Adani Enterprises An Attractive Play On Capex Theme, Says Jefferies; Starts At Buy

Jefferies said Adani Enterprises Ltd. (AEL) is an attractive play on capital expenditure cycle theme and initiated coverage on the stock with Buy rating.

The brokerage has a base case target price of 3,800 rupees per share on AEL. The stock closed at 3,178.85 rupees on the BSE in Mumbai trading today.

AEL is the flagship company of Adani Group and has, since inception, incubated industry-leading (self-sustaining) businesses in ports, power, city gas distribution, transmission, and FMCG and listed them, including by way of demergers, Jefferies said in an investor note.

The Indian conglomerate is building new businesses in airports, new energy/green hydrogen, data center, roads, and copper, some of which will also likely find their way to demergers (value unlocking) over the next decade, it added.

The brokerage said AEL’s net debt/EBITDA came down to 3.2x in FY23 from an average of over 6x in FY14-FY18, and its balance sheet is ripe to undertake the capex again. It estimates capex of $5 billion-$7 billion annually over FY24-FY28 versus $3 billion-$3.5 billion FY24E.

“While net debt/EBITDA may again touch 6x in near term, we believe fund-raising opportunities at the business level may partly assuage it,” Jefferies said.

The brokerage also said the recent Supreme Court order had positive outcome regarding Adani Group's year-long investigation related to a short-seller report. While the Securities and Exchange Board of India (SEBI) is still completing its investigation, the order did suggest no further escalation of the case, it noted.

“AEL is riding on the strong Industry tailwinds in new energy/sustainability, airports, infra, digitalization, and import substitution in India,” Equity Analyst Prateek Kumar said in the note. “We expect AEL's EBITDA to double from FY23 to FY26 and grow over 3x by FY28.”

Jefferies has a target price of 5,000 rupees on the stock, based on its upside scenario. The assumptions consider revenue/ EBITDA CAGR at 33%/50% over FY23-FY26.

Based on the downside scenario assumptions, the brokerage has a target price of 2,100 rupees on the stock.

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