Analysts say such a high valuation always raises the risk of a correction. “At their current valuation, a lot of positive news
and optimism is built into the share price of Adani group
companies. This always raises the possibility of a sharp correction in stock price at the first whiff of negative news,” said an analyst on the condition of anonymity.
Adani group companies have been the biggest beneficiaries of the rally over the past year. The combined market capitalisation
of Adani group companies has risen nearly 600 per cent since the end of March last year against a 78 per cent rally in the Sensex. In comparison, the combined net profit of Adani group companies was up 140 per cent in financial year 2020-21 (FY21), while revenues were down 2.6 per cent. The group companies’ combined Ebitda or operating profit was up 65 per cent last fiscal.
As a result, the group companies’ P/E multiple expanded from 27.4x at the end of March last year to 102x now. Over the same period, the benchmark index’s P/E multiple expanded from 18x to 33x.
Some analysts also worry about the high indebtedness of the group. The group companies reported combined gross debt of Rs 1.48 trillion at the end of March 2021, based on unaudited results for FY21 up 8.2 per cent on year-on-year basis. This translated into a gross debt to equity ratio of 2x, which is one of the highest among the country’s top business groups.
However, the group companies’ record high market capitalisation makes it easier and cheaper for the group to raise equity capital and reduce its leverage.
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