Why Adani Enterprises Share Price is Falling

Editor's note: Adani group stocks are the biggest movers in the stock market today. Most Adani group stocks have witnessed a steep selloff.

The selloff comes after Bloomberg reported a US activist firm Hindenburg Research LLC taking a short position on the group stocks.

Reportedly, Hindenburg has accused Adani group of market manipulation and accounting fraud. At the time of posting this, the Adani Group had yet to respond to these allegations.

Note that this selloff comes at a time when the group's flagship firm Adani Enterprises has planned India's biggest every follow-on public offer (FPO).

What's more, the group has big IPOs coming up in the next few years. Adani Group's Chief Financial Officer recently stated that five of its subsidiaries will make market debuts between 2026 and 2028.

These allegations are not the only reasons dragging Adani Enterprises shares lower. There could be other reasons too.

We recently wrote about those reasons and explained in detail why Adani Enterprises was falling.

Continue reading...

Why Adani Enterprises is Falling

Despite all the market volatility, the overall trend of Adani group stocks has remained upward.

In 2022, Adani group stocks were the biggest gainers.

Often touted as proxies to India's growth story, they had a stellar run in 2022 with all companies delivering positive returns.

Even if you take the share price performance of companies post the Covid crash, several Adani companies will emerge at the top of the list.

However, their share price movements have been known to be volatile, with fluctuations often driven by announcements of new projects, changes in regulations and policies, and overall market sentiment.

One such company which has shown a downtrend of late is the group's flagship firm Adani Enterprises.

Adani Enterprises share price has fallen around 15% in the past one month.

Why is Adani Enterprises share price falling?

In the last week of November 2022, the incubator company of the Adani group revealed that it plans to raise Rs 200 billion (bn) via a follow-on public offer (FPO).

Now, there were speculations that the FPO may happen as soon as January 2023.

The Adani group put all the speculation to rest yesterday and announced opening and closing dates of the FPO along with price band.

Here are the key details about Adani Enterprises' mega FPO:

The flagship firm of Adani group is planning to raise Rs 200 bn in what will be India's biggest FPO.

The company will be selling shares in a price band of Rs 3,112 to Rs 3,276 per share, according to the exchange filing. The price band is set at 10-15% discount to the closing price as on 18 January 2023.

The offer will open for subscription on 27 January 2023 and close on 31 January 2023. The company will issue fresh shares on a partly paid basis under a 100% book-built offer.

Anchor investor can bid starting 25 January 2023.

The minimum bid lot in FPO is 4 shares, and in the multiples of 4 shares thereafter. Shares to the successful applicants would be credited to their accounts by 7 February 2023 and the shares would be available for trading from 8 February 2023, according to the documents filed.

When a company raises fresh equity capital, it typically does so by issuing new shares. The issuance of new shares dilutes the ownership stakes of existing shareholders, which can lead to a decrease in the value of the company's shares.

With its current marketcap, Adani Enterprises could see a dilution of around 3.5-4% of its equity. This could be one reason why the stock has come under pressure recently.

Additionally, the issuance of new shares increases the total number of shares outstanding, which can result in a decrease in the company's earnings per share (EPS).

A decrease in EPS may lead to a fall in the share price, as investors typically value a company based on its earnings power.

In summary, the dilution of existing shareholders' ownership stake, and the decrease in EPS can all contribute to a fall in share price following the infusion of fresh equity capital.

Once the company successfully raises funds via FPO, it will use it to repay debt and thus, bring down its debt to equity ratio. This is a big positive for Adani Enterprises as the company along with entire group has come under the scanner many times owing to its high debt.

Valuations and higher interest rates remain a concern

After years of easy money policies and low interest rates, inflation has started to rise. The US Fed has now embarked on a plan of series of interest rate hikes.

This in turn, has taken the air out of growth stocks. It's why such a rising interest rate environment is a big negative for growth stocks like Adani.

Then there's valuations...

The market could be worried about the high valuations of Adani companies. They are among the most overvalued stocks in India.

Adani Group: Path Ahead

Operating with the motto of growth with goodness, the Adani group is operating in various segments. It started with iron ore and coal mining, then moved to port services, and from there, it has been betting heavily on growth sectors.

The group has laid down plans to invest over US$100 bn (Rs 8 tn) over the next 10 years, eyeing a big play in energy transition and digital transition within India and abroad.

It has earmarked 70% of this investment for the energy transition space and has already committed US$70 bn towards an integrated hydrogen-based value chain.

Under the banner of Adani New Industries, it plans to augment the additional gigawatts (GWs) over 100,000 hectares of land, 1.4 times the size of Singapore. This move will lead to the commercialisation of three million metric tons of green hydrogen.

The next priority for the group is Digital Transformation. It intends to interconnect green data centers through a series of terrestrial and globally linked undersea cables drawn at its ports and build consumer-based super-apps.

How Adani Enterprises has performed recently

In the past one month, the stock has fallen around 15%.

Yesterday, the stock was down over 1% on an intraday basis and today it is down over 3%.

Adani Enterprises has a 52-week high of Rs 4,189 touched 21 December 2022 and a 52-week low of Rs 1,529 touched on 24 February 2022.

Here's a table comparing the company with its peers.

Comparative Analysis

Company	Adani Enterprises	Adani Transmission	Adani Total Gas	Adani Power	Adani Green
ROE (%)	2.4	19.1	23.2	30.9	47.6
ROCE (%)	7.3	10.8	25.1	16.1	7.8
Latest EPS (Rs)	10.7	8.1	4.6	26.8	3.4
TTM PE (x)	339.9	328.7	791.8	10.4	563.2
TTM Price to book (x)	13.2	27.8	149.5	4.5	44.4
Dividend yield (%)	0.0	0.0	0.0	0.0	0.0

Data Source: Ace Equity

About Adani Enterprises

Adani Enterprises is the flagship company of the Adani Group. It primarily has businesses in the natural resources, transport and logistics, and utility and strategy segments.

It has widened its presence across several industries, including integrated resource management (IRM), mining, solar manufacturing, airports, edible oil, defense, and aerospace.

Recently, it ventured into new businesses such as airports, data centers, and water treatment plants.

To know more, check out Adani Enterprises financial factsheet and its latest quarterly results.

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...