Adani Ports and its recent rise. Here's why

08 May, 2021

8 min read

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If you have been following the rise of Adani Ports’ stock price in recent weeks, you are probably curious as to what is driving this growth.

A lot of investors have turned their sights to Adani Ports – and even other private ports – amidst this unprecedented growth.

Adani Ports’ stock prices have climbed about 15% on a single day in recent times and its stock price is hovering around the Rs 850 mark.

As a potential investor, the fact that you’re reading this blog is a good indicator of your diligence. You haven’t simply jumped at the prospect of earnings and bought the stock, although it looks pretty hot right now. You’re doing your research and are therefore on the right track. Investors must be sure that an upswing is prompted by concrete factors and not some demand-supply bubble because you don’t want to experience a price correction – or in other words, a price drop – after you have invested. You want to invest if prices have risen with good reason because that means that they are likely to continue their upward trend, rather than reverse it. And you want to know this because your goal is to sell stocks at a substantially higher rate than its buy price.

So is Adani Ports’ stock price rising with good reason?

Let us explore the possible factors that have fuelled the recent surge in Adani Ports’ stock prices.

Acquisition announcement

Acquisitions are always big news for listed companies – it is not at all atypical for the stock price of any company to rise on the heels of an acquisition. We’re watching this phenomenon play out in the case of Adani Ports too, and what is making it more pronounced is the fact that Adani Ports has been on an acquisition spree. The company has made a handful of acquisitions over the last year.

In April this year, Adani Ports acquired 25% stake of Vishwa Samudra Holdings in Krishnapatnam Port for Rs 2,800 crore. This resulted in Adani Ports increasing its existing stake of 75% to the whole 100%in Krishnapatnam Port.

The first month of the new fiscal year also saw Adani Ports 31.5 % stake in Gangavaram port for Rs 1,954 crore. This deal didn’t stop there. A share-swap deal saw Adani Ports acquire a rail logistics company of the same promoters at Rs 4,800 crore and Rs 675 per share.

Business boom

Nothing works for a stock price like growing business volumes. If a company is in the news for growing prospects and growing numbers, a stock price rise is usually the outcome. April 2021 numbers discussed in headlines with regards to Adani Ports are sure to keep investor hopes buoyant. Let’s take a quick look at the highlights of Adani Ports’ cargo volume figures:

2021 cargo volume highlights:

  • 26 MMT in March 2021 alone
  • 41% yoy growth
  • 23% growth as compared to the previous month
  • 73 MMT from January 2021 to March 20201 alone
  • 27% yoy growth

Policy

Thirteen odd months ago, there was also a policy decision that made way for Adani Ports – alongside other private ports – to take their business to the next level. The Major Port Authorities Bill, 2020 was passed in the Lok Sabha in March 2020. The idea of the bill seeks to give more autonomy to major ports and to streamline regulations related to the ports, their operation, and their planning. Going forward there will not be port trusts, but rather a Board of Port Authority for each port. Most importantly one can expect a higher number of public-private partnerships.

Not only that – this policy change has been long in the making and is therefore even bigger news. The bill, if it becomes an act, will replace the Major Port Trusts Act, 1963. Any once-in-half-a-century happening is likely to generate substantial excitement and hope – which are often key ingredients for a stock price increase.

Race-winning

Adani Ports also managed to finally race ahead of Jawaharlal Nehru Port Trust in Navi Mumbai. JNPT had thus maintained the lead, with Adani Ports gaining on it, but not quite taking the lead. In the first quarter 2021, Adani Ports’ Kutch port, Mundra, finally brought home a win for Adani Ports. Of course, news like this creates a lot of excitement among investors and sends stock prices skyrocketing.

Everything looks bright and sunny based on these four fairly good reasons for a stock price increase. However, investors need to consider the future of Adani Ports’ business. Sure, the company might have deep pockets, but new investments might turn out anyway, right? What are the factors that investors should ideally consider before they hit the buy button?

Debt ratio

According to information that researcher Standard & Poor has released, it has been recommended that the Adani group improve its debt ratio. Adani Ports has to – very quickly – shift its ratio of funds from operations to debt. The ratio currently stands at 10.6% but according to S&P this could improve to 15.1% in 2022.

Inorganic growth appetite

Acquisitions do a good job of putting a company in the spotlight and pushing up its stock price. However, the litmus test of the company’s true potential is in its operational growth or inorganic growth. Adani Ports has grown tremendously thanks to the acquisitions made. Now investors must see if a corresponding business boom will follow.

Dividend distributions

Adani paid out a dividend last in March 2020, before any of the acquisitions began. That payout actually falls under 2019, which means the financial year of 2020 saw no dividend payouts.  It remains to be seen whether 2021 will see a dividend payout.

With that clearer picture of the catalysts to the rise in Adani Ports’ stock price, you should be a little more armed to make a sound decision. Don’t take our word for it – or anyone else’s for that matter. Do substantial digging and get hold of company financials for you to observe with your own eyes before you invest.

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