Positive move for Adani Enterprises' shareholders

Unsurprisingly, Adani Power closed marginally up (0.68%) at Rs 51.90 on bourses, while Adani Ports and SEZ closed 0.9 per cent down at Rs 340.50

Adani Enterprises’ plan to simplify the holding structure across group companies to focus more on each business segment was given a thumbs up by the Street, with the stock jumping 7.79 per cent to close at Rs 629 on Friday, even as the BSE Sensex fell 500 points (1.68 per cent). Experts feel the move is positive for Adani Enterprises, as it will lead to lower leverage and interest costs and each business will get fair valuations on bourses.

However, the move is likely to accrue more benefits to Adani Enterprises, given the company has a holding company-like structure, which markets typically value at a discount. Companies such as Grasim, Aditya Birla Nuvo, M&M and Sesa Sterlite are among those with such structures.

Experts say the move by Adani Enterprises will be neutral for two group entities. Unsurprisingly, Adani Power closed marginally up (0.68 per cent) at Rs 51.90 on bourses, while Adani Ports and SEZ closed 0.9 per cent down at Rs 340.50.

S P Tulsian of sptulsian.com says the move is positive, adding it will benefit Adani Enterprises shareholders. The sum-of-the-parts valuations weren’t being able to capture fair the values of other holdings (ports and power businesses). But now, shareholders will own shares of each business and get fair value for these, he says, adding such a move should be a precedent for other companies.

Ravi Shenoy of Motilal Oswal Securities says though the firm doesn’t actively cover Adani group companies, any restructuring that leads to more focus on core businesses is positive.

Ambreesh Baliga, an independent market expert, says any merger or de-merger in a bullish market is looked at positively. This, he said, was what led to the rise in the stock.

Each Adani Enterprises shareholders will get a share of the transmission business (to be listed separately) for every share held in the company, which so far attracted little valuations. Overall, the consensus target price, according to Bloomberg, is Rs 536.

Two of the three analysts polled by Bloomberg since mid-November 2014 have a ‘buy’ rating on the stock, while one has ‘hold’. Some say there could be more upside to the stock.

For the Adani Power and Adani Ports and SEZ stocks, the upsides appear capped. Now, the focus will shift to fundamentals and business prospects. A Bloomberg poll of 12 analysts since January this year showed eight had a ‘sell/underweight’ rating on Adani Power, while three had ‘hold/neutral’ and one had ‘buy’. Their average one-year target price was Rs 41.70 for the stock. For Adani Port and SEZ, eight of the 15 analysts had a ‘buy’ rating, five had ‘hold’ and two ‘sell’. Their target price was Rs 352.