Investing In Infrastructure And Airports Will Shape A Promising Future

Key Takeaways

• Planned investments in core infrastructure aim to dramatically boost future earnings and profitability driven by growth in new industries and airports.
  
• Strategic reinvestment of proceeds from the Adani Wilmar transaction could enhance earnings and net margins through high-return projects.
  
• Substantial mark-to-market adjustments and timing delays in projects could impact profitability, while currency volatility and stake reductions may affect financial stability and liquidity.

Catalysts

Operates as a conglomerate company in India and internationally.

• Adani Enterprises plans to invest up to ₹70,000 crores in its core infrastructure businesses, increasing potential EBITDA by ₹11,000 crores and cash after tax by roughly ₹5,000 crores, pointing towards significant future earnings growth.
  
• The company's emerging core infra businesses, like Adani New Industries and airports, have shown robust results with significant income and EBITDA increases, suggesting strong revenue and profit growth potential in these sectors.
  
• The Adani Wilmar transaction is expected to yield post-tax equity proceeds of about ₹14,200 crores, which will be reinvested in high-return projects, enhancing overall earnings and improving net margins.
  
• Adani Airports is expanding its operations by adding new routes and airlines, and Navi Mumbai Airport is on track for completion, which could contribute to increased passenger volumes and revenue.
  
• The mining services business has shown increased dispatch volume and revenue, highlighting its growth trajectory, which is likely to significantly impact overall revenue and profitability.

Adani Enterprises Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Adani Enterprises's revenue will grow by 15.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.6% today to 15.3% in 3 years time.
• Analysts expect earnings to reach ₹237.0 billion (and earnings per share of ₹214.93) by about May 2028, up from ₹35.8 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 30.3x on those 2028 earnings, down from 74.1x today. This future PE is greater than the current PE for the IN Trade Distributors industry at 29.3x.
• Analysts expect the number of shares outstanding to grow by 1.25% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 15.89%, as per the Simply Wall St company report.

Adani Enterprises Future Earnings Per Share Growth

Risks

• The company has substantial exposure to noncash, nonpayable mark-to-market adjustments due to shareholder loans in U.S. dollars to its mining subsidiaries, significantly inflating finance costs, which could impact net margins and reported earnings.
  
• There is a timing delay in major CapEx projects, such as the green hydrogen ecosystem and the PVC project, resulting in potential deferred revenue and impacting short-term profitability and cash flow.
  
• The commercial mining segment is facing large PBIT losses, partly due to noncash adjustments, which could affect its earnings stability and investor confidence in its future financial performance.
  
• There are concerns about the currency volatility of the Indian Rupee against the U.S. Dollar, potentially affecting the company's external debt servicing costs and impacting net earnings and financial stability.
  
• The sale and reduction of stake in Adani Wilmar JV, though strategically beneficial, reduces the company’s current cash after tax contributions, potentially impacting short-term net income and overall financial liquidity.

Valuation

• The analysts have a consensus price target of ₹3855.0 for Adani Enterprises based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹4710.0, and the most bearish reporting a price target of just ₹3000.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹1543.8 billion, earnings will come to ₹237.0 billion, and it would be trading on a PE ratio of 30.3x, assuming you use a discount rate of 15.9%.
• Given the current share price of ₹2297.7, the analyst price target of ₹3855.0 is 40.4% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.