Why Adani Power Share Price is Falling

After rising throughout 2022, share price of Adani Power has been taken down to the cleaners for the past few sessions.

Since 22 August, when it hit a high of Rs 433 on the BSE, it has fallen over 15% and currently trades at Rs 374.

To put things into context, Adani Power is among the fastest growing stocks of 2022. It has delivered over 300% gains in just eight months. These gains came at a time when the entire Indian stock market was falling.

Select bluechip stocks fell in the range of 40-45% during the turmoil while fundamentally strong stocks were also beaten down.

Adani Power share price was rising for this reason. But now, due to several reasons, the share price has come down from its yearly high level.

Let's take a look at the probable reasons why this could have happened...

#1 Reports of elevated leverage

Unless you're living under a rock, you know by now that the Adani group has pursued aggressive expansion plans recently.

Just last week, the group made headlines by announcing that it will acquire substantial stake in the NDTV group through a subsidiary company.

Adani group is investing in growth sectors, growing organically and inorganically. All this expansion appetite is largely debt-funded.

There's a report circulating that the group is saddled with debt and its overleveraged status could bring down most of the stocks.

Ever since this report was released, all Adani group stocks are falling, and Adani Power is no exception.

The report states that these debt-funded growth plans could turn into a massive debt trap. It could harm the credit quality of the debt instrument within the group.

Take a look at the table below which shows Adani Power's debt over the years.

Adani Power - Debt Metrics

Rs m, consolidated	2018	2019	2020	2021	2022
Total Debt	528,348.1	549,797.0	638,137.6	524,112.7	487,956.8
Interest Coverage Ratio (x)	0.6	0.8	0.6	1.5	2.6
Debt to Equity ratio (x)	59.4	-191.1	-29.9	4.0	2.6
Free Cashflow	-6,446.5	6,342.4	-19,379.1	-7,914.0	48,991.8

Data Source: Ace Equity

As can be seen from the table above, Adani Power has a history of having huge debt on its books.

High debt is a cause of worry for investors. Among other reasons, this is why Co-head of Research at Equitymaster Rahul Shah hasn't recommended any Adani group stock.

#2 Stock put under ASM

Recently, the stock of Adani Power was put in stage four of ASM surveillance by the market regulator.

The ASM is a list of securities monitored for factors like price fluctuation, volatility, volume variance, etc.

When the stock is put under ASM, it usually creates some panic among investors. This is because stocks put in the ASM list serve as a warning about unusual price movement. There are certain trading restrictions on these stocks to put an end to any potential conjecture.

While there's no guarantee that a stock will rise or fall because of coming under the ASM list, this could be a probable cause why Adani Power share price is falling.

How Adani Power has Performed in 2022

Taking into consideration the recent fall, share price of Adani Power has gained 275% in 2022 so far.

Today, it opened the day 3% lower following the massive fall in benchmark indices. However, the stock recovered as the session progressed.

Adani Power has a 52-week high quote of Rs 433 touched earlier this month on 22 August. It has a 52-week low quote of Rs 84.1 touched on 27 August last year.

As of June 2022, promoters of the company hold 74.97% stake with 25.3% of the total equity being pledged. This makes Adani Power a multibagger smallcap stock with high promoter holding.

To know more, check out the latest shareholding pattern of Adani Power.

About Adani Power

Adani Power is a subsidiary of the Indian conglomerate Adani Enterprises. The company is in the business of power generation, accumulation, distribution, and supply of power.

It's India's first company that synchronises supercritical technology.

The company has signed long term power purchase agreements of about 9,153 MW with government of Gujarat, Maharashtra, Haryana, Rajasthan, Karnataka, and Punjab.

To know more about the company, check out Adani Power's fact sheet and quarterly results.

You can also compare Adani Power with its peers.

Adani Power vs Tata Power

Adani Power vs CESC

Also check out the below video where Co-head of Research at Equitymaster Tanushree Banerjee talks about Adani Power and why other power stocks haven't enjoyed the same kind of valuations like Adani Power.

Disclaimer: 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...