Jefferies starts ‘buy’ call on Adani Ent; Moody’s changes ratings on 4 group firms to 'stable'

Adani group's flagship company Adani Enterprises Ltd (AEL) saw a modest increase in share price today after prominent global brokerage Jefferies initiated a "Buy" call on the stock, saying AEL's EBITDA is expected to double from FY23 to FY26 and will grow more than 3x by FY28.

Adani Enterprises stock opened a gap up today and surged to an intra-day high of ₹3,253.95 on the BSE. The stock is currently trading below a 52-week high level of ₹3,275 touched on February 7, 2024. Jefferies’ price target for the stock remains ₹3,800, a 19% upside from the last closing price.

Jefferies, in its latest note on Adani Enterprises, says with new businesses of the airport and green hydrogen, it expects EBITDA to grow 3x over FY24-FY28. "AEL is riding on the strong industry tailwinds in new energy or sustainability, airports, infra, digitalisation, and import substitution in India. Initiate coverage at BUY with PT of ₹3,800 (SOTP-based)."

Jefferies says the recent SC order had a “positive outcome” for Adani's year-long probe related to the short-seller report. "While the SEBI is still completing its investigation, the order did suggest no further escalation of the case," says Jefferies.

"We build the contribution of new biz scaling from 40% of consol EBITDA (FY23) to ~75% by FY26 and 85% by FY28. At CMP, AEL is trading at 28x/22x FY25/FY26E EV/EBITDA. We value AEL on an SOTP basis at ₹3,800, valuing all biz on EV/EBITDA."

The brokerage says AEL has incubated "industry-leading (self-sustaining) businesses in ports, power, CGD, transmission, and FMCG and listed them, including by way of demergers. It also acknowledges AEL’s new businesses in airports, new energy or green hydrogen (GH2), data centres, roads, and copper, some of which will also likely find their way to demergers (value unlocking) over the next decade.

Adani Enterprises has reported a 130% surge in its net profit in the third quarter of the fiscal year. The Adani group stocks have seen a significant rally since the SC in January backed the market regulator's clean chit to the Adani group in the Hindenburg case. The rise in stock price propelled Gautam Adani's net worth to $100 billion club again, recovering losses after an unprecedented rout following Hindenburg's adverse report.

Moody's changes ratings on 4 Adani firms

Ratings agency Moody's Investor Services has changed its outlook on four Adani group companies to "stable" from "negative" earlier while affirming the ratings of eight companies. The ratings agency has changed its outlook on Adani Green Energy, Adani Green Energy Restricted Group 1, Adani Transmission Step-On, and Adani Electricity Mumbai, to 'stable' from 'negative'. The outlook was affirmed to be "stable" for Adani Energy Solutions Restricted Group 1, Adani Ports and Special Economic Zone, Adani International Container Terminal and Adani Green Energy Restricted Group 2.

"The affirmation of AGEL's senior secured bond rating reflects its predictable cash flow backed by long-term power purchase agreements (PPAs); its large and diversified portfolio of solar and wind generation projects; and its high financial leverage," says Moody's.

The change in outlook to "stable" from "negative" considers AGEL's "improved financial flexibility" and "reduced refinancing risk" after the company announced plans to repay the $750 million senior notes from financial reserves and equity proceeds from the sale of a stake in a joint venture to TotalEnergies SE (A1 stable) and a preferential allotment to the Adani family, it adds.