NEW DELHI: Shares of Adani Enterprises it finally broke its losing streak by closing nearly two percent higher on Thursday after the company posted a consolidated net profit of Rs 820 crore in the quarter-ending December, improving from a loss of Rs 11.63 crore a year ago. Operations revenue for the flagship company of Adani Group increased by 42% to Rs 26,612.23 crore.
Ebitda (earnings before interest, taxes, depreciation and amortization) more than doubled (+101%) to Rs 1,968 crore from Rs 977 crore in the year-ago quarter.
Shares of the company jumped 10% to an intraday high of Rs 1,889, rebounding 17% from the BSE’s daily low on Tuesday after the company announced its October-December quarter earnings. The company finally finished the day up 1.8% at Rs 1,750, although the stock had touched an intraday low of Rs 1,611.30 after the credit rating company Moody’s revised the rating outlook on four companies in the conglomerate to ‘negative’ from ‘stable’.
“These rating actions follow the significant and rapid decline in market share values of Adani Group companies following the recent release of a short seller report highlighting governance concerns at the Group,” Moody’s said.
Moody’s decision to downgrade some of its group companies comes after financial index provider MSCI cut the free float status of Adani Enterprises, Adani Total Gas, Adani Transmission and ACC.
Earlier, S&P Global Ratings also downgraded its outlook on the Adani Group to negative due to concerns about potential governance risks and funding challenges.
MSCI’s decision to reduce the weights of four of the group companies in its standard index triggered a sell-off in shares last week, as reports from the group lowering its growth targets to 15-20% from 40% have also dampened sentiment among investors.
Shares of the Adani group (including Ambuja, ACC and NDTV) have lost around Rs 10.2 lakh crore or about 53% of their combined market capitalization since 24 January.
Adani Gas, Adani Green Energy, Adani Transmission, Adani Power and NDTC ended the day down 5%. Ambuja Cements finished down 1.96%, while ACC finished up 0.41%.
Adani Enterprises, Adani Transmission, Adani Total Gas and ACC could see outflows of Rs 3,450 crore by the end of February when the MSCI index adjustments take effect. Adani Green, Adani Transmission and Adani Total Gas have dropped 77%, 73% and 70% respectively since January 24, while NDTV, Adani Power, Adani Enterprises and Adani Wilmar have dropped between 53% and 65% respectively during the same period.
“The market capitalization of Adani group companies continued to decline following the group’s revision of its revenue growth target to 15-20% for the upcoming fiscal year, which represents a significant decline from its previous target of 40% Deepak Jasani, Head of Retail Research at HDFC Securities, said.
With stocks in freefall, what should investors do?
Richa Agarwal Editor and Research Analyst at EquityMaster does not recommend buying the decline in Adani Group shares because the company does not have a good reputation when it comes to corporate governance.
“While the markets may have overlooked it at times, I haven’t. I could convert if there is a drastic change in promoter and management. But for now it seems unlikely. Secondly, despite the correction, Adani Group’s share valuations they continue make no sense to me given the fundamentals they have. Most of these stocks are still riding the narratives in my view while the business remains overleveraged,” said Agarwal.
According to Arihant Capital Market, Adani Enterprises is seeing a pullback rally in a downtrend and is likely to attract selling pressure. The brokerage advised investors to keep the short position with a stop loss of Rs 2,250 and target levels of Rs 1,400-1,000 in the next two weeks.
Several domestic mutual fund stock schemes have also shuffled theirs Adani strain holdings since the start of the January 25 sell-off triggered by the Hindenburg Research report.
Data analyzed by the Economic Times shows that Aditya Birla Sun Life, Axis, HDFC, SBI and Tata MF bought ACC while DSP, HSBC, Nippon and JM Mutual Fund sold the shares. HSBC and JM Mutual Fund exited the stock entirely. No new purchases have been made for Adani Enterprises. DSP, Kotak, PGIM, SBI MF equity schemes cut the stakes.
The big fund companies, however, lapped up Adani Ports as the stock fell 19.5% in the last week of January. Aditya Birla, DSP, HDFC, Kotak, Mirae, SBI, Sundaram and Tata bought short while Axis, IDFC and Union MF trimmed their positions.
NJ India Mutual Fund sold its stakes in both Adani Green and Adani Transmission as the investment firms were split over Ambuja Cements. Some sold the stock, while others bought the 19.6% decline.
Some experts believe that Adani shares shouldn’t be bought right now, while some think some of the group’s companies are worth buying if there is a downturn.
Rating still too high?
