The Adani group seems to be on a roll.. Gautam Adani, the 60-year-old Adani group’s founder who began his commercial career as a trader from Ahmedabad, quickly expanded into a number of different industries. This week Gautam Adani surpassed Bernard Arnault and his family, who control the luxury goods company, LVMH, to become the third richest person in the world, just few days back.
While it didn’t take him very long to accomplish this, he had also surpassed Jeff Bezos to become the second-richest person in the world.. The few largest groups in India, which include Tata, Ambani’s Reliance, Birla, and a few others, have been around for a few decades and the Tata group is on top when market cap is taken into account. But the three-decade-old Adani group’s market cap surpassed Tata’s group, a landmark achievement in Indian corporate history.
The path was more difficult than it seems to most of us, while it also seems unreal that how quick the group was able to achieve this mark. From learning about various acquisitions made by the organization to hundreds of strategic deals made, each has added to the group’s prosperity. While we did not anticipate it to surpass the Tata group, this accomplishment is nevertheless significant enough to be discussed in more detail. So, let’s try to travel back in time to identify the businesses that served as the foundation of both groups and made the biggest contributions to the achievement of this milestone for the company.
Adani groups market cap has grown exponentially with severely high PE ratio
In comparison to Tata Group, which had a market value of Rs 20.77 trillion ($260 billion) at Friday’s closing, Adani Group had a value of Rs 22.27 trillion ($278 billion) for all of its listed stocks. Whereas, Reliance Group, helmed by Mukesh Ambani, came in third with a market capitalization of Rs. 17.16 trillion ($220 billion).
The market cap of Adani’s group includes market cap of its 9 listed firms which starts with ‘Adani’ Name along with recently acquired ACC & Ambuja cements. While Tata group has almost 27 listed companies making its market cap, TCS alone is equivalent to 53% of conglomerate’s total market cap. Whereas for Reliance group, it has 9 listed companies, of which Reliance Industries accounts for 98.5% of total market cap. Therefore, on an individual basis Reliance Industries is the top Indian company with a Market cap of Rs 16.91 trillion, followed by TCS a Tata group’s entity with market cap of Rs 11 trillion. Now coming on to Adani’s group, Adani Transmission is the group’s most valued firm with market cap of Rs 4.57 trillion.
Earlier back in 2018, Adani group’s largest firm was Adani Ports with a market cap of $ 11.47 Billion which has now become $ 25.11 billion and is on the 5th spot after Adani transmission, enterprises, total gas, and Adani green. All of these firms have seen meteoric rise in their valuations in past 2 years.
According to experts, the company’s valuation growth has mostly been attributable to valuation expansion rather than earnings growth. Adani Enterprises and Adani Transmission trade at more over 400 times their earnings, while stocks like Adani Total Gas and Adani Green trade at over 700 times. With such high PE ratio, Adani companies have been in limelight for quite some time with different analysts having different opinions. Some feel that it’s a valuation bubble that is building up slowly and steadily and can burst anytime soon with a severe impact on markets. While others believe that these companies deserve such high valuations as compared to their peers and are soon expected to bring their earnings to that level. Whereas for Tata groups top 5 companies, data is as follows:
Companies in the Tata’s group didn’t see any massive rise in their valuations. Titan company and Tata power reported more than two-fold increase in their valuation, while for Tata Motors and Tata steel they saw their valuations getting almost double. This growth was also supplemented by robust growth in their revenues & profits, thereby justifying their PE rations in comparison to their peers, which is again below 100 and are now very high.
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Reasons that fueled this growth and key risks to keep in mind
Since the Adani group makes investments in capital-intensive industries, debt has been a major driver of its growth. The listed group companies’ aggregate outstanding debt is projected to be $20 billion. There are also questions about whether the valuations of some of the group firms are approaching bubble territory.
Despite valuations, Adani’s current push into green energy has been the main driver of his wealth increase. Adani Green Energy has had a share price increase of almost 5,500% over the last three years, making it the most valuable firm in the group at $40 billion. Adani’s track record of entering promising industries at the right moment into the future while pursuing his lofty digital and renewable energy objectives will determine if the valuations will endure or not.
This can also be seen in the Adani Wilmar’s launched this year only. The IPO not only gave listing gains but has increased investors’ money by multi-fold till now. So, their high PE ratio along with high amounts of debts appears to be key risk factors associated with the heavy gains made by the group & Adani.
“In the worst-case scenario, overly ambitious debt-funded growth plans could eventually spiral into a massive debt trap, and possibly culminate into a distressed situation or default of one or more group companies,” the Credit Sights report said.
While the achievement by the Adani group is laudable, there are certain risks that cannot be ignored. For the Tata group, a lot depends on TCS which is currently facing challenges in terms of attrition, declining margins and likely slowdown from Europe. Going forward it will be interesting to track whether the Adani group can sustain its leadership in market capitalization or will the Tata group surprise over the next few months.
About the Author
Ketan Sonalkar (SEBI Rgn No INA000011255)
Ketan Sonalkar is a certified SEBI registered investment advisor and head of research at Univest. He is one of the finest financial trainers, with a track record of having trained more than 2000 people in offline and online models. He serves as a consultant advisor to leading fintech and financial data firms. He has over 15 years of working experience in the finance field. He runs Advisory Services for Direct Equities and Personal Finance Transformation.
Note – This channel is for educational and training purpose only & any stock mentioned here should not be taken as a tip/recommendation/advice
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