What should you think of Aswath Damodaran’s view on Adani Enterprises?

Take any of the ten listed stocks (including NDTV, ACC and Ambuja) and look at the chart of that company over a period of two weeks. you will be surprised to see how some Biggest wealth creator of Adani Group have fallen back to earth.

Before this steep fall, which wiped out over US$100 billion (bn) from the Adani group’s market cap, here was how the group companies performed.

Amazing, isn’t it? You will be amazed to see the kind of profit they made in the last two years before the release of the report.

All the Adani group companies were then in focus for obvious reasons. Huge profits in such a short span of time would obviously attract the media and investors.

This time Adani shares are in news for opposite reasons and have fallen out of favor with investors.

A lot has been written and said about Adani group companies in the last two weeks.

Over the weekend, group flagship firm Adani Enterprises suffered another blow after valuation guru Ashwath Damodaran slashed the company’s valuation. 947.79 per share.

Adani Enterprises currently trades 1,500 level, hence Damodaran’s valuation calculation predicts a further 40% drop in the share price.

Please note in his calculations, Damodaran has not taken into account the damage to the company’s reputation and long-term value from the Hindenburg affair.

About Ashwath Damodaran

When it comes to evaluation, it is difficult not to mention Professor Ashwath Damodaran, the leading authority on evaluation.

Damodaran is a disciple of Intrinsic Value Investing. He is currently Professor of Finance at NYU’s Stern School of Business.

Damodaran is widely respected as one of the foremost experts on corporate valuation. He has published several books on Equity Valuation and Corporate Finance.

Valuation Guru’s ‘True Value’ for Adani Enterprises

In his blog published over the weekend, Damodaran said that the valuation of Adani Enterprises could be 945.

arriving at a fair price of 947 per share, he noted, taking into account the upbeat assumptions on Adani Enterprises’ revenue growth and operating margin.

Its fair value suggests a downside of 38% from its share price.

In his assessment, Damodaran analyzed the market valuation of Adani Enterprises by examining what several investors were willing to pay based on various financial metrics such as earnings, revenue, EBITDA, and book value.

They saw a remarkable growth in the last two years, with the PE ratio of the stock rising from a modest 15 times earnings to an impressive 214 times earnings between 2016-21.

Similarly, the enterprise value increased from around 12 times EBITDA to 53 times EBITDA during 2016-21.

Other Insights on Adani-Hindenburg

Damodaran’s notes also shared other insights on the Adani-Hindenburg tussle.

On Hindenburg’s allegations, Damodaran said the US-based short-seller’s allegations on the Adani group are based on a mix of serious controversies, circumstantial evidence and dubious claims.

Here is what he wrote in his blog titled Musings on Markets…

To be able to manipulate and move a company’s market capitalization to a hundred billion, roughly a 2022 increase in value, you would expect to see a large number of shares traded by these entities, and I don’t see that. Is.

Suspicious claims are those that pertain to manipulation of earnings, because if Adani is manipulating earnings, it is not doing a very good job, reporting low margins and returns.

While we already knew that Adani Enterprises and most other group shares were overvalued, Damodaran believes that Hindenburg may have “indulged in exaggeration” when he called Adani the “biggest thief” in history. told.

Pointing out a flaw in the global economic system, Damodaran said that ESG (Environmental, Social and Governance) in the global economic setting deserves the ‘biggest thief’ label far more than Gautam Adani.

Equitymaster Editor on Adani Enterprises

Here is what Aditya Vora, Research Analyst, Hidden Treasures has to say about Adani Enterprises and other Adani Group stocks:

When we talk about Adani Group, I first list the group companies with basic data.

The table below lists Chief Adani Group companies and Their evaluation metrics.

I have also not considered the P/E ratios of some companies as they do not mean anything when the earnings of companies like Adani Green, Adani Total Gas and Adani Transmission are low.

Out of the Adani stable, the only 2 companies that make sense on valuations and fundamentals are Adani Ports and Ambuja Cements.

