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Adani Enterprises is one of the most talked-about stocks of Adani Group. Here is a 7 point analysis of Adani Enterprises Limited (AEL). Read more about this company in detail in this article.
In this 7 point Analysis of Adani Enterprises, we will evaluate the company on the following parameters:
Adani Enterprises Limited- 7 Point Analysis
Adani Group is presumed to be having a world-class infrastructure and Utility Portfolio.
Adani Groups is having 6 listed companies:
i) Adani Ports & SEZ: Here, the business of Ports and Logistics are managed. Adani Group is having a 63.74% stake in this business.
ii) Adani Enterprises Limited: Flagship company of Adani Group. Adani Group holds a 75% stake in Adani Enterprises. This business possesses 100% wholly-owned subsidiaries like Adani Airport Holding Limited (AAHL), Adani Road Transport Limited (ARTL), Adani Water Limited (AWL), and Adani Data Centre.
iii) Adani Transmission Limited: Engaged in the business of Transmission and Distribution. In this business, the parent company holds a 75% stake.
iv) Adani Green Energy Limited: This business segment of the Adani Group focuses on Renewable and holds a 75% stake too.
v) Adani Power Limited: Adani Group owns 75% of this entity.
vi) Adani Total Gas: This is the Gas Distribution company of the Adani Group. In this business, Promoters have the lowest holding among all listed entities i.e., of just 37.4%.
Adani Group- World Class Infrastructure & Utility Portfolio
2) Adani Group Valuation:
Recently, Adani Group has surpassed the mark of $100 billion in terms of market capitalization.
With this achievement, Adani becomes 3rd Indian Conglomerate to surpass $100 billion in market capitalization, following Reliance Industries ($190 billion) and Tata Group ($242 billion).
As per the report of Capitaline : Adani enterprises growth
i) Market Value of Adani Total Gas was Rs. 9,000 Crore on 3rd April 2020, which has now gone up to Rs. 1.32 lakh Cr. on 6th April 2021. This business yielded the highest return among the Adani Group stocks in the last 1 year of significant 1,234%.
ii) The Flagship company of Adani Group, Adani Enterprises, has reported growth in its market value from Rs. 14,000 Cr. in April 2020 to Rs. 1.35 Lakh this year. Returns generated in this business over one year period of time was 850%.
iii) Adani Green, its market capitalization has grown up from Rs. 24,000 Cr in April 2020 to Rs. 1.87 Lakh Cr. in 2021. Adani Green reported growth of 681% in its market capitalization between 3rd April 2020 to 6th April 2021.
iv) Adani Transmission market capitalization was valued at Rs. 21,000 Cr. on 3rd April 2020, and it currently stands at 1.22 Lakh Cr. as of 6th April 2021.
v) Adani Power market capitalization has shot up from its valuation of Rs. 10,000 Cr. in last year to Rs. 38,000 Cr.
vi) Market Capitalisation of Adani Ports was at Rs. 5,000 Cr. on 3rd April 2020 and now it is at Rs. 1.7 Lakh Cr.
Adani Group- Market Valuation
Adani Enterprises have a consolidated business portfolio and are having a presence in almost all sectors.
Adani Enterprises Limited (AEL) has 4 major business under its portfolio, which is explained below:
i) Resources that involve Mining Services and Integrated Resource Management (IRM).
ii) Transport and logistics,, which further involves Airports, Roads, and Rail & Metro.
iii) Utility business where operation in relation with Water and Data Centre is involved.
iv) In Strategic Investments, Adani Enterprise is engaged in Solar Manufacturing, Agro, and Defence.
AEL- Business Portfolio
In 2020, throughout the pandemic, the Adani Group had aggressively expanded its presence across Indian Infrastructure through a mix of Organic Growth and Acquisitions.
Adani Group has started 2 strong businesses as subsidiaries: Adani Airports and Adani Road Transport.
Adani Airports:
Adani Enterprises ventured into the Airport Sector in 2019.
And now, it controls 7 airports in India & 1/4th of the Country’s Air Traffic.
On 6th February 2021, Adani Airports acquired a 23.5% stake in Mumbai International Airport.
Entry into B2C: Adani Airports also won the mandate to modernize and operate 6 airports (Ahmedabad, Lucknow, Mangaluru, Jaipur, Guwahati, and Trivandrum) for 50 years.
