Adani group stocks are keeping the Indian share markets busy these days.
Take any stock from the ten listed ones (including NDTV, ACC, and Ambuja) and look at that company's chart over a two-week period. You'll be surprised to see how some of the biggest wealth creators of Adani group have fallen back to earth.
Company Name | Date | Price | Date | Price | Change (%) |
---|---|---|---|---|---|
Adani Total Gas Ltd. | 06-Feb-2023 | 1,544.7 | 24-Jan-2023 | 3,885.5 | -60% |
Adani Enterprises Ltd. | 06-Feb-2023 | 1,533.9 | 24-Jan-2023 | 3,442.8 | -55% |
Adani Transmission Ltd. | 06-Feb-2023 | 1,261.5 | 24-Jan-2023 | 2,756.2 | -54% |
Adani Green Energy Ltd. | 06-Feb-2023 | 887.6 | 24-Jan-2023 | 1,913.6 | -54% |
Adani Wilmar Ltd. | 06-Feb-2023 | 380.4 | 24-Jan-2023 | 573.2 | -34% |
Adani Power Ltd. | 06-Feb-2023 | 182.5 | 24-Jan-2023 | 274.8 | -34% |
Adani Ports | 06-Feb-2023 | 515.4 | 24-Jan-2023 | 760.9 | -32% |
New Delhi Television Ltd. | 06-Feb-2023 | 201.0 | 24-Jan-2023 | 284.0 | -29% |
Ambuja Cements Ltd. | 06-Feb-2023 | 370.1 | 24-Jan-2023 | 498.6 | -26% |
ACC Ltd. | 06-Feb-2023 | 1,936.0 | 24-Jan-2023 | 2,336.2 | -17% |
Before this massive crash, which wiped off more than US$100 billion (bn) from Adani group's marketcap, the performance of group companies was something like this.
Company | 1 year (%) | 2 years (%) | 3 years (%) | 5 years (%) |
---|---|---|---|---|
Adani Enterprises Ltd. | 101% | 570% | 1398% | 1580% |
Adani Ports and Special Economic Zone Ltd. | 8% | 45% | 98% | 70% |
Adani Power Ltd. | 167% | 437% | 333% | 633% |
Adani Transmission Ltd. | 36% | 485% | 727% | 1155% |
Adani Total Gas | 120% | 931% | 2116% | - |
Adani Wilmar | 43% | - | - | - |
Adani Green Energy | 4% | 86% | 907% | - |
Spectacular, isn't it? You must be bamboozled to see the kind of gains they delivered in past two years before the report was released.
All Adani group companies were in focus back then for obvious reasons. Massive gains in such quick period will obviously attract the media and investors.
This time around, Adani stocks are in news for the opposite reasons and have fallen out of investors' favor.
Much has been written and said about Adani group companies over the past two weeks Read this to get the entire gist.
Yesterday, the group's flagship firm Adani Enterprises received another blow when valuation guru Aswath Damodaran pegged the company's valuation at Rs 947.79 per share.
Adani Enterprises currently trades at Rs 1,500 levels, so Damodaran's valuation calculations predict another 40% drop in the share price.
Please note in his calculations, Damodaran has not factored in the damage that might have been done to the company's reputation and long-term value by the Hindenburg episode.
When it comes to valuations, it's hard to not mention Professor Aswath Damodaran, a foremost authority on valuations.
Damodaran is a disciple of intrinsic value investing. He is currently a professor of finance at NYU's Stern School of Business.
Damodaran is widely respected as one of the foremost experts on corporate valuation. He has published several books on equity valuation and corporate finance.
The valuation guru's 'true value' for Adani Enterprises
In his blog published over the weekend, Damodaran said Adani Enterprises could be valued at Rs 945.
Arriving at a fair value of only Rs 947 apiece, he factored in upbeat assumptions on revenue growth and operating margins of Adani Enterprises.
His fair value suggests another 38% drop from its share price.
In his evaluation, Damodaran analysed the market's valuation of Adani Enterprises by examining the multiples investors have been willing to pay based on various financial metrics, such as earnings, revenues, EBITDA, and book value.
He noted a remarkable increase in the last two years, with the stock's PE ratio soaring from a modest 15 times earnings between 2016-21 to an impressive 214 times earnings.
Similarly, the enterprise value skyrocketed from approximately 12 times EBITDA during 2016-21 to a staggering 53 times EBITDA.
Damodaran's notes also shared other insights on the Adani-Hindenburg tussle.
On Hindenburg's allegations, Damodaran said that the US-based short-seller's allegations on the Adani group rest on a mix of serious contentions, circumstantial evidence, and questionable claims.
Here's what he wrote in his blog titled Musings on Markets...
While we already knew that Adani Enterprises and most other group stocks were overvalued, Damodaran believes that Hindenburg could be "indulging in hyperbole" when it described Adani to be "the biggest con" in history.
Damodaran also pointed out a flaw in global economic system, saying that ESG (environment, social and governance) in the global economic setting is far more deserving of the 'biggest con' label than Gautam Adani.
