, followed by harbour (11 per cent), logistics (7 per cent) and others.

A recovery is expected in the second half amid a pick-up in coal volumes that suffered a setback in the September quarter due to elevated coal prices; market share gain at the Kattupalli port from Chennai port and a pick-up in container volumes.

Volumes were impacted in the September quarter due to weaker coal imports and lower operational levels in two mega power plants located at Mundra, which the management expects to revive in the December quarter. “This has impacted volumes but the impact on profitability was relatively lower. Nevertheless, with a special interim power tariff agreed upon with discoms (distribution companies), coal volumes will revive from November, in our view. Longer-term, addition of Bhushan Power as a customer at Dhamra provides further volume visibility. Also, ADSEZ has taken a decision not to allow cargo at Mundra from Afghanistan, Pakistan and Iran following a drugs seizure case. The volume impact of this decision is limited,” Nomura said while suggesting a target of Rs 915 on the stock

ICICIdirect said Adani Ports, with its strong free cash flow (FCF) generating assets, diversified cargo mix and overall leadership in Indian ports, continues to build its strength in other verticals such as rail logistics and warehousing, thereby building a complete integrated logistics solution for Exim and domestic customers.

The brokerage has a target of Rs 900 as it sees Dedicated Freight Corridor (DFC) connectivity to Mundra to normalise in three to four quarters. This is expected to provide faster port evacuation, quicker transit time for logistics verticals. Adani Ports is also developing eight freight terminals along the DFC route, thereby providing greater hinterland reach to its customers, it said. “We remain confident of Adani Ports’ strong growth trajectory led by macro factors, market share gains and attractive acquisitions. We have still not baked in the GPL and Sarguja acquisitions (more than Rs 100 per share addition to SoTP) pending NCLT approval. We maintain a target of Rs 875,” Edelweiss said.

Kotak Institutional Equities has a lower target for Adani Ports, at Rs 730. It said it likes the steps taken by the company for growing the ports and logistics business from a medium-term perspective but would consider better price-points to advise entering the stock.

The scrip closed at Rs 704.50 on BSE on Monday.