Adani Road Transport (ARTL):
ARTL won road projects from the National Highways of India (NHAI) on April 2, 2021.
i) It has also won a highway project of Rs. 1,169 Cr. in Odisha.
ii) A Build-Operate-Transfer (BOT)- Toll basis Road project of Rs. 2,020 Cr. in West Bengal State.
With these project award, Adani Group will have a total of 9 NHAI Road Projects:
i) under HAM (Hybrid Annuity Model), Toll-Operate-Transfer (TOT) and Build-Operate-Transfer (BOT)- Toll basis.
ii) In the states of Chhattisgarh, Telangana, Andhra Pradesh, Madhya Pradesh, Kerala, Gujarat, and West Bengal.
ARTL said it would continue to evaluate and bid for attractive opportunities in the transport sector.
i) It has also won a highway project of Rs. 1,169 Cr. in Odisha.
ii) A Build-Operate-Transfer (BOT)- Toll basis Road project of Rs. 2,020 Cr. in West Bengal State.
i) under HAM (Hybrid Annuity Model), Toll-Operate-Transfer (TOT) and Build-Operate-Transfer (BOT)- Toll basis.
ii) In the states of Chhattisgarh, Telangana, Andhra Pradesh, Madhya Pradesh, Kerala, Gujarat, and West Bengal.
Adani Wilmar Limited is a 50:50 joint venture between Adani Group and Wilmar International Limited, Singapore- Asia’s leading Agribusiness group.
AWL is India’s leading consumer of edible oil and the fastest food growing entity.
Maintained a leadership position in the refined edible oil market with its “Fortune” brand with more than 20% market share.
Revenue of Adani Wilmar has grown by 31% YoY from Rs. 7,827 Cr. in Q3FY20 to Rs. 10,257 Cr. in Q3FY21.
But, EBITDA has gone down by 5% from Rs. 340 Cr. in Q3FY20 to Rs. 323 Cr. in Q3FY21.
Also, the EBITDA Margin of AWL has decreased by 1.2% from 4.34% in Q3FY20 to 3.14% in Q3FY21.
The reason behind the decline in Operating Profit and its margin is due to an increase in the price of key Raw Materials.
The Key Competitor of AWL in this business segment is Suffola by Marico.
Suffola is also having a market share of around 20% as of FY20. At the same time, Suffola has recorded 26% value growth in Q3FY21.
Almost all Stocks of Adani Groups, including Adani Enterprises, are trading at euphoric valuation. This current valuation seems to have prices in all future business growth, which limits further upside.
The concern is the sustainability of this valuation.
The debt-to-equity ratio of the company is 0.73 as of March 2020.
AEL is having an Interest Coverage Ratio of 1.71, being a capital enterprise having businesses like Mining, Airports, etc. Generally, for capital intensive industries, Interest Coverage Ratio should be greater than 2.5. In this context, it is a negative sign for the company.
The return Ratio of Adani Enterprise is also not quite impressive. The company is having a Return on Capital Employed (ROCE) of 9.73% and a Return on Equity (ROE) of 5.03%.,
Another major concern with the AEL is the pledging of shares by the Promoters to raise money.
Out of 75% of Promoter Holding, Promoters have pledged their 16.60% stake.
Sales growth of the company is also not consistent and good enough. The last 5 Years sales growth of AEL is -8%, whereas it is just 5% in the last 3 years and Trailing Twelve Months (TTM) Sales Growth is -9%.
Also, Company lacks PAT growth. In the Last 5 years, the PAT growth of the company is -10%, while there is PAT growth of just 5% in the last 3 years, and for the Trailing Twelve Months (TTM), PAT growth is in the negative region of -45%.
Despite these poor financials, Stock has generated phenomenal returns. In the last TTM, the stock has yielded a return of 789%, and a return of 103% & 75% has been generated in the last 3 years and 5 years, respectively.
Adani Enterprise is currently trading at a very high PE ratio of 180.
The company has 1 year Median PE ratio of 55, 3 years Median PE of 21.4, and 5 years Median PE of 19.
AEL has witnessed exponential growth in the Trailing 12 months. Also, Company has high debts with a low-interest coverage ratio, which could be a risky situation for the company. The company is trading at an alarming valuation of 180, which is another factor to look at. As per current stats and valuations, Adani Enterprise looks like a risky bet. Apart from this, earning visibility in the sector, especially Airports, etc., are doubtful, and one should allocate his/her funds in Adani enterprises stock with prior advice from their financial advisors or after proper research and study.
Investors can also check out the article on Analysis of Adani Green Energy Limited and Adani Total Gas Limited. Check out Invest Yadnya for more such quality content!
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