Why Adani Transmission Share Price is Falling

After a heavy selloff on the weekend, the Indian share market bounced back in style, registering a sizeable gain on Monday.

Strong buying in heavyweights amid weakness in the US dollar and looming economic slowdown concerns raised by the US Fed in a recent FOMC meeting lifted Sensex by 710 points or 1.2%.

As a result, Sensex ended at 61,764 points, the highest level since its close at 61,806 points on 19 December 2022. The Nifty index closed at 18,264 points, up 195 points or 1.1% on the day.

Amid this bullish sentiment, shares of the Adani Group slumped on Monday, dragged down by losses in Adani Transmission.

The stock of Adani transmission ended 5% lower on Monday, locked in at a lower circuit.

Let's find out why the company's shares are falling.

MSCI's free float cut

In a press release on Friday, the index provider MSCI (Morgan Stanley Capital International), an investment research firm that provides stock indices, portfolio risk and performance analytics, announced a reduction in the free float of the Adani Transmission in its index review this month.

MSCI has cut the free float of Adani Transmission to 10%, down from 25%.

According to MSCI, a security's free float, or foreign inclusion factor (FIF), is the proportion of outstanding shares available for purchase by international investors in the public stock market.

It also reduced the free float of Adani Total Gas to 14% from 25%.

With the weightage reduction to half, analysts expect the company to see the outflow of passive trackers, triggering a selloff in the stock.

The decision to mark down the free float of two Adani companies follows MSCI's February announcement to postpone the implementation of these updates, initially due in March. The index provider cited potential replicability issues as the reason for the delay.

All applicable changes to the MSCI May 2023 Index Review will be made by the close of business on 31 May 2023. The results of the review will be announced on 11 May 2023.

Long term outlook

In the March 2023 quarter, the company achieved an impressive collection efficiency of 100.6% and experienced significant growth in its consumer base, expanding by nearly 2%. These achievements were due to effective revenue management strategies and a strong operational framework.

Moving forward, Adani Transmission is determined to continue providing reliable and efficient power transmission services by prioritising customer satisfaction and addressing their evolving needs.

The company is committed to maintaining a healthy financial position and ensuring a steady cash flow.

Furthermore, Adani Transmission plans to leverage cutting-edge technology, foster continuous innovation, and adopt a customer-centric approach to enhance its operational efficiency and streamline processes.

By doing so, the company aims to deliver reliable and sustainable power transmission solutions, making valuable contributions to the growth and development of the nation's energy infrastructure.

In addition, according to media reports, Adani Electricity Mumbai, a wholly owned subsidiary of Adani Transmission, is considering a bond buyback worth up to $100 million.

This strategic decision is intended to optimize the company's capital structure and effectively manage its debt portfolio, ultimately boosting investor confidence.

How Adani Transmission shares have performed recently

In the past one year, shares of Adani Transmission have eroded 66%. Even if we take 2023's performance, the stock shows loss of 64%.

But in the past five days, Adani Transmission is down 10.5%. If we take performance of past months, Adani Transmission is down 9%.

Adani Transmission has a 52-week high of Rs 4,236.7 touched on 16 September 2022 and a 52-week low of Rs 631.5 touched on 1 March 2023.

It is currently trading at a PE (Price to Earnings) multiple of 772.7x, while PB (Price to Book) ratio stands at 10.4x.

About Adani Transmission

Adani Transmission is the transmission and distribution business arm of the Adani group, one of India's largest business conglomerates.

It's the country's largest private transmission company with a cumulative transmission network of 17,200 ckt km, out of which 12,350 ckt km is operational and 4,850 ckt km is at various stages of construction.

The company also operates a distribution business serving about 3 m plus customers in Mumbai.

With India's energy requirement set to quadruple in coming years, the company is fully geared to create a strong and reliable power transmission network and work actively towards serving retail customers and achieving 'Power for All' by 2022.

For more, check out Adani Transmission financial factsheet and its latest quarterly results.

Also check out our detailed power sector report to find the best power stocks in India.

You can also compare Adani Transmission with its peers.

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