“If the P/E ratio of several Adani shares is anything to go by, it is not recommended that investors buy Adani stock at this time. The current P/E ratio of all Adani companies is very high, indicating that not the best time to buy Adani shares,” said Nikhil Varma, Managing Partner, MVAC.
Put simply, P/E Ratio refers to a company’s price per share relative to earnings per share. The lower the P/E ratio, the better it is for investors to buy the stock.
“While the value of Adani shares is near a 52-week low, the volatility of the shares is still quite high and could continue to be so in the near term. So, I would not recommend investing in the stock on a short-term basis unless you want to gamble on speculation. For a long-term investor, one has to be selective and pick the right stocks from Adani Group’s stock bouquet,” said Ankit Jain, partner at Ved Jain and Associates.
Jain believes that some of the Adani companies hold good assets such as seaports, airports, SEZs, power plants, cement which have good potential for stable cash flow generation over long term. “At current valuations, some of these companies look attractive. However, one must be prepared for short-term downsides even in cases where the volatility of other companies will also impact their prices,” Jain said.
Valuation guru and NYU Stern professor Aswath Damodaran says he won’t be tempted to buy shares in Adani group companies even if the group’s stock drops further. In his blog ‘Musing on Markets’, Damodaran said: “I likened buying shares in a family group company to getting married, and then having all your in-laws move into the bedroom with you. Investors in family group companies, no matter how honorable the family, are buying cross-shareholdings, opacity, and the possibility of wealth transfers between family group companies. These risks increase, if family group companies are built around political connections , where you are a political electoral defeat by your greatest competitive advantage.”
A calculation detailed in his blog shows that the fair value of the stock should be around Rs 945 per share disregarding any of Hindenburg’s allegations of fraud and malfeasance.
‘Buy Adani shares witha solid capital base
“The time is right to buy Adani shares of companies that have strong asset base like Ports, Gas, SEZ etc. Recent indicators point to solid fundamentals for these companies where they are paying down debts and acquiring more assets. Shares have dropped enough and it is now set to go higher, but only over the longer term. Short-term investors should be wary,” said Sameer Jain, Managing Partner, PSL Advocates & Solicitors.
Adani Group on Monday engaged accounting firm Grant Thornton to conduct independent audits of some of its companies to discredit short seller Hindenburg Research’s claims. This is Adani Group’s first major defense effort in the wake of the Hindenburg report, which accused it of misuse of offshore tax havens and manipulation of securities.
He also tried to reassure investors, saying he had strong cash flows and that his business plans were fully funded.
Ebitda (earnings before interest, taxes, depreciation and amortization) more than doubled (+101%) to Rs 1,968 crore from Rs 977 crore in the year-ago quarter.
Shares of the company jumped 10% to an intraday high of Rs 1,889, rebounding 17% from the BSE’s daily low on Tuesday after the company announced its October-December quarter earnings. The company finally finished the day up 1.8% at Rs 1,750, although the stock had touched an intraday low of Rs 1,611.30 after the credit rating company Moody’s revised the rating outlook on four companies in the conglomerate to ‘negative’ from ‘stable’.
“These rating actions follow the significant and rapid decline in market share values of Adani Group companies following the recent release of a short seller report highlighting governance concerns at the Group,” Moody’s said.
Moody’s decision to downgrade some of its group companies comes after financial index provider MSCI cut the free float status of Adani Enterprises, Adani Total Gas, Adani Transmission and ACC.
Earlier, S&P Global Ratings also downgraded its outlook on the Adani Group to negative due to concerns about potential governance risks and funding challenges.
MSCI’s decision to reduce the weights of four of the group companies in its standard index triggered a sell-off in shares last week, as reports from the group lowering its growth targets to 15-20% from 40% have also dampened sentiment among investors.
Shares of the Adani group (including Ambuja, ACC and NDTV) have lost around Rs 10.2 lakh crore or about 53% of their combined market capitalization since 24 January.
Adani Gas, Adani Green Energy, Adani Transmission, Adani Power and NDTC ended the day down 5%. Ambuja Cements finished down 1.96%, while ACC finished up 0.41%.
Adani Enterprises, Adani Transmission, Adani Total Gas and ACC could see outflows of Rs 3,450 crore by the end of February when the MSCI index adjustments take effect. Adani Green, Adani Transmission and Adani Total Gas have dropped 77%, 73% and 70% respectively since January 24, while NDTV, Adani Power, Adani Enterprises and Adani Wilmar have dropped between 53% and 65% respectively during the same period.
“The market capitalization of Adani group companies continued to decline following the group’s revision of its revenue growth target to 15-20% for the upcoming fiscal year, which represents a significant decline from its previous target of 40% Deepak Jasani, Head of Retail Research at HDFC Securities, said.
