Billionaire Gautam Adani-led Adani group of stocks have tanked up 34 per cent from respective their all-time highs due to stretched valuations amid the ongoing correction in the global equity market. Data shows that recently listed Adani Wilmar cracked the most 33.60 per cent from their all-time high of Rs 878.35, scaled on April 28, 2022. On the other hand, the benchmark BSE Sensex plunged 12.66 per cent to 54,364.85 on May 10, 2022 against its lifetime high of 62,245.43, which hit on October 19, 2021.
Market analysts are advising investors to zero in on valuations before lapping up the Adani group of stocks. Other group stocks including Adani Green Energy, Adani Transmission, Adani Ports and Special Economic Zone, Adani Total Gas, Adani Power, and Adani Enterprises also have lost between 12 per cent and 19 per cent so far from their respective all-time highs till May 10, 2022.
Commenting on Adani group stocks, Kranthi Bathini, chief market strategist, WealthMills Securities said, “Investors and traders are booking profit due to the ongoing volatility, uncertainty in the global market amid stretched valuations. They are momentum and speculative in market nature. One needs to take cognizance of valuations.”
In terms of valuations, the price-to-earnings (P/E) of Adani Total Gas was hovering around 511.47 on May 10 against 18.92 times its peer Indraprastha Gas. The ratio for Adani Enterprises, Adani Ports and Adani Wilmar was around 322.06 times, 123.10 times, and 93.82 times, respectively, data available with Ace Equity showed.
Another market watcher Santosh Meena, head of research, Swastika Investmart said, “Adani group stocks are often characterised by upper-lower circuits, sky-high valuations, and mystery about the exponential rise in a short period.”
“Even post the market fall in recent times, most of the group stocks are overvalued and it is difficult to gauge the fundamentals and quality of group companies. Nevertheless, we feel that Adani Ports & Special Economic Zone is a fundamentally good company with reasonable valuations compared to other group companies,” Meena said adding the company enjoys competitive advantages like being the sector leader, cash-generating machine in the long term, having a strategic location, and good facilities that ease the process of their clients and ensure faster turnaround.
“Another company that can be added on dips is Adani Wilmar, which is the largest branded edible oil and packaged food business in India. The company products have a sticky demand and it is poised to grow its profitability in the medium term due to geopolitical factors. One caution we would like to add is that the Adani group stocks are meant for investors with a medium to high-risk appetite,” he added.
Of late, Adani Wilmar posted a 25.6 per cent year-on-year plunge in its consolidated net profit at Rs 234.3 crore for the quarter ended March 31, 2022. It had reported a profit of Rs 315 crore in the year-ago period.
Brokerage KR Choksey Shares and Securities on May 9 initiated the coverage on Adani Wilmar with a target price of Rs 734, indicating an upside of over 20 per cent from the current market price.
“We believe Adani Wilmar’s focus on the growth of FMCG and packaged food business and shift to value-added products will result in increased market share and expansion of margins. The company has planned capital expenditure of Rs 1,900 crore to create in-house capacity for food FMCG, new product launches, export opportunities, and continued expansion of the distribution network. Further, it has kept aside Rs 450 crore for inorganic opportunities, these initiatives will help the company to scale faster. Adani Wilmar has been able to generate strong cash flow which along with the debt reduction will further strengthen its balance sheet,” KR Choksey Shares and Securities said in a report.
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