UK’s Investec initiates coverage on Adani Ports, sees up to 23% upside – News Air Insight

UK-based Investec became the latest brokerage to initiate coverage on Adani Ports and Special Economic Zone (ADSEZ) with a buy rating, setting a target price of Rs 1,715, implying 23.5% upside from the previous closing levels.

Adani Ports shares were trading around 2% higher at Rs 1,434.10 on BSE this morning following the coverage initiation.

“We find the current valuation of 12x FY28E EV/EBITDA attractive given ADSEZ’s ability to deliver 13% EBITDA CAGR over FY25–30E from existing ports,” Investec said in its initiation note. The brokerage valued the stock at 16 times enterprise value to EBITDA for September 2027 to arrive at the target price.

Investec’s discounted cash flow analysis of existing ports and businesses alone justifies the current market price, while the company’s strong balance sheet offers significant optionality for future growth, the brokerage added.

The firm expects Adani Ports to generate operating cash flow exceeding Rs 1 trillion over FY25-30, more than sufficient to cover projected capital expenditure of Rs 700 billion and drive continued deleveraging. Net gearing has already moderated from 1.5x a decade ago to 0.6x as of March 2025, and is projected to become negligible by FY30.

“Following the recent acquisition-led volume growth, the next leg of growth should come from scaling existing ports (rev CAGR of 15% over FY25–30E),” Investec said. The brokerage projects a revenue CAGR of 15% over the period, driven by organic expansion.From a single port in FY10, Adani Ports now operates 17 ports and terminals across India and overseas. The company is integrating its port network with a rapidly scaling logistics business to deliver end-to-end solutions and unlock network effects, while also building a substantial marine services portfolio through acquisitions.After 5-7 years of acquisition-driven domestic volume growth, future expansion now hinges on scaling existing ports, anchored by Vizhinjam for transshipment Phase II, Dhamra for coastal coal, and Mundra for containers and crude. International port volumes are expected to expand more than fivefold over FY25-30 following the NQXT acquisition.

Efficiency gains and higher utilization have lifted return on invested capital (RoIC) at domestic ports above 20% pre-tax, while international ports’ RoIC is expected to improve gradually as these assets mature, according to Investec.

The brokerage noted that while logistics RoIC may remain below 10% through FY30, as some investments are in early stages, “these investments should not be viewed in isolation as they enhance ADSEZ’s competitive position.” Management aims to capture a larger share of customers’ logistics spend, unlock network effects, and leverage Adani Group volumes through technology deployment.

Investec highlighted that Adani Ports has funded its capital expenditure and acquisitions through internal accruals since FY17, demonstrating strong cash generation capabilities that should continue driving deleveraging and provide optionality to win new port concessions.