With stocks in freefall, what should investors do?
Richa Agarwal Editor and Research Analyst at EquityMaster does not recommend buying the decline in Adani Group shares because the company does not have a good reputation when it comes to corporate governance.
“While the markets may have overlooked it at times, I haven’t. I could convert if there is a drastic change in promoter and management. But for now it seems unlikely. Secondly, despite the correction, Adani Group’s share valuations they continue make no sense to me given the fundamentals they have. Most of these stocks are still riding the narratives in my view while the business remains overleveraged,” said Agarwal.
According to Arihant Capital Market, Adani Enterprises is seeing a pullback rally in a downtrend and is likely to attract selling pressure. The brokerage advised investors to keep the short position with a stop loss of Rs 2,250 and target levels of Rs 1,400-1,000 in the next two weeks.
Several domestic mutual fund stock schemes have also shuffled theirs Adani strain holdings since the start of the January 25 sell-off triggered by the Hindenburg Research report.
Data analyzed by the Economic Times shows that Aditya Birla Sun Life, Axis, HDFC, SBI and Tata MF bought ACC while DSP, HSBC, Nippon and JM Mutual Fund sold the shares. HSBC and JM Mutual Fund exited the stock entirely. No new purchases have been made for Adani Enterprises. DSP, Kotak, PGIM, SBI MF equity schemes cut the stakes.
The big fund companies, however, lapped up Adani Ports as the stock fell 19.5% in the last week of January. Aditya Birla, DSP, HDFC, Kotak, Mirae, SBI, Sundaram and Tata bought short while Axis, IDFC and Union MF trimmed their positions.
NJ India Mutual Fund sold its stakes in both Adani Green and Adani Transmission as the investment firms were split over Ambuja Cements. Some sold the stock, while others bought the 19.6% decline.
Some experts believe that Adani shares shouldn’t be bought right now, while some think some of the group’s companies are worth buying if there is a downturn.
Rating still too high?
“If the P/E ratio of several Adani shares is anything to go by, it is not recommended that investors buy Adani stock at this time. The current P/E ratio of all Adani companies is very high, indicating that not the best time to buy Adani shares,” said Nikhil Varma, Managing Partner, MVAC.
Put simply, P/E Ratio refers to a company’s price per share relative to earnings per share. The lower the P/E ratio, the better it is for investors to buy the stock.
“While the value of Adani shares is near a 52-week low, the volatility of the shares is still quite high and could continue to be so in the near term. So, I would not recommend investing in the stock on a short-term basis unless you want to gamble on speculation. For a long-term investor, one has to be selective and pick the right stocks from Adani Group’s stock bouquet,” said Ankit Jain, partner at Ved Jain and Associates.
Jain believes that some of the Adani companies hold good assets such as seaports, airports, SEZs, power plants, cement which have good potential for stable cash flow generation over long term. “At current valuations, some of these companies look attractive. However, one must be prepared for short-term downsides even in cases where the volatility of other companies will also impact their prices,” Jain said.
Valuation guru and NYU Stern professor Aswath Damodaran says he won’t be tempted to buy shares in Adani group companies even if the group’s stock drops further. In his blog ‘Musing on Markets’, Damodaran said: “I likened buying shares in a family group company to getting married, and then having all your in-laws move into the bedroom with you. Investors in family group companies, no matter how honorable the family, are buying cross-shareholdings, opacity, and the possibility of wealth transfers between family group companies. These risks increase, if family group companies are built around political connections , where you are a political electoral defeat by your greatest competitive advantage.”
A calculation detailed in his blog shows that the fair value of the stock should be around Rs 945 per share disregarding any of Hindenburg’s allegations of fraud and malfeasance.
‘Buy Adani shares witha solid capital base
“The time is right to buy Adani shares of companies that have strong asset base like Ports, Gas, SEZ etc. Recent indicators point to solid fundamentals for these companies where they are paying down debts and acquiring more assets. Shares have dropped enough and it is now set to go higher, but only over the longer term. Short-term investors should be wary,” said Sameer Jain, Managing Partner, PSL Advocates & Solicitors.
Adani Group on Monday engaged accounting firm Grant Thornton to conduct independent audits of some of its companies to discredit short seller Hindenburg Research’s claims. This is Adani Group’s first major defense effort in the wake of the Hindenburg report, which accused it of misuse of offshore tax havens and manipulation of securities.
He also tried to reassure investors, saying he had strong cash flows and that his business plans were fully funded.
