Why Adani Ports Share Price is Falling

Before getting to today's core theme, let's understand how the past couple of months have been for the Indian share markets in a nutshell...

In September 2021, the benchmark Nifty 50 index was trading at 17,700 levels.

Skip forward 16 months, the index is still trading near the same levels.

Not just the index, but heavyweights HDFC Bank and Reliance Industries are also trading exactly at the same price as September 2021.

Of course, ITC remains an outlier, gaining over 50% in the same period. Even yesterday, when the markets were down around 2%, ITC bucked the trend and stood out.

Which brings us to our core topic for today...Adani Ports share price.

Unless you're living under a rock, you must be aware of the important events that transpired after Hindenburg research released a detailed report on the Adani group.

Picture this. In September 2021, Adani Enterprises share price was trading at 1,400 odd levels. In the next 15 months, the stock rallied multifold and touched a high of Rs 4,200 in December 2022.

At present, Adani Enterprises is back to 1,400 levels, down a massive 65%.

Not just Adani Enterprises but other Adani group stocks have also slumped up to 70% in just one month.

However, amid this selloff, one company from the Adani group stood out and didn't suffer to such extent.

We're talking about Adani Ports & Special Economic Zones (SEZ).

The company was not entirely immune to the selloff but if the other group companies fell 10%, Adani Ports declined between 3-5%. That was the case so far anyway.

But now, as concerns keep mounting for the conglomerate, Adani Ports is also showing signs of weakness.

Let's find out why and what lies ahead for Adani Ports.

Why Adani Port share price is falling

#1 Report by Hindenburg

This is the main reason why the rout in Adani stocks started.

US based research firm Hindenburg Research published a report on 24 January 2023 titled - Adani Group: How The World's 3rd Richest Man Is Pulling The Largest Con In Corporate History, alleging that the group is engaged in brazen stock manipulation.

The report identified numerous instances of undisclosed related-party transactions and earnings manipulation for healthy financials.

The firm also took a short position in Adani Group companies after a two-year investigation based on interviews with former executives, site visits in multiple countries, and document reviews.

The report by Hindenburg put Adani group stocks under immense selling pressure in the next few weeks.

The Adani group quickly called the report a malicious combination of selective misinformation and stale, baseless and discredited allegations, replying to the allegations. But the damage was done.

Even as the group weighs legal action against the short seller firm, Adani stocks continue to fall.

Adani Ports was no exception and fell in line with other group companies. However, many believed that Adani Ports was the only company from the group which traded at fair valuations and is worth considering on dips.

That is why, shares of Adani Ports recovered a bit, while others continued to bleed.

#2 Ambitious growth plans under question

The other reason why Adani Ports share price is falling is due to the conglomerate lowering its growth prospects.

Adani group stocks have been a topic of interest in the financial world due to their rapid growth and diversification into various industries.

The group's plan to spend more than US$ 70 billion (bn) by 2030 in India's green energy push is a firm commitment.

Be it renewable energy, its port business, or the group's foray in the cement sector by hostile takeover of ACC and Ambuja, the group has committed massive capex over the past three years.

No wonder many Adani stocks are considered the fastest growing companies in India today.

While the selloff in Adani stocks started with the release of Hindenburg report, the recent fall could be attributed to the group lowering its ambitious growth plans.

The Adani group has halved its revenue growth target and even plans to hold off fresh capex.

Gautam Adani has now decided to scale down revenue growth target to 15-20% for at least the next financial year, down from the 40% growth originally targeted.

According to reports, the group may also scale down its aggressive capex plan.

#3 International giants stop accepting Adani bonds

The third reason why Adani Ports could be falling is because several global corporates including Credit Suisse and Citigroup have stopped accepting bonds of Adani-led companies as collaterals for margin loans.

Some weeks ago, Credit Suisse's private banking arm assigned a zero lending value for notes sold by Adani Ports, Adani Green Energy and Adani Electricity Mumbai. According to reports, it previously offered a lending value of about 75% for the Adani Ports notes.

If a bank stops allowing clients to borrow money using their securities as collateral, the clients will usually need to provide additional funds or assets as collateral. If they don't provide enough collateral, the bank can sell their securities to cover the remaining debt.

In simpler terms, if you borrow money from a bank using your investments or other assets as collateral, and the bank decides they don't want to lend you any more money, you may have to give the bank more money or assets to continue borrowing. If you can't do that, the bank can sell your investments to get its money back.

Meanwhile, some pressure on Adani Ports could also be due to rating agencies announcing that they're examining the risks associated with Adani group's debt and their creditworthiness.

