What is the fair value of Adani Enterprise stock?

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NEW DELHI: There was 400% and 225% jump in Share price of Adani Group in 2021 and 2022. That Analysts at that time were saying that was not based on fundamentals. Those Analysts are proving right when shares of Adani Enterprises having fallen in matter of days by 62% from its peak of Rs 4,190, Let us look at if the Nifty stock is cheap or not. It seems till not cheap even if the allegations made in the Hindenburg report are proven to be incorrect.

An analyst calculated the stock’s fair value should be around Rs 945 per share without factoring any

of the Hindenburg accusations of fraud and malfeasance.

For his valuation exercise, Damodaran assumed that the company’s revenue will grow at a fast pace of 30% for the next 5 years and 5.59% thereafter and operating margin will increase from 3.6% to 7% after 10 years.

“Even with the share price at Rs 1,531 per share, I still think the company is priced too high, given its fundamentals (cash flows, growth and risk) and before factoring the damage that might have done to the company’s reputation and long term value, by this short selling episode,” he wrote in his blog

Even with a further share drop, he said he is not tempted to buy shares of

Adani companies because he avoids investing in family group companies.

“I have likened buying shares in a family group company to getting married,

and then having all of your in-laws move into the bedroom with you. Investors

in family group companies, no matter how honorable the family, are buying into

cross holdings, opacity and the possibility of wealth transfers across family

group companies. Those risks increase, if the family group companies are built

around political connections, where you are one political election loss away

from your biggest competitive advantage,” Damodaran said.

However, at the right price, he would be willing to expose himself to those

risks, but it would require a significant discount on intrinsic value.

In the last seven trading sessions since the release of a lengthy report by

American short-seller Hindenburg,

Adani stocks have lost nearly half of their market value after a one-way rally seen in the last few years.

On Hindenburg’s allegations, the finance professor at the Stern School of

Business at NYU said their critique of the Adani Group rests on a mix of

serious contentions, circumstantial evidence and questionable claims.

“To be able to manipulate and move the market capitalization of a company by

a hundred billion, roughly the increase in value in 2022, you would expect to

see huge numbers of shares being traded by these entities, and I don’t see

that. The questionable claims are the ones to do with earnings manipulation,

since if Adani is manipulating earnings, it is not doing a very good job,

reporting low margins and returns,” he wrote in the blog.

Damodaran went on to say that it is possible that Hindenburg was indulging in

hyperbole when it described Adani to be “the biggest con” in history.

“A more nuanced version of the Adani story is that the family group has

exploited the seams and weakest links in the India story, to its advantage, and

that there are lessons for the nation as a whole, as it looks towards what it

hopes will be its decade of growth,” he said.

On the issue of debt pile, Damodaran said it is not uncommon for infrastructure companies to borrow money and carry heavy debt loads, especially as they make new investments, on the expectation that as their projects mature, this debt will be repaid as well. “What sets Adani apart thought is it scale, since a failure on its part to make debt payments will create ripple effects that are vastly greater than a much smaller infrastructure company,” he said.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Newze.com)

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