Adani FPO withdrawal: What cues it gives on Adani group stocks?

Adani Group's decision to withdraw its Rs 20,000 crore-worth follow on public offer (FPO) was 'morally right', said analysts, who said the group's debt should not be seen as a major concern, at least as of now, primarily because the conglomerate still maintains healthy cash flow. They, however, feel that the conglomerate's aggressive growth plans could be curtailed, in the near future, even if one assumes that there is no truth to the allegations levelled against Adani by the New York-based short seller, Hindenburg Research. And, as far as stock prices go, analyst see huge volatility at least in the near term amid a flurry of negative new flows.

The ports-to-data centre conglomerate, late on Wednesday, announced that it was withdrawing its highly-discussed FPO in the wake of huge market volatility. In the press release, Adani Enterprises, which had floated the FPO, noted that due to the existing selling pressure the group stocks have been subjected to, it was not morally prudent to go ahead with public offer, even though the latter was fully subscribed a day prior. On Thursday morning, Gautam Adani, the group founder and chairman, in a video message thanked his investors for their support and noted that the decision would not have any impact on the group's existing operations and future plans. He said his group companies will continue to focus on timely executions and delivery of projects.

But Adani Enterprises' gesture could not stem the fall in its shares. At last count, the stock was down 8 per cent at Rs 1,958 on Thursday afternoon.

Vinit Bolinjkar, Head of Research at Ventura Securities, is of the opinion that it seemed a morally right decision by Adani Enterprises to withdraw the FPO, given that the FPO price band stood at Rs 3,112-3,276 and the scrip had fallen to as low as Rs 1,530-odd levels, even before the subscribers could get FPO shares in their demat accounts.

Bolinjkar said Adani's Group level Ebitda is around Rs 57,000 crore and the group's net debt is around Rs 1.60 lakh crore. If the group does not take additional debt for expansion purposes in the next two quarters, debt at the group level would be pretty much under control, he noted.

Ventura’s analyst said that the fallout of the highly-publicised report from Hindenburg Research, coupled with negative news flows and reactions from institutions, could all lead to high volatility in Adani Group stocks in the near term.

State insurer Life Insurance Corporation of India (LIC) and State Bank of India (SBI) have been among the financial institutions that have come out with statements over their exposure to the group. As concerns deepened, Citigroup's wealth arm, after Credit Suisse Group, too stopped accepting Adani Group's securities as collateral for margin loans, a media report suggested. A report on Thursday suggested that the RBI has sought information from banks regarding their exposure to the group companies.

"In the long-run, Adani businesses are sound; their loans are all long-term and the group's cash flows are quite robust. Even the battered stocks such as Adani Green, Adani Gas and Adani Transmission and Adani Ports are cash flow-positive businesses where the growth capital came from debt. I don't see problems in any of these businesses," Bolinjkar said.

Abhishek Basumallick, chief equity advisor at Intelsense Capital, said that he sees the fresh development in two parts. The first part is the business, the second is valuation. That, he said, is based on assumptions the allegations on the group are not true.

Basumallick pointed out that the Adanis are not very leveraged in most of their businesses, except maybe Adani Green, and that operation cash flows should be enough to service the debt obligations. The second part is valuation, which Basumallick finds high for most Adani Group stocks.

"What is likely to happen is [that] the Adani stocks will consolidate with a downward bias for a long time. The stock prices will remain same or go down slowly. Prices may not move for many quarters or years till such time that valuations reach equilibrium with industry levels," Basumallick said.

He recalled how Infosys stock stayed depressed post the 90's dotcom bubble burst, before the froth to get digested.

"Earnings jumped but price-to-earnings multiples started coming down," he said on Infosys, while suggesting a similar scenario playing out for Adani stocks.

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