Patience is key while Investing in equities. Build a diversified portfolio of small and mid caps by Investing in Hidden Gems and Value Picks. Click here for details.

SERVICES:        HIDDEN GEMS    |    VALUE PICKS    |    15% @ 90 DAYS    |    WEALTH-BUILDER




Saturday, February 4, 2023

Investors queries raised on Adani Group Companies

Dear Member,

Most of the investors are busy looking at stock prices of Adani group companies these days. The recent crash in Adani Group stocks like Adani Enterprises, Adani Ports (these two are the Nifty 50 companies), Adani Green, Adani Total Gas etc collapsed by 60% and more over the last couple of weeks.

We continue to receive emails from our subscribers regarding any investment opportunities arising in Adani group companies post recent fall in stock prices.

Over the last 15 years of our investment journey, we have seen that many retail investors who have missed buying a particular company stock which has delivered strong returns like 20X - 50X or more in the last couple of years, try to add the stock thinking it's a great bargain. Example: Unitech (post 2009 stock market crash), ADAG Group Companies (2009 market crash and also post 2018 crash in stock prices) etc.

Retail investors (mostly those who have not witnessed or experienced the same thing in the past or do not look at business valuations) are not aware of how brutal the market could be from time to time making the mistake of investing in such companies. The investor's capital can be turned to zero also if the company is unable to service its debt or unable to pay the interest on time on its borrowings. So it's very important to evaluate a company looking at its business fundamentals and not just the fall in share price.

Despite the fact that we have seen how Adani Green stock price moved from Rs 50 to Rs 3,000 over last 4 years and other Adani group companies turning out to be 5X to 30X during the same time, we never ever recommended any of these stocks because we never had the conviction in these companies looking at business fundamentals and most importantly the valuations these companies were commanding in the past.

Adani Group Stocks - No Means No!

Now coming to the queries we received since the last few days on Adani Group stocks, we do not advise to invest in any of these companies as valuations are still not justified and overall risk is high considering excessive debt on books. In fact, there is a survival risk on companies like Adani Green which is highly leveraged and its listed bond in  crash in its bond price over the last one week.

Remember, it's not like that if a stock price fell by 50% or say 80% from its peak, it becomes attractive. If a particular company has taken excessive debt and is unable to pay to lenders, there is a solvency risk with the company. We have seen how the investors' capital has been turned to zero by investing in other big groups in the past. We have seen this happening with ADAG group companies, Future Group companies, Kingfisher Airlines, Lanco Infratech, Sintex Industries and many others.

We do not state that Adani Group will collapse like others, we do not want to say that at all. The group has high value assets and can manage the things well in future, this can also happen. But post FPO reversal (returning 20k crores back to investors) and the company's bond prices collapsing (as the company has raised funds from international markets), and various allegations on the Adani group which may further create hurdles for the company to liquidate its assets or to get new investors to reduce borrowings, the situation is not good. Moreover, valuations of most of the Adani Group companies are still very expensive. Either you look at debt levels, the PE multiple these companies are commanding, the price to book value etc, all these valuation parameters indicate that the business is still expensive. That is one of the reasons that total mutual funds has investment of merely 1 percent in the biggest group company i.e Adani Enterprise. LIC has majorly invested in it and is currently holding more than 4% stake which might have its own reasons, we do not want to comment on it.

Most importantly, there are plenty of other investment opportunities available in the market which do not have excessive debt on books, have good cash flows from operations, do not seek lot of capital for business expansion, have good growth outlook, so when there are various options available, why should we need to invest in the companies which involve higher risk.

We have recently released our Special Report - 5 Hidden Gems to Buy / Accumulate on 29th Jan 2023 and shared it with all our active Hidden Gems members, the detailed report will be released during this weekend. 

We will also release a similar report for our Value Picks service in Feb 2023. Click here to know more.

Worth Reading - Why Share Price is not Important while Buying Stocks?

Wish you happy & safe Investing!

Team - Saral Gyan