Adani Ports falls 3% as Axis Capital downgrades stock

Adani Ports and Special Economic Zone shares fell 2.7 percent intraday Tuesday after brokerage house Axis Capital downgraded the rating on stock to hold from buy citing expensive acquisition of Adani Agri Logistics from Adani Enterprises. It was in addition to 8 percent correction seen in the previous session.

The stock was quoting at Rs 319.05, down Rs 5.80, or 1.79 percent on the BSE, at 11:02 hours IST.

Axis Capital said the acquisition of Adani Agro Logistics at an enterprise value of Rs 1,662 crore is expensive, due to which the free cash flow generation has taken the backseat. "Acquisition is at premium valuations."

Higher payout to Adani Enterprises & high share pledge raised investor concerns, said the research house which expects Adani Ports to reduce exposure to group entities.

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It has set a price target for the stock at Rs 356 apiece (implying nearly 10 percent potential upside) and said the near-term upside looks capped after this buyout.

On February 25, Citi also downgraded Adani Ports to neutral from buy, saying that the acquisition appears expensive and raised questions on the capital allocation of the company.

The brokerage believed that the acquisition might lead to a resurgence of investor concern around related-party transactions. Citi cut its target price to Rs 385 from Rs 500 per share.

Japanese brokerage firm Nomura is neutral on the stock with a price target at Rs 380, implying 17 percent potential upside from February 25's levels.

"Adani Agri Logistics (AAAL) acquisition revived concerns on related-party dealings. We view AAAL's equity valuation of Rs 946 crore as expensive," it said, adding the impact on overall valuation at Rs 1.50-1.80 per share is modest.

Implied level of cost of equity at 10 percent seems substantially low, it said. Hence, it believes 12 percent cost of equity is a more suitable assumption.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol advises users to check with certified experts before taking any investment decisions. First Published on Feb 26, 2019 11:37 am