#4 Wikipedia's allegations

In what is a fresh blow to all Adani group companies, Hindenburg's Nate Anderson said in a tweet how the group manipulated its Wikipedia entries using fake accounts, undisclosed paid editors, and removed evidence of conflicts of interest.

Of all things-now the Signpost, Wikipedia's independent newspaper, is out w/ an article showing how Adani systematically manipulated its Wikipedia entries using sock puppet accounts, undisclosed paid editors & removing evidence of conflicts of interest.https://t.co/s7Yzw8rXys pic.twitter.com/UVG6dVWtfu

— Nate Anderson (@ClarityToast) February 20, 2023

Earlier this week, Wikipedia referred to the "con" alleged by Hindenburg Report, to ask whether Adani and his employees also try to con Wikipedia readers with non-neutral PR versions of related Wikipedia articles.

Adani Ports share price plunged 6% yesterday on the back of above developments.

That's not all by the way. On 22 February 2023, Adani Group stocks had their worst day in the past two weeks, with the group's total marketcap tumbling below Rs 8 trillion. This is a fall of over Rs 510 bn from the previous trading session, Ouch!

Silver lining for Adani Ports

The main reason why Adani Ports hasn't fallen to a great extent as other Adani stocks is because the company has recently made big loan prepayments.

A big cause of concern for investors has been Adani group's massive debt. The Adani group, investing in India's growth story and on its way to achieve glory, has taken massive debt to finance projects, etc.

To soothe investors' nerves in the ongoing selloff, Gautam Adani and his family have decided to prepay some debt.

In early February, CEO Karan Adani had said it expects to repay loans, including bonds, worth Rs 50 bn next financial year. Its cash and cash equivalent were Rs 62.6 bn as of December 2022, while net debt stood at Rs 392.8 bn.

Earlier this week on Tuesday, Adani Ports paid Rs 15 bn loan and promised to repay more as part of its comeback strategy.

The other silver lining for Adani Ports is it has upped the revenue guidance. The company is expecting full year revenue to be in the range of Rs 192-198 bn. In FY22, the company's revenues stood at Rs 159 bn.

The company is projecting an EBIDTA of Rs 122-126 bn for 2023. In 2022, EBITDA was around Rs 110 bn.

Once the company repays debt of Rs 50 bn in the year starting in April 2023, its net debt to EBITDA ratio will come to about 2.5 times, an earnings statement read.

Additionally, the company's acquisition of the Haifa port is expected to be a gamechanger. The Haifa port will be Adani Ports' biggest revenue generator outside India.

Haifa port also is strategically located for transhipment of cargo through the Mediterranean Sea through the UAE to ports in Europe. It provides an alternative route instead of opting for the expensive one that goes via the Suez Canal.

Here's what Research Analyst at Equitymaster Aditya Vora has to say about Adani Ports:

• While I agree that Adani group is plagued with slew of negative news flows, big money is made when you cut the noise and focus on fundamentals.
  
  I believe the ship is not going down. This is not a Yes Bank or a DHFL in my view. Adani Ports has hard assets which contribute to the economy of the country.
  
  Its gross block has grown 10 times in 10 years and profits have multiplied 6 times over the past 10 years while the company is available at its 10-year average PE multiple.
  
  While I agree the volatility is going to be extreme over the next few weeks, diamonds are found in the rubble and not in the sky.

As Adani stocks interest you, check out the below video to know whether the recent correction in Adani stocks is a once in a lifetime opportunity.

How Adani Ports share price has performed recently

In the past five days, Adani Ports is down 6% while in 2023 so far, it has fallen around 33%.

Today, Adani Ports opened the day at Rs 538 against its previous close of Rs 547.

Adani Ports has a 52-week high of Rs 988 touched on 20 September 2022 and a 52-week low of Rs 395 touched on 3 February 2023.

Here's a table comparing Adani Ports with its listed peers.

Comparative Analysis

Company	Adani Ports	Gujarat Pipavav Port
ROE (%)	13.9	8.8
ROCE (%)	10.8	13.9
Latest EPS (Rs)	23.6	6
TTM PE (x)	23.2	17.1
TTM Price to book (x)	2.6	2.1
Dividend yield (%)	0.9	3.9
Industry PE	23.3
Industry PB	2.6

Data Source: Ace Equity, Equitymaster

About Adani Ports

Adani Ports is the largest commercial ports operator in India accounting for nearly one-fourth of the cargo movement in the country.

For more details about the company, you can have a look at Adani Ports factsheet and quarterly results on our website.

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...