Meanwhile, Rahul Shah, co-head of Equitymaster Rahul Shah, has this to say:

Each article I wrote back in June 2021 did a more in-depth look at the group’s flagship companies.

Now, it’s been 18 months since I wrote that piece. Has any of the Adani group companies managed to put up a performance that would compel me to change my mind?

I do not think so. Companies with weak fundamentals like Adani Power or Adani Green Energy have hardly managed to outperform, while expensive ones like Adani Total Gas or Adani Ports don’t look cheap even after the recent fall.

About Adani Enterprises and its rich history

The company has an interesting history that you might not know…

year 1994

Back in 1994, the company came up with its first IPO under the name of Adani Exports.

According to the company’s website, Adani Enterprises (formerly Adani Exports) is listed on BSE and NSE. 150 per share with face value 10.

In its Initial Public Offering (IPO), the company offered a total of about 12.50 lakh equity shares 187.5 million (M). The IPO was subscribed more than 25 times.

Now let us assume that an investor is allotted 50 shares in the IPO.

year 1996

Later in 1996, the company established a bonus issue In the ratio of 1:1.

So the investor who held 50 shares now owns 100 shares. (Bonus 1:1 means 50 becomes 100)

year 1999

Three years later, Adani Enterprises again issued bonus shares in the ratio of 1:1.

So the investor who held 100 shares now has 200 shares. (Bonus 1:1 means 100 becomes 200)

Interestingly, the company witnessed a stupendous growth story in the initial years. By the time the bonus shares were announced in 1999, the company’s stock had increased 8 times.

During this period, the company expanded its business basket and became India’s top net foreign exchange earner.

Highest ever turnover achieved by the company As against 28.5 billion (bn) in FY2000 21.9 billion during FY1999.

year 2004

In 2004, a stock split occurred and changed its face value. since 10 1. This means that the investor who held 200 shares now holds 2,000 shares.

year 2009

Adani Enterprises had its third bonus issue in 2009. The company offered bonus shares in the ratio of 1:1.

As a result, the investor holding 2,000 shares now owns a total of 4,000 shares.

year 2015

It was an interesting year for the Adani Group. In 2015, Adani Enterprises announced the demerger of its ports, power and transmission businesses and thereby listed other group companies.

Here are the quantum of shares offered by the shareholders of Adani Enterprises:

Adani Ports – For every 100 shares of Adani Enterprises, shareholders received 141 shares of Adani Ports.

Adani Power – For every 100 shares of Adani Enterprises, shareholders received 185 shares of Adani Power.

Adani Transmission – For every 100 shares of Adani Enterprises, shareholders received 100 shares of Adani Transmission.

In our assumption, the investor held a total of 4,000 shares. So here’s how his portfolio will look now after he acquires shares of the other companies in the group.

Adani Enterprises – 4,000 shares

Adani Ports – 5,640 shares

Adani Power – 7,400 shares

Adani Transmission – 4,000 shares

year 2018

Two more companies got listed in 2018 – Adani Green Energy and Adani Gas.

For every 1,000 shares of Adani Enterprises, investors were allotted 761 fully paid-up shares of Adani Green Energy.

In this ratio, the investor in our story got 3,044 shares of Adani Green Energy.

In late 2018, Adani Gas was listed on the exchanges. As part of the listing process, Adani Gas allotted equity shares in the ratio of 1:1 to the existing shareholders of Adani Enterprises.

So now the investor will also own 4,000 shares of Adani Gas, which is now known as Adani Total Gas, following its partnership with French major Total.

in conclusion…

As we said, the Adani-Hindenburg story will keep the markets busy for a long time to come.

Meanwhile, you can quickly view both the fundamentals and valuations of Adani Group shares on Equitymaster Indian Stock Screener.

We recently added a new section to the Screener where you can view the fundamentals of companies within a business group in one screen. This will help you get a better grip on the fundamentals, trade group wise.

Disclaimer: This article is for information purposes only. This is not a stock recommendation and should not be treated as such.

This article is syndicated equitymaster.com