Is the share price of Adani green Energy justified?
Article published as on Monday, 9th November, 2020
at 7:00 a.m.
One day I was casually watching business channel
and saw Adani green energy in the news, I knew the share was on a trip to moon
having given multibagger returns already.
I was drawn toward it, what’s in this company that it’s
rising so much?
I had an overview of financials and didn’t find
anything interesting.
Lets start
here I present my case why do I say the price is not justified.
Let’s looks the basic figures.
Share price: 859.95
rupees
EPS: 1.61
(TTM) P/E
ratio: 531.66
Book value: 15.07
P/B ratio: 57.05 times
Market cap
1, 34,497.41 crores
Let’s look at EBITDA
1837 crores of EBITDA
Debt to equity values.
2311 crores of equity
13099 crores of long term debt
Debt equity ratio of 5.67 times
Let’s do DCF
module for fair value.
When I tried to calculate free cash flow, the cash flow
in investing activities is massive and hence the figures are negative and we can’t
do the DCF valuations as of now.
Let’s focus
on other things
Promoter holding.
If we look at annual report of Adani enterprise it shows
that in Adani green promoter holding is 75%.
The impression which the reader will get is that Adani enterprise owns 75% in the company, but that not true at all.
when we check the
details,
Adani enterprise does not even comes in the list of
promoter shareholder of Adani green energy Ltd.
So the rise in share price does not benefits Adani
enterprise shareholder but directly benefits the promoter group.
Last year in June 2019 promoter offered stake at 43
rupees in OFS. To comply with the minimum public shareholding norms and within
17 months the price has multiplied over 20 times.
Potential
earning and profits in next 5/10 years.
I read somewhere that it had bagged some 8 GW
project worth 45000 crore,
The term of project are such that they have agreed
to supply electricity at a tariff rates of 2.92 rupees per unit. Some have even
questioned the viability of such low rates, the reply
"There is enough margin available. Plus we
also have 3-5 years to implement the project. We are quite comfortable with the
tariff as enough margin is available".
Even if we consider best case scenario in growth of
profits... nowhere do I see the earnings justifying a market cap of 1.34 trillion
rupees (134.5 thousand crore)
Also in the past such debt heavy power
infrastructure companies such as Suzlon, Reliance power have failed to
create investor wealth.
So why is
the price what it is?
Well the fundamentals didn’t justified the prices at many instances. Take 1992 Harshad Metha scam for instance. Take 2000 dot com bubble and 2008 real estate bubble.
Take individual stocks like Vakrangee for example which seemed to trade at irrational multiples and eventually the price fell down.
Malpractices such as circular trading, artificially
inflated price can’t be confirmed as I don’t have access to market trade data
of participants.
But the way price is defying fundamentals is
something which needs to be questioned,
Is the price
justified?
Conclusion
The only positive thing for the shareholder who
already hold the shares is that the company can dilute shares and raise huge
capital in turn helping the company reduce debt and aid future growth and
expansion.
Adani green energy reached 10x and 20x in such a
short span of time, but from this point multiplying 10x seems almost impossible.
Investors should definitely avoid Adani green
energy after such long run up, as the valuations don’t really make sense to me.
(If you agree with me or think otherwise comment
down below)
Markets can be irrational in the short term, but in
the long term shares eventually return to their fair value.
Stock name: ADANIGREEN EPS: 1.61 rupees
Stock price: 859.95 Market
cap: 1, 34,497.41 crores
(Disclaimer: my views expressed here are by doing a
basic research of approx. an hour, prima facie the stock looks overvalued and didn’t
seemed a good investment opportunity so I had not done a detailed study)
ConversionConversion EmoticonEmoticon