Adani Ports and Special Economic Zone Ltd. witnessed a selloff in its stock price following the threat of disruption at Haifa port due to the ongoing war between Israel and militant group Hamas. However, this presents an excellent buying opportunity according to CLSA, given the potential for an even better return on investment. The research firm notes that the war could potentially harm the company’s newly acquired Haifa port in Israel. The stock prices tumbled 5% intraday on Monday, October 11, 2021, after the war broke out over the weekend. Fortunately, the stock recovered some of the losses on Tuesday.
CLSA believes that the 5% decline for a port that contributes only 1.3% under the sum-of-the-parts valuation is a buying opportunity for this strategic asset, with long duration concessions. The Haifa port accounted for 3% of Adani Port’s volumes in H1 FY24. While there may be minimal disruptions, CLSA expects the location of Haifa in the north of Israel as compared to the Gaza Strip in the south to be an advantage. Adani Ports had acquired the Haifa Port as part of the country’s privatisation efforts in a 70:30 joint venture with Gadot Group. The acquisition took place at a transaction value of $1.13 billion and an enterprise value of $530 million.
According to CLSA, the deal structuring offers significant value accretion opportunities for Adani Ports shareholders, given the concession period of 32 years. It is also a key component in the India-Middle East-Europe economic corridor launched during the G20 summit held in India. As a strategic port, it offers an innovative multi-modal network backed by the U.S. and the EU, according to CLSA. Adani Ports trades at a discount to Container Corp., and its EV-Ebitda multiple is trading below its average of 13.5 times, according to the brokerage. CLSA has maintained its ‘buy’ rating on the stock with a price target of Rs 878 apiece, presenting a potential upside of 11% to the October 9th closing price.