Israel-Hamas war impact? Adani Ports share price down about 7% in October so far

Adani Ports share price declined 0.26 per cent to close at ₹769.10 on BSE on Wednesday, October 25, following the company's announcement of incorporating its wholly owned subsidiary firm Udanvat Leasing IFSC Limited. 

"Adani Ports and Special Economic Zone has incorporated a wholly owned subsidiary company Udanvat Leasing IFSC Limited on October 23, 2023," said Adani Port and Special Economic Zone in an exchange filing on October 23.

"The cost of acquisition is ₹2,50,00,000 divided into 25,00,000 equity shares of ₹10 each. Udanvat is incorporated with an object to carry out business activity of owning and leasing of Aircraft," said Adani Ports.

Adani Ports share price today opened at ₹771.25 against the previous close of ₹771.10 and rose about 1.6 per cent to the level of ₹783.30. The stock, however, erased gains and traded flat around 12:30 pm.

Adani Ports share price trend

Adani Ports share price gained about 15 per cent in the last six months against a nearly 7 per cent gain in the equity benchmark Sensex.

The stock hit its 52-week low of ₹394.95 on February 3 this year. At the last traded price, the stock is up about 95 per cent from its 52-week low.

On a monthly scale, the stock is down about 6.7 per cent in October so far. The stock has been in the green since March this year on a monthly basis and if it ends in the red in October, it will have broken its seven-month winning streak.

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Why is the stock down in October?

Experts believe the Israel-Hamas war is one of the biggest reasons behind the stock's poor show in October so far. Adani Ports owns Haifa Port in northern Israel.

On October 7, the Israel-Hamas conflict started. The stock is down about 7 per cent since that day.

Meanwhile, Adani Ports said in an exchange filing on October 9 that it is closely watching the crisis in Israel and is ready with a business continuity plan.

"We are closely monitoring the action on the ground which is concentrated in South Israel, whereas Haifa port is situated in the North. We have taken measures to ensure the safety of our employees and all of them are safe. We remain fully alert and prepared with a business continuity plan that will enable us to respond effectively to any eventuality," the company said in an exchange filing.

"The overall contribution of Haifa in Adani Ports' numbers is relatively small at 3 per cent of the total cargo volume. For the current financial year (Apr 23-Mar 24), we have guided for Haifa Cargo volumes range of 10-12 MMT and Adani Ports' total cargo volume guidance of 370-390 MMT. In the initial six months (Apr-Sep 23), Adani Ports' total cargo volume was about 203 MMT, of which the Haifa share is nearly 6 MMT. We stay confident of Adani Ports' business performance,” the company said.

Also Read: Adani Ports receives offers of $213 million for bond buyback; to accept $195 million offer

Experts positive about Adani Ports

Experts believe the recent fall in the stock is more sentimental in nature and the impact of the Israel-Hamas war will be limited on the stock.

Parth Shah, a research analyst at StoxBox said Adani Ports is under pressure this month, mainly on account of investor fears that the ongoing Israel-Hamas conflict would dent the performance of the company as it has $1.2 billion investment in the Port of Haifa located in Israel.

However, Shah believes the market reaction seems to be overdone as the company’s Haifa Port is located in north Israel while the current war is concentrated in south Israel. Moreover, Haifa Port contributes less than 5 per cent to the overall cargo of the company, further indicating that the recent fall is more sentimental in nature.

"Considering that the business is economic-centric in nature, has high entry barriers and possesses long-duration concessions, we remain constructive on the company from a long-term perspective," said Shah.

Harshal Mehta, an equity research analyst at ICICI Securities said Adani ports has managed 203 MMT of port cargo volumes in the first half of the current financial year (H1FY24) and is expected to reach 400+ MMT in FY24.

He underscored that Haifa port is expected to contribute 12-14 MMT to the port cargo volumes. So, on a port volume basis, Haifa will reach 3.5 per cent of the overall volumes. Port volumes, if impacted, due to the war will be less than 1 per cent of the overall volumes.

Mehta added that on the revenues front, core port revenues comprise 65 per cent of the revenues (the rest contributed by Harbour services, Logistics vertical and Others).

"Hence, Haifa's impact on stock price should be a very limited one, assuming the war remains confined between the two territories," said Mehta.

Recently, global brokerage firm CLSA said the recent fall in the stock due to the Israel-Hamas war gives an even greater opportunity to purchase this important asset with long-term concessions across India. The global brokerage has a ‘buy’ rating on the stock with a price target of ₹878.

“We believe due to the Israel conflict potentially hurting its newly-acquired Haifa port. Adani Ports acquired the Haifa Port Co. (HPC) in Israel’s privatisation efforts via a 70:30 JV with Gadot Group at an EV of US$530m. HPC is a profit-making port focused on bulk and containers, with scope for operating leverage by reducing employee costs, per its retirement plan, and long-term real estate development upside. HPC accounted for 3 per cent of Adani Ports' 1HFY24 volume and it expects a pay-back of 4/6 years under base case/worst case scenarios," CLSA said in its report.

Motilal Oswal Financial Services also has a ‘buy’ rating on the stock with a target price of ₹1,010.

"We initiate coverage on the stock with a buy rating and a target price of ₹1,010 (premised on 15x FY25E EV/EBITDA, in line with its historical average of 14 times). The company’s: (a) market leadership in the ports segment, (b) focus on value-added areas such as logistics, and (c) focus on strategic acquisitions place it in a sweet spot," said Motilal Oswal.

Also Read: Adani Ports share price rises 3% as brokerages expect up to 28% upside potential

Technical view on Adani Ports

Santosh Meena, Head of Research at Swastika Investmart pointed out that Adani Ports shares are currently experiencing a breakdown of a rising channel formation, leading to downward pressure on the stock's performance.

The stock has fallen below its 100-day moving average (DMA), and there is a potential for a downward move toward the 200-DMA, currently situated at around the ₹725 mark.

"It's worth noting that the 200-DMA aligns with multiple support levels, suggesting the possibility of renewed buying interest around this price point," said Meena.

"To gain significant strength, the stock needs to surpass the ₹820 level, where a cluster of the 20-DMA and 50-DMA is located. This level acts as a significant resistance point that must be overcome for the stock to exhibit meaningful bullish momentum," said Meena.

Foram Chheda, CMT, and the founder of ChartAnalytics.co.in, pointed out that after reaching a peak of around ₹889-890, Adani Ports experienced a corrective decline. The Relative Strength Index (RSI), a leading indicator, showed a negative divergence with a lower top, indicating weakness.

Chheda added that the stock fell below the 50-day and 100-day moving averages, signalling a short-term downtrend. However, it's approaching a crucial support level near ₹760, formerly a resistance in June. The decrease in price, coupled with lower volume, suggests potential stability.

"It's prudent to await a rebound from the support level before considering buying. For now, it's advisable to observe and wait for price stability before making any investment decisions," said Chheda.

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