scorecardresearchAdani Group companies' sky-high valuations unaffected by recent correction

Adani Group companies' sky-high valuations unaffected by recent correction

Updated: 25 May 2022, 10:35 AM IST
TL;DR.

The seven listed companies in Adani Group had a combined market capitalisation (m-cap) of 14.44 Lakh crore on Tuesday, against a combined net profit of 13,715 crore in 2021-22 (FY22), and a combined net worth of 94,442.5 crore at the end of FY22.

The seven listed companies in Adani Group had a combined market capitalisation (m-cap) of  <span class='webrupee'>₹</span>14.44 Lakh crore on Tuesday, against a combined net profit of  <span class='webrupee'>₹</span>13,715 crore in 2021-22 (FY22), and combined networth of  <span class='webrupee'>₹</span>94,442.5 crore at the end of FY22.

The seven listed companies in Adani Group had a combined market capitalisation (m-cap) of 14.44 Lakh crore on Tuesday, against a combined net profit of 13,715 crore in 2021-22 (FY22), and combined networth of 94,442.5 crore at the end of FY22.

Despite the recent correction in equity markets, the sky-high valuation of Adani Group companies has been unaffected. Adani Group companies remain some of the most expensive stocks on the bourses, with a combined price-to-earnings (P/E) multiple of 105.3x and a price-to-book value (P/BV) ratio of 15.3x, a report by Business Standard stated.

According to the report, the seven listed companies in Adani Group had a combined market capitalisation (m-cap) of 14.44 Lakh crore on Tuesday, against a combined net profit of 13,715 crore in 2021-22 (FY22), and a combined net worth of 94,442.5 crore at the end of FY22.

It is important to note that Adani Ports and Special Economic Zone is yet to declare its results for FY22. Its net worth is at the end of September 2021 (first half of FY22), while its net profit in the sample is trailing 12 months ended December 2021, the BS report informed.

"Adani Group’s combined m-cap is up 617 percent since the end of December 2019, against 84 percent rise in Reliance Industries (RIL’s) m-cap during the period and 76 percent rise in the combined m-cap of Tata Group companies," highlighted the report.

The group valuation ratios are many times bigger than the corresponding ratios of other big business groups and those of the broader market.

It further pointed out that Tata Group stocks are even cheaper, with a combined P/E multiple of 27.5x and a P/BV ratio of 6.2x. The 16 key Tata Group companies directly promoted by Tata Sons had a combined m-cap of 20.65 lakh crore, while these companies reported a combined net profit of 74,523 crore on a consolidated basis in FY22 and net worth of 3.32 lakh crore at the end of FY22, it added.

Adani Group stock valuations are also very high as compared to the Sensex stocks. The benchmark index was trading at a P/E multiple of 22x on Tuesday, while its P/BV ratio was 3.1x on Tuesday, noted BS.

Analysts told the market daily that Adani Group companies’ high valuation is not due to its superior profitability, but because investors expect the group to grow at a very rapid pace since it invests aggressively in its existing businesses and enters new segments.

Adani Group companies’ high valuation and high m-cap help the group raise large amounts of equity capital to fund their growth plans. Analysts added that the group can do it either by selling stakes to new investors or pledging shares to lenders.

"Adani Group companies reported a combined return-on-equity (RoE) or net worth of 14.5 percent in FY22, slightly ahead of the Sensex companies’ average RoE of 14.3 percent and much higher than RIL’s consolidated RoE of 7.8 percent in 2020-21, but below Tata Group’s combined RoE of 22.4 percent," BS stated.

However, BS noted that Adani Group companies’ stock prices have come under pressure in recent weeks due to a sell-off in the broader market. The group companies’ combined m-cap is down 2.31 lakh crore, or 13.8 percent, in May so far, more than what RIL and Tata Group have lost.

RIL is down 6.3 percent in May so far, while Tata Group’s combined m-cap is down 8.75 percent during this period.

 

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First Published: 25 May 2022, 10:35 AM IST