Buy Adani Enterprises shares, says Jefferies

Foreign brokerage Jefferies has initiated coverage on Adani Enterprises Ltd. with a ‘Buy’ rating and a target of Rs 3,800, as it expects Ebitda for the Adani group flagship to double from FY23 to FY26 and grow over three times by FY23. Jefferies said Adani Enterprises’ balance sheet is well-placed to take up rise in capex, as it sees contribution from new businesses namely Airport and Green Hydrogen to rise to 85 per cent of consolidated Ebitda by FY28 from 40 per cent in FY23. Adani Enterprises, Jefferies said, is riding on the strong industry tailwinds in New Energy, sustainability, infra, airports, digitisation and import substitution in India.

Jefferies sees value unlocking opportunities in some of the new businesses via demergers over the next decade. It said the recent Supreme Court order has positive outcome on Adani group’s year-long investigation related to short seller report. The foreign brokerage is expecting 47 per cent growth in Airport Ebitda compounded annually over FY24-FY28E. Adani Airports has a cumulative 23 per cent share in pax traffic in India, with 8 airports under control, including under commissioning Navi Mumbai Airport.

Jefferies sees a similar 50 per cent Ebitda CAGR for ANIL (new Industries/green energy biz). The foreign brokerage noted that Adani group is known for its scale and execution of infrastructure projects and that Adani Enterprises is now building a large scale vertically integrated GH2 ecosystem and is slated to benefit from the green energy/ sustainability push by the government.

Jefferies said Adani Enterprises’ balance sheet is well-placed to take up rise in capex. It is building in $5-7 billion capex annually over FY24-28. This is against its expectation of $3-3.5 billion capex in FY24, as the Adani flagship builds out new business.

Jefferies said net debt to Ebitda for Adani Enterprises came down to 3.2 times in FY23 from an average 6 times in FY14-18, and that its balance sheet is ripe to undertake capex again