Investment researcher Bernstein said Adani Group's reduced pledged shares by promoters, lower leverage, and improved valuations strengthened the conglomerate's financial health, helping it avoid a repeat of the selloff seen in January last year after short-seller Hindenburg Research released a report on the conglomerate.
Hindenburg's allegations of accounting fraud significantly eroded Adani Group's market value in early 2023. Just as the group's stocks were nearing pre-Hindenburg levels, fresh setbacks emerged as US authorities indicted founder Gautam Adani and associates in an alleged bribery case.
However, one-and-a-half years later, Bernstein noted a dramatic reduction in share pledges across Adani Group companies.
"For example, promoter pledges in Adani Power have dropped from 25 percent to 1 percent, and Adani Ports now has no pledged shares, down from 17 percent. On the flip side, promoter holdings have increased across the group (except for Adani Energy Solutions due to the QIP), with Ambuja's promoter holding rising from 63 percent to 68 percent due to warrants," Bernstein said.
Following the Hindenburg episode, the conglomerate reduced its overall debt to Rs 2,38,500 crore in September 2023 from Rs 2,41,000 crore in March 2023. However, Bernstein noted that the debt has risen to Rs 2,79,300 crore, primarily driven by an increase in Adani Enterprises' debt and lease liabilities.
Despite this, the group's net debt-to-EBITDA ratio has significantly improved, thanks to a rise in EBITDA as assets, such as those in Adani Green, became operational and profitability increased, particularly in Adani Enterprises' solar PV segment, the brokerage stated.
By September 2024, the group's cash reserves also grew to Rs 39,000 crore, up from Rs 22,300 crore in March 2023. Moreover, Bernstein highlighted a shift in the group's funding sources, moving away from relying on banks to bonds over the years. "Since March 2023, however, the share of USD bonds has decreased, while the share of NBFCs has risen, likely due to more favourable rates in the Indian markets compared to USD bonds," the brokerage said.
Debt repayment
During the Hindenburg episode, Adani Green had a significant portion of its debt due for repayment in 2024, including a tricky $750-million holdco bond. This time, however, the repayment schedule is more balanced.
In terms of valuations, Bernstein highlighted that Adani Ports continues to trade below peers like JSW Infra and Concor. Adani Green is valued similarly to private sector companies such as JSW Energy and Tata Power while cement maker Ambuja, on the other hand, trades in line with other large cement companies. Along those lines, Bernstein has an 'underperform' call on Adani Green, with a price target of Rs 800, 'outperform' on Adani Ports, with a price target of Rs 1,616, and 'market-perform' on Ambuja Cement, with a price target of Rs 572.
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