As the Adani Group companies continue to scale new heights on the bourses, they are becoming expensive compared to the broader market, a report by Business Standard stated.
As per BS, the seven listed group stocks are trading at a trailing price-to-earnings (P/E) multiple of 109.2X, which is nearly five times the Sensex companies’ average trailing P/E of 22.9X. This is the group’s highest valuation premium over the index, it highlighted.
However, the report noted that there has been a decline in the P/E multiple of the group stocks but the moderation in valuation has been much sharper in the broader market.
"There has been a rapid rise in the valuation premium of the group companies. Their combined market capitalisation has doubled during the year so far from ₹9.62 lakh crore at the end of December 2021 to ₹19.3 lakh crore. The Sensex is up just 1.33 percent during the period," pointed out BS.
The report added that group valuation premium over the index is even bigger on the metric of price-to-book value (P/B). The group stocks are trading at a P/B ratio of 19, which is 5.6X times the Sensex stocks’ 3.4X. On this count also, this is the biggest valuation premium for the group over the index stocks, said BS.
For comparison, among the Sensex stocks, the P/B ratio ranges from 81.3X in the case of Nestle India to 1.1X in the case of NTPC, it added.
BS explained that till three years ago, the group’s valuation was similar to that of the index and the overtaking happened in the first half of FY21 and the group stocks continued to become expensive compared to the broader market.
Analysts attribute the group’s valuation premium to the shareholders’ expectations of a rapid rise in the earnings of its companies over the next few years, the report noted.
Over the last three years, the group’s combined net profits have gone up 227 percent cumulatively. The rise in the group’s combined earnings would be much lower if the other income and exceptional gains Adani Power reported in the last two quarters were excluded, it added.