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It is difficult to justify the sharp rise in prices of Adani group shares simply because a BJP led government might come to power at the centre and favour the group. In good old days, such blatant favouritism or crony capitalism could have been possible. But with the opposition parties and media scanning every transaction that the government does and the Comptroller and Auditor General (CAG) going over these transactions with a fine tooth comb, it would be nearly impossible for the new government to favour any particular corporate house.
Markets however believe that the Adani group will be on a new growth trajectory since the promoter Gautam Adani has close ties with Narendra Modi. Gautam Adani was one of the few businessmen who stood by Modi after the Godhra riots and initiated some of the development work when most businessmen stayed away from the state. Market expects that it is payback time for the Adanis.
However Adani group has flourished both inside Gujarat, under the patronage of the Gujarat chief minister, as well as outside it. The group like most business houses has good relationship with most political parties. After Chennai Ports stalled Adani Ports from bidding on grounds of security clearance, the company managed to get a clearance from both the Home ministry as well as Shipping ministry at the centre in a matter of six months to bid for ports across the country. This at a time when the Congress government was suffering from ‘policy paralysis'. The group has given political donations to both BJP as well as Congress parties.
However, there is no denying the fact that the group has made the most of the BJP government at the state. From a trading house, the group diversified into ports and power. It is now the largest private sector port operator in the country. The group also is the largest private thermal power producer in the country with expectations of touching 20,000 MW by 2020. However, its power units are loss making on account of issues related to coal supplies and tariffs.
The group will find it difficult to get special treatment since it operates in sectors where contracts are awarded through competitive biddings. Even if they manage to bag orders, these are all long gestation businesses. Share prices have clearly outrun the fundamentals.
Adani Enterprises:
Adani Enterprises, the flagship company of the group, is loss making on a cumulative trailing four quarter basis. At a price of Rs 440, the company’s FY13 numbers are discounted 31 times. The company is an export house and the largest private sector player in coal trading in the country. The company is already well-entrenched across the country. There is little help that the company now needs from the government.
Adani Power:
Adani Power is loss making and heavily leveraged company. The company only last week overtook Tata Power as the largest power producer in the country after commissioning a 660 MW unit. However, in the last three quarters the company has accumulated losses of Rs 3000 crore. Power tariffs, unavailability of fuel and inability of distribution companies to repay has impacted the financials of the company. The company is sitting on a total debt of Rs 41,740 crore while shareholders funds are only Rs 4293.41 crore. Like every other company in the sector, it is awaiting a new government with a clear power sector policy for further investments. A BJP government just cannot bring in a policy that will favour the company alone but would rather have to bring a policy that pulls the sector out of the mess. Being the largest private sector player, Adani Power will naturally gain the most.
Adani Ports:
Adani Ports is the most profitable company in the group. It is the biggest private port operator with Special Economic Zone (SEZ) operations in six ports in India. Along with the clearance for Chennai Port mentioned earlier, the government allowed the company to bid for one project in Kochi Ports and two in Kandla. The company has positioned itself to take its capacity from 91 million tonnes in 2013 to 200 million tonnes by 2020. The company has already bagged a licence from the UPA government for setting up another multi-product SEZ and Free Trade Warehousing Zone in Mundra. Even if the BJP government allots new ports to the company, it would take years to implement and reflect in its financials. In any case the company presently has its plate full with ongoing expansions and has little room for leverage too.
Fundamentals, both historic and future, do not justify the run-up in the group’s stocks. In current times when we can find an activist at a drop of a hat and a case being filed for the slightest of doubt, proximity to the prime minister or a political party are reasons to worry and not celebrate.
