2 min read.Updated: 08 Jul 2021, 11:25 AM ISTLivemint
Adani Group's net debt to equity is 1.9 times versus 3.4 times in 2015 when a material corporate governance issue cropped up. Such instances in the past have been buying opportunities, driven by business strength and the promoter walking the talk, said analysts from Jefferies India
Adani Ports and Special Economic Zone Ltd shares have declined nearly 20% from their 52-week high seen on 9 June on the National Stock Exchange. During this time, the stock has come under pressure as doubts were raised officially about the foreign shareholding of the Adani Group shares.
Last month, The Economic Times had reported that National Securities Depository Ltd (NSDL) froze accounts of three of the foreign investment firms that held Adani Group stocks. Though Adani Ports had said that the three foreign portfolio investor (FPIs) accounts were not frozen, the stock is yet to recover fully.
Analysts reckon that this could be used as a good buying opportunity into the stock. “Group net debt to equity is 1.9 times, versus 3.4 times in 2015 when a material corporate governance issue cropped up. Such instances in the past have been buying opportunities, driven by business strength and the promoter walking the talk," said analysts from Jefferies India Pvt. Ltd in a report on 7 July.
The broker added, “As core port Ebitda growth remains upward of double digits, backed by volumes, and the dust settles around the recent controversy, we think the stock should re-rate back to the average, at least." Ebitda is earnings before interest, tax, depreciation and amortization and a key measure of profitability for companies.
In its financial year 2021 annual report, Adani Ports said it plans to double its cargo volumes to 500 million tonne by 2025. Note that cargo volume stood at 247 million tonne in FY21. “We reported a RoCE of 12% in 2020-21 and intend to enhance RoCE to 20%+ by 2025," said the company. RoCE is short for return on capital employed.
The company’s March quarter results were lower than some analysts’ expectations with year-on-year Ebitda growth of 31% to Rs2287 crore. Revenues grew by almost 24% year-on-year to Rs3608 crore.
Meanwhile, analysts from Nomura Financial Advisory and Securities (India) Pvt. Ltd said in a report on 1 July, “Management has reduced promoter share pledges significantly from the peak levels of FY20 to currently below 10%. Thus, with negligible loans and advances to Group entities and minimal share pledges, we believe Adani Ports is largely insulated from the Group’s performance."
To be sure, investors should note that despite the recent weakness in the shares, the Adani Ports stock has substantially outperformed the broader Nifty 100 index so far this calendar year.