Adani Enterprises shares at Rs 645? Check out Devina Mehra's take on fair value of Adani group stock

Devina Mehra, Chairman and MD at First Global feels the fair value of Adani group firm is Rs 645, less than the Rs 945 value that valuation guru Aswath Damodaran derived for the Adani group stock in his latest Blog.

In a series of tweets, Mehra said Damodaran himself mentioned an equity risk premium over risk-free rate of 4.5 per cent. She said if one considers the cost of capital (risk free rate plus risk premium) at 12 per cent, factoring in a logical risk free yield of 7.3 per cent in India, the Adani Enterprises stock's valuation should drop to Rs 645.

On Friday, the Adani Enterprises scrip was trading at Rs 1,920.05, down 0.38 per cent.
 

Mehra said she has stopped giving a lot of importance to discounted cash flow (DCF) calculations in general as almost all DCF models assume a company grows every year into perpetuity, but in real life, not even 10 per cent of the companies meet the test.

"Plus, as you see, DCF calculations are super sensitive to Terminal period growth and cost of capital assumptions- essentially means that you can justify virtually any value you wish to," she said.

In his value estimation, Damodaran did not factor in the damage that might have been done to the Adani Enterprises’ reputation and long-term value by the Hindenburg episode. Damodaran’s share price estimate for Adani Enterprises, he said, were based on upbeat assumptions on revenue growth and operating margins.

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