Shares of Adani Enterprises Ltd (AEL) will be in focus on Wednesday after global brokerage firm Jefferies initiated coverage with a 'Buy' rating on the counter, considering the company's strong business prospects. It has also assigned a target price of ₹3,800, implying a further upside of 20% from the current market levels. The stock settled 0.32% higher at ₹3,180 on Tuesday. AEL shares are up 9% so far this year.
Betting big on the flagship company of the Adani Group, Jefferies said that Adani Enterprises' businesses will likely emerge as industry leaders. With new businesses of airport and green hydrogen, the brokerage expects the consolidated operating profit of AEL to double in FY26 and then grow by 3 times by FY28.
Adani Enterprises has incubated multiple businesses in ports, power, city gas distribution, transmission, and FMCG over the past decade, Jefferies wrote in its report, adding that the conglomerate's new businesses — Green Hydrogen, Airports, Data Center, Roads, Copper — will emerge as industry leaders going ahead.
"We believe that the new businesses under Adani Enterprises will emerge as industry leaders and that AEL will be key beneficiaries," it noted.
The global broking firm also sees potential for value unlocking in some of the businesses through demergers over the next decade.
The brokerage report highlighted that Adani Airports has a cumulative 23% share in pax traffic in India, with eight airports under control, including under commissioning Navi Mumbai Airport (NMIAL). Airport is an attractive monopolistic business and Jefferies sees a 47% operating profit of the business compounded annually over FY24 to FY28.
The Adani Group flagship is now building a large-scale vertically integrated GH2 (green hydrogen) ecosystem and is slated to benefit from the green energy and sustainability push by the government. "With from production slated to start by FY27, this business will be a 'leading' value driver for the stock," Jefferies noted.
Balance sheet well-placed to take up rise in capex
Jefferies is building in $5-7 billion in capital expenditure annually over FY24 to FY28 as the company builds out new businesses. The net debt-to-Ebitda for Adani Enterprises came down to 3.2 times in FY23, from an average of over 6 times in FY14 to FY18, the brokerage said.
"While net debt/Ebitda may again touch 6 times in the near-term, we believe fund-raising opportunities at the business level may partly assuage it," it said.
Regulatory overhang largely behind
While the Securities and Exchange Board of India's (SEBI) probe regarding US-based short seller Hindenburg Research allegations is ongoing, the Supreme Court's order that there is no apparent regulatory failure attributable to SEBI had a positive outcome on the Adani Group stocks and also suggested no further escalation of the case.
Key risks, as per the brokerage, include delay in project execution and re-emergence of leverage issues.
'Adani too big to ignore'
Recently, another brokerage firm called Cantor Fitzgerald expected Adani Enterprises shares to rise 50%, saying that India's path to self-reliance runs through the Adani Group. The brokerage had also initiated coverage on the stock with an 'Overweight' call and a target of ₹4,368.
"We believe that Adani Enterprises is at the core of everything India wants to accomplish," it had written in its note on January 29 this year.
The note stated that the current valuation of AEL doesn't reflect all the parts. Calling Adani Enterprises a "publicly-trading incubator," Cantor Fitzgerald said that this approach is most prudent as many of the current business segments will likely be demerged going forward.
As per Cantor, the lack of analyst coverage on Adani Enterprises has served as a hindrance to investor education for all Adani-named businesses. "We believe that much of what the investor community knows about Adani has come from a short report published in early 2023," it had said.
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