Adani Group companies' sky-high valuations unfazed by market correction

Group's stocks trading at a P/E of 105.3x

The recent correction in equity markets has done little to dent the sky-high valuation of Adani Group companies. Adani Group companies remain some of the most expensive stocks on the bourses, with a combined price-to-earnings (P/E) multiple of 105.3x and a price-to-book value (P/BV) ratio of 15.3x.

The seven listed companies in Adani Group had a combined market capitalisation (m-cap) of Rs 14.44 trillion on Tuesday, against a combined net profit of Rs 13,715 crore in 2021-22 (FY22), and combined networth of Rs 94,442.5 crore at the end of FY22.

The Adani Ports and Special Economic Zone is yet to declare its results for FY22. Its networth is at the end of September 2021 (first half of FY22), while its net profit in the sample is trailing 12 months ended December 2021.

Adani Group’s combined m-cap is up 617 per cent since the end of December 2019, against 84 per cent rise in Reliance Industries’ (RIL’s) m-cap during the period and 76 per cent rise in the combined m-cap of Tata Group companies.

The group valuation ratios are many times bigger than the corresponding ratios of other big business groups and those of the broader market.

For comparison, RIL — the country’s biggest firm in terms of revenue, profit, and m-cap — is trading at a P/E multiple of 26x and a P/BV ratio of 2.3x.

The company ended Tuesday with a m-cap of Rs 17.7 trillion, against a consolidated net profit of Rs 60,705 crore in FY22, and networth (or shareholder’s equity) of Rs 7.8 trillion at the end of March this year.

Tata Group stocks are even cheaper, with a combined P/E multiple of 27.5x and P/BV ratio of 6.2x as on Tuesday. The 16 key Tata Group companies directly promoted by Tata Sons had a combined m-cap of Rs 20.65 trillion on Friday, while these companies reported a combined net profit of Rs 74,523 crore on a consolidated basis in FY22 and networth of Rs 3.32 trillion at the end of FY22.

Adani Group stock valuations are also very high, compared to the Sensex stocks. The benchmark index was trading at a P/E multiple of 22x on Tuesday, while its P/BV ratio was 3.1x on Tuesday.

Analysts say Adani Group companies’ high valuation is not due to their superior profitability, but because investors expect the group to grow at a very rapid pace since it invests aggressively in its existing businesses and enters new segments.

Adani Group companies reported a combined return-on-equity (RoE) or networth of 14.5 per cent in FY22, slightly ahead of the Sensex companies’ average RoE of 14.3 per cent and much higher than RIL’s consolidated RoE of 7.8 per cent in 2020-21, but below Tata Group’s combined RoE of 22.4 per cent.

Adani Group companies’ high valuation and high m-cap help the group raise large amounts of equity capital to fund their growth plans. Analysts say the group can do it either by selling stake to new investors or pledging shares to lenders.

Adani Group companies’ stock prices have, however, come under pressure in recent weeks due to a sell-off in the broader market. The group companies’ combined m-cap is down Rs 2.31 trillion, or 13.8 per cent, in May so far, more than what RIL and Tata Group have lost.

RIL is down 6.3 per cent month-to-date, while Tata Group’s combined m-cap is down 8.75 per cent during the month so far.