Ventura Recommends BUY on Adani Enterprise Ltd: Upside Potential Amid Robust Fundamentals
AEL is one of India’s largest listed incubators which have conceived, grown, matured and demerged many successful businesses (including Adani Ports & SEZ, Adani Total Gas, Adani Energy Solutions, Adani Green Energy, Adani Power and Adani Wilmar. The company is currently incubating airports, manufacturing of solar modules & WTG, green hydrogen, road construction, data center, copper, etc
Adani Enterprises Ltd (AEL), the incubator of many successful industry leading businesses, is ambitiously diversifying into green H2 and its ecosystem to drive future growth. Despite stock volatility following US Department of Justice (US-DOJ) notice in Nov 2024, AEL has demonstrated resilience, supported by robust fundamentals and operational strength in FY25, including:
• Received Letter of Award for Electrolyser manufacturing facility for 101.5 MW p.a. under SIGHT scheme from SECI. Cumulative capacity awarded 300 MW p.a
• RLMM listing done for 5.2 MW WTG & 3.0 MW WTG using ANIL blades. Final Type Certificate for 3.3 MW WTG received and applied for RLMM listing
• Navi Mumbai International Airport welcomes first IAF aircraft. During the quarter 14 new routes, 12 new airlines and 26 new flights added.
• Chennai Data Center uptime continues 100%. Noida and Hyderabad Phase I Data Center crossed 95% completion.
• Provisional COD received for first BOT Project “Panagarh-Palsit” in the state of West-Bengal and for HAM Project “Kodad Khammam” in the state of Telangana. Ganga Expressway construction crosses half-way mark.
Over FY24-27E, AEL’s consolidated revenue, EBITDA, and net earnings are expected to grow at a CAGR of 17.5%, 37.5%, and 45.8%, reaching INR 1,56,343 cr, INR 28,563 cr, and INR 9,245 cr, respectively. EBITDA and net margins are projected to expand by 647bps
to 18.3% and 255bps to 5.9% respectively. Strong growth in airports and solar/WTG businesses and revenue contribution from copper are expected to enhance financial performance and profit margins. As a result, return ratios – RoE and RoIC – are expected to improve by 563bps to 14.5% and 99bps to 11.3% respectively. AEL is targeting INR 6.5-7.0 trillion in capex over the next decade for its expansion into airports, data centers, copper and green H2 & its ecosystem. This is expected to be primarily funded through debt, leading to an increase in net debt-to-equity and net debt-to-EBITDA from 1.2x/1.7x in FY24 to 1.8x/2.2x by FY27E. As part of fund raise, the company raised INR 4,200 cr in Q2FY25 through a QIP with strong participation from both international and domestic investors and INR 800 cr through its first-ever public issuance of NCDs, marking the first such public issuance by a non-NBFC private corporate in the last decade. Additionally, the airport business secured INR 1,950 cr, and the road business raised INR 1,124 cr, both through NCD issuances.
Valuation call – We recommend BUY with our SOTP-based price target of INR 3,801 (21.2X FY27 EV/EBITDA). At the CMP of INR 2,409 (15.1X FY27 EV/EBITDA), the stock represents 57.8% upside over a 24-month period. Even if we don’t consider the value of green H2 vertical, the SOTP value comes at INR 3,029, indicating a potential upside of 25.7%. Recent volatility in the share price has led to significant increase in the stock beta. As volatility subside beta should decrease consequently alleviating the valuations.
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