InCred Equities downgrades Adani Ports stock to a 'reduce' on rich valuation

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₹1,329 apiece, primarily due to the steep valuation of the stock.In a report on June 17, InCred Equities pointed out that Adani Ports stock trades at 18.2 times FY25F EV/EBITDA versus six-year average one-year forward EV/EBITDA of 14.1 times.The brokerage firm cut its EBITDA estimates for FY25/26F by 3 per cent each but maintained its target price of ₹1,329. It said its target price implies 15 times FY26F EV/EBITDA.EV/EBITDA (enterprise value to earnings before interest, taxes, depreciation, and amortisation) is a financial metric used to evaluate the value of a company.

This ratio is often used to compare the value of similar companies in the same industry, indicating whether a company is overvalued or undervalued relative to its peers.InCred expects Adani Ports' EBITDA to rise 14 per cent annually over FY24-26F.InCred expects Adani Ports' cargo to post an 8.5 per cent CAGR over FY24-26F."Our growth estimate may seem at odds with that over FY20-24 (17.1 per cent CAGR). However, excluding acquisitions over FY21-24, volume CAGR was 7.7 per cent.

For Coal, we estimate 12 per cent CAGR (39mt) over FY24-26F from 158mt in FY24, above our 6.2 per cent per annum estimated growth for the sector, partly driven by a further ramp-up of Adani Power and Tata Power plants. For container, we estimate a 10 per cent CAGR versus a 7 per cent CAGR for the sector," said InCred.InCred pointed out that despite the heavy capital expenditure (capex), Adani Ports' balance sheet remains healthy."Over FY22-24, the capex of ₹46,500 crore (including ₹27,600 crore of acquisitions) and ₹4,200 crore of dividends were funded by ₹28,100 crore cash profit, a ₹10,000 crore rise in net debt, ₹4,100 crore reduction in net working capital or NWC and ₹8,300