Here's what Aditya Vora, research analyst at Hidden Treasure had to say about Adani Enterprises and other Adani group stocks:
Adani Group Companies |
Marketcap* | Debt:Equity | P/B Value |
EV/EBITDA | Comments on Valuations (P/B, EV/EBITDA) |
---|---|---|---|---|---|
Adani Enterprise | 2,300 | 1.3 | 7 | 40 | Outrageous |
Adani Transmission | 1,737 | 3.1 | 16 | 39 | Outrageous |
Adani Total Gas | 1,882 | 0.5 | 72 | 235 | Insane |
Adani Green Energy | 1,645 | 7.7 | 32 | 51 | Outrageous |
Adani Power | 780 | 1.9 | 3.3 | 6.1 | Fair |
Adani Ports | 1,070 | 1 | 2.4 | 12.5 | Fair |
Adani Wilmar | 547 | 0.4 | 7.2 | 30.5 | Very High |
Ambuja Cements | 725 | 0 | 2.8 | 14.5 | Fair |
Total | 13,249 |
Read his entire editorial here to know more: The Only Adani Stock Worth Looking At.
Meanwhile, Co-head of Research at Equitymaster Rahul Shah has this to say:
Check out the entire editorial here: The Adani Group Stocks You Should Add to Your Watchlist.
The company has an interesting history which you probably didn't know...
Year 1994
Back in 1994, the company came out with its maiden IPO in the name of Adani Exports.
According to the company's website, Adani Enterprises (erstwhile Adani Exports) listed on BSE and NSE at Rs 150 per share with face value of Rs 10.
In its initial public offering (IPO), the company offered around 12.50 lakh equity shares aggregating Rs 187.5 million (m). The IPO was subscribed by more than 25 times.
Now let's assume that an investor was allotted 50 shares in the IPO.
Year 1996
Later in 1996, the company announced a bonus issue in the ratio of 1:1.
So the investor holding 50 shares now has 100 shares. (Bonus 1:1 means 50 becomes 100)
Year 1999
Three years later, Adani Enterprises again issued bonus shares in the ratio of 1:1.
So the investor holding 100 shares now has 200 shares. (Bonus 1:1 means 100 becomes 200)
Interestingly, the company did see a phenomenal growth story in the initial years. By the time it announced bonus shares in 1999, the company's stock had risen 8-fold.
During this period, the company expanded its trade basket and became the top net foreign exchange earner of India.
The company achieved all time high turnover of Rs 28.5 billion (bn) in fiscal 2000 as against Rs 21.9 bn during fiscal 1999.
Year 2004
In 2004, there was a stock split and changed its face value from Rs 10 to Rs 1. This means the investor, which had 200 shares, now has 2,000.
Year 2009
2009 marked Adani Enterprises' third bonus issue. The company offered bonus shares in the ratio of 1:1.
As a result, the investor holding 2,000 shares now has 4,000 shares in total.
Year 2015
This was an interesting year for the Adani group. In 2015, Adani Enterprises announced demerger of its ports, power, and transmission business, and this is how other group companies were listed.
Here's the quantity of shares that Adani Enterprises shareholders were offered:
Adani Ports - For every 100 shares of Adani Enterprises, shareholders received 141 shares of Adani Ports.
Adani Power - For every 100 shares of Adani Enterprises, shareholders received 185 shares of Adani Power.
Adani Transmission - For every 100 shares of Adani Enterprises, shareholders received 100 shares of Adani Transmission.
The investor in our assumption had 4,000 shares in total. So here's how his portfolio would look like now after he received shares of other group companies.
Adani Enterprises - 4,000 shares
Adani Ports - 5,640 shares
Adani Power - 7,400 shares
Adani Transmission - 4,000 shares
Year 2018
Two more companies were listed in 2018 - Adani Green Energy and Adani Gas.
For every 1,000 shares of Adani Enterprises, investors were allotted 761 fully paid shares of Adani Green Energy.
The investor in our story by this proportion received 3,044 shares of Adani Green Energy.
In late 2018, Adani Gas was listed on the exchanges. As part of the listing process, Adani Gas allotted equity shares to existing shareholders of Adani Enterprises at 1:1 ratio.
So now the investor would also have 4,000 shares of Adani Gas, which now goes by the name of Adani Total Gas, post its partnership with French major TOTAL.
As we said, the Adani-Hindenburg story is going to keep the markets busy for a long time to come.
In the meantime, you could quickly refer to both fundamentals and valuations of Adani group stocks on Equitymaster's Indian stock screener.
We recently added a new section in the screener where you can view the fundamentals of companies within a business group in one screen. This should help you get a better grip on fundamentals, business group wise.
Dig deeper into top Adani group stocks now.
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Details of our SEBI Research Analyst registration are mentioned on our website - www.equitymaster.comDisclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...
Yash Vora is a financial writer with the Microcap Millionaires team at Equitymaster. He has followed the stock markets right from his early college days. So, Yash has a keen eye for the big market movers. His clear and crisp writeups offer sharp insights on market moving stocks, fund flows, economic data and IPOs. When not looking at stocks, Yash loves a game of table tennis or chess.
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1 Responses to "What Should You Think About Aswath Damodaran's View on Adani Enterprises?"
Sanjeev Kumar Singh
Feb 7, 2023In my view Mr Damodaran has been very liberal and optimistic. In my view the price should be around Rs 250 to 300 post 25% margin of safety.