Buy Adani Enterprises Ltd For Target Rs.3,433 by Ventura Securities Ltd
Fundraise to ease balance sheet pressure & fuel growth
The INR 25,000 cr fresh equity raise announced by Adani Enterprises Ltd (AEL) is a timely and strategic step to monetise the stock’s strong recovery over the past twoand-a-half years. As the incubator for the Adani Group’s next-generation businesses, AEL continually requires fresh capital to fund its extensive pipeline of capital-intensive ventures—airports, copper, roads, the green hydrogen (GH2) ecosystem, and more (please refer our previous_report). The IRM & mining verticals act as AEL’s primary cash engines. Though they do not materially shape the company’s long-term growth story, they provide stable cash flows at minimal capex, supporting the expansion of newer, capital-intensive businesses. However, given the scale of AEL’s upcoming investments (~7 trillion in 10 years), internal cash flows alone will not suffice. Consequently, AEL will need to tap additional capital (equity or debt) to fund its ambitious capex programme
AEL is currently undertaking an INR 25,000 cr rights issue, priced at INR 1,800 – representing a 25% discount to the CMP of INR 2,399. Given the substantial growth headroom in its current portfolio, we view this offer price attractive and recommend SUBSCRIBE. The promoters are also participating in the issue—signaling confidence— while simultaneously increasing public shareholding and strengthening governance visibility. In addition, between FY27–31, AEL intends to list key businesses—airports (likely in 2027) and Adani New Industries Ltd (ANIL - GH2 ecosystem including solar/WTG, electrolyzer)—mirroring its successful FY16–20 value-unlocking cycle when Adani Total Gas (ATGL), Adani Green Energy (AGEL), and Adani Wilmar (AWL) were taken public. AEL also divested its entire 43.94% stake in AWL for INR 156 bn during the year, deploying the proceeds to meet capital requirements for its incubating businesses.
Over FY25–28E, AEL’s consolidated revenue & EBITDA are projected to grow at a CAGR of 17.4% and 18.7%, reaching INR 1,585 bn & INR 238 bn, respectively, while EBITDA margins are expected to widen by 48bps to 15%. Growth in airports & ANIL, coupled with ramp-up in data centres & copper, is poised to drive stronger financial performance and EBITDA margin expansion in the years ahead. However, net profit is expected to decline at an annual rate of 12.8% to INR 4,702 cr due to an expected increase in depreciation & interest cost. As a result, return ratios – RoE & RoIC – are expected to decline by 935bps to 5.5% & 195bps to 6.6% respectively by FY28E. While the elevated capex and increased leverage may compress return ratios over 3-5 years, we anticipate a strong rebound over the longer term as high-margin verticals such as airports, GH2, data centres & copper scale up and contribute more meaningfully to profitability.
AEL is setting up a 1 MMTPA PVC facility in Mundra and it is targeted for commissioning by FY29. Additionally, AEL has received creditor approval for its INR 14,535 cr bid to acquire the bankrupt infrastructure group Jaiprakash Associates Ltd (JAL). However, we have excluded both the PVC project and the JAL acquisition from our financial forecasts, as financial disclosures for these verticals are yet to be made available.
Valuation call – At the CMP of INR 2,399, AEL is trading at FY28 EV/EBITDA of 18X. We recommend BUY with a SOTP based price target of INR 3,433 (23.6X FY28 EV/EBITDA), representing an upside of 43.1%.
SMS subject to Disclosures and Disclaimer goo.gl/8bCMyQ
SEBI Registration No.: INH000001634
