In recent trading sessions, the shares of Adani Ports and Special Economic Zone Ltd (APSEZ) experienced a notable decline following an announcement by Norway’s central bank, Norges Bank. The bank, which manages the Sovereign Wealth Fund, the world’s largest sovereign wealth fund, made a decision to blacklist Adani Group firm along with two other entities from its portfolio, citing ethical concerns.
The decision to exclude Adani Ports from Norges Bank’s government pension fund was attributed to the risk associated with the company potentially contributing to ‘serious violation of individuals’ rights in the situation of war or conflict.’ This move by Norges Bank had an immediate impact on APSEZ shares, causing them to drop by over 1.8% during early trading on Friday.
Currently, the company’s total market capitalisation stands at approximately Rs 2.88 lakh crore, with the stock closing at Rs 1,344.75 in the previous trading session. Adani Ports had been under observation since March 2022, and the decision to blacklist the company was based on a recommendation from the Council on Ethics dated November 21, 2023, according to Norges Bank.
The repercussions of Norges Bank’s decision have led investors and analysts to closely monitor the movement of Adani Ports shares. Technical analysis indicates that the recent decline in APSEZ shares found support around its 100-day moving average (DMA), set at Rs 1,250. Analysts suggest that as long as this support level is defended, the price action is anticipated to scale higher levels in the following sessions. The next major resistance level is projected to occur around Rs 1,400, with further upside potential expected if this mark is crossed.
Despite the short-term impact of Norges Bank’s blacklisting, fundamental analysis of Adani Ports paints a positive picture of the company’s financial performance. In the quarter ended March 2024, APSEZ reported a consolidated net profit of Rs 2,040 crore, marking a significant growth of 76.2% on a year-on-year (YoY) basis. Revenue from operations also witnessed a healthy increase of 19% YoY, reaching Rs 6,896.5 crore.
At the operational level, Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) for the quarter increased by 24% to Rs 4,045 crore, with the EBITDA margin improving to 58.6% from 56.4%. Additionally, the company has achieved incremental cargo volumes of 100 million metric tonnes (MMT) in less than two years, positioning itself well to achieve a target of 500 MMT of cargo volumes by 2025.
Analysts from various financial institutions have reiterated their bullish outlook on Adani Ports, despite the recent setback. BNP Paribas highlighted the company’s focus on transforming into an integrated logistics player, including strategic acquisitions such as Gopalpur, which was factored into their target price of Rs 1,562. JM Financial also expressed confidence in APSEZ’s growth trajectory, tweaking their EPS estimates to reflect the strong performance in Q4FY24 and arriving at a target price of Rs 1,660.
However, analysts also pointed out key investment risks associated with Adani Ports, including slowing EXIM trade volumes and concerns regarding the leverage metrics of the Adani Group. Despite these risks, the company remains committed to its growth strategy, particularly focusing on the logistics business.
In conclusion, while the blacklisting by Norges Bank has led to short-term volatility in Adani Ports shares, the company’s robust financial performance and strategic initiatives continue to garner positive attention from investors and analysts. As the company navigates through challenges and capitalizes on growth opportunities, stakeholders remain optimistic about the long-term prospects of Adani Ports and its contribution to India’s maritime and logistics sector.
