Adani Enterprises FPO opens: Should you continue to subscribe despite the Hindenburg report?

Adani Enterprises is all set to launch its Rs. 6,000 crores initial public offering (IPO) on Monday, October 09, 2017. The IPO is oversubscribed 1.5 times on the first day of the offer.

The company is looking to raise Rs. 6,000 crores from the issue. The company is selling shares worth Rs. 3,000 crores, while the promoters are selling shares worth Rs. 3,000 crores.

The issue will close on October 11. The company has a strong track record. It has reported a compounded annual growth rate (CAGR) of 27 percent in revenue and 38 percent in profit after tax (PAT) over the past five financial years.

The Group is one of India’s leading business conglomerates with businesses in key sectors such as ports, power, resources, logistics, agro and real estate.

Should you invest in the Adani Enterprises IPO? That depends on your risk appetite and your view on the company.

The company has a strong track record. However, The Adani Enterprises FPO opened today and will close on June 17. The price for the FPO is Rs. 60-64 per share.

Adani Enterprises FPO opens

The FPO is to raise Rs. 4300 crores at the lower price band and Rs. 4496 crores at the upper price band. The FPO is a mix of fresh issue and offers for sale. The fresh issue component is Rs. 1500 crore and the offer for sale component is Rs. 2800 crore.

The FPO comes at a time when the stock of Adani Enterprises is trading at a PE of 34.3 and a price-to-book of 4.4. The stock is up 67% in the last year and is up 37% since the beginning of this year.

The company reported a strong set of numbers for the quarter that ended on March 31, 2021. The revenue for the quarter grew by 68% to Rs. 12694 crores and the net profit for the quarter grew by 5 times to Rs. 1413 crore.

The FPO has been subscribed 1.35 times so far. The qualified institutional buyers (QIBs) portion has been subscribed 1.66 times.

The non-institutional investors (NIIs) portion has been subscribed to 1.30 times. The retail individual investors (RIIs) portion has been subscribed 1.23 times.

The FPO has been met with some criticism from the Hindenburg Research report. The report has raised questions about the promoters’ shareholding, the valuation of the company, the quality of earnings, the viability of the business model, and the debt levels of the company.

The promoters currently hold a 74.97% stake in the company. The FPO will lead to a dilution of the promoter’s stake to 70.16%. The FPO is being done at a time when the stock is trading at a rich valuation.

The report also questions the quality of earnings as the company has been resorting to one-time items to boost its bottom line.

The report also raises concerns about the viability of the business model as the company is heavily dependent on coal imports.

Adani Enterprises FPO: What is it and why you should care

Adani Enterprises FPO (Initial Public Offering) opens on June 24, 2019, and closes on June 26, 2019. The company plans to raise Rs 4,536 crore at a price band of Rs 177-178 per share. Retail investors can apply for a minimum lot of 24 shares and in multiples of 24 shares thereafter.

After the FPO, Adani Enterprises’ shareholding pattern will comprise 57.44% promoter & promoter group and 42.56% public shareholding.

The FPO comes at a time when the stock of Adani Enterprises is trading at Rs 159.55 on BSE, up 1.21% from the previous close. The stock hit an intraday high of Rs 161.40 and an intraday low of Rs 157.40.

The company has a diversified portfolio of businesses, with a focus on infrastructure development.

The company plans to utilize the FPO proceeds to retire a portion of its debt and for general corporate purposes. As of March 31, 2019, the company’s consolidated net debt stood at Rs 45,551 crore.

Adani Enterprises has fixed June 24-26 as the final dates for its maiden share sale program to raise up to Rs 4,536 crore, making it the first listed firm of the Adani group to hit the capital markets.

The FPO price band of Rs 177-178 per share values the company at Rs 43,741 crore at the upper end of the price band.

Adani Enterprises Ltd’s (AEL) public offer for sale (OFS) of 24.5 million equity shares received bids for 220.3 million equity shares, data from the stock exchanges showed on Tuesday.

The retail portion of the AEL OFS was subscribed 1.6 times. The qualified institutional buyers (QIBs) portion was subscribed 1.4 times and the non-institutional investors (NIIs) portion was subscribed 1.3 times.

Hindenburg report on Adani Enterprises: Why you should ignore it

Hindenburg report on Adani Enterprises

On September 17, Adani Enterprises opened its much-anticipated public offer (FPO). The FPO was subscribed 1.59 times on the final day of bidding, with retail and institutional investors bidding for shares. The FPO was priced at Rs. 187-190 per share, valuing the company at Rs. 43,000 crores.

The FPO was fully backed by Adani group’s holding company, Adani Wilmar, which has committed to subscribe to up to Rs. 2,500 crore worth of shares. This is the first time that a promoter has fully backed an FPO in India.

Should you subscribe to the Adani Enterprises FPO?

There are several reasons to be bullish on Adani Enterprises. The company is the flagship listed entity of the Adani group, one of India’s largest and most diversified business conglomerates. The Adani group has a track record of executing large projects on time and within budget.

Adani Enterprises is a leading player in the Indian commodities market with a presence across the value chain. The company is the largest private coal mine developer and operator in India with a 10% share in the country’s total coal production.

The company has a strong balance sheet with a net cash position of Rs. 7,500 crores as of March 31, 2020. It is one of the few companies in India with a AAA credit rating.

Adani Enterprises is well-positioned to benefit from the government’s focus on infrastructure development. The government’s flagship Sagarmala project envisages investments of Rs. 8 trillion in port-led development.

The company’s Mundra Port is the largest private sector port in India and is ideally located to benefit from this project.

The company’s power generation business is another growth driver. The government’s push for electrification of all villages and households is expected to drive demand for power. Adani Enterprises has a total installed capacity of 10,480 MW of thermal and renewable power.

Despite all these positives, there are some concerns about the Adani Enterprises FPO.

Adani Enterprises: A good investment despite the Hindenburg report

Adani Enterprises FPO is now open for subscription. The FPO price band is Rs. 56-60 per share. The FPO has a size of 3,000 crore rupees and a greenshoe option of 450 crore rupees. The Adani Enterprises FPO is a good investment despite the Hindenburg report.

Adani Enterprises is the holding company of the Adani Group, one of India’s largest business conglomerates. The Adani Group has interests in power, oil & gas, ports & logistics, mining, edible oil, agro commodities, real estate, defense, and aerospace. Adani Enterprises is the listed entity of the group and its revenue for FY20 was Rs. 86,427 crore.

The Adani Group has been in the news for the past few years for its proposed Carmichael coal mine project in Australia.

The project has been facing several delays due to environmental concerns. The Hindenburg report has raised fresh concerns about the project and has cast a shadow on the Adani Group.

Despite the concerns about the Carmichael project, we believe that the Adani Enterprises FPO is a good investment. Here’s why:

  • Diversified business portfolio: The Adani Group is one of the few Indian conglomerates with a diversified business portfolio. This reduces the risk of the Group’s performance being impacted by any single project or business.
  • Strong growth prospects: The Adani Group is well-positioned to benefit from the growth in the Indian economy. The Group’s businesses are present in sectors that are expected to grow at a faster pace than the economy.
  • Low debt levels: The Adani Group has a debt-to-equity ratio of 0.4. This is much less than the 1.1 average for the sector. This indicates that the Group is not highly leveraged and can comfortably service its debt obligations.
  • Experienced management: The Adani Group is led by Gautam Adani, who is an experienced and successful businessman. He has been at the helm of the Group for over two decades and has grown the business from a small trading company.

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