AEL's growth in m-cap was 9X of net profit even before Hindenburg struck

Adani Group stocks have been under pressure on the bourses since the publication of the Hindenburg Research report on the group finances on January 24.

Since then, various Adani Group stocks have lost 16 per cent (in case of ACC) to 60 per cent of their market capitalisation or m-cap (in case of Adani Total Gas).

While the Hindenburg report alleged financial irregularities in the conglomerate, the Adani Group also shows a large gap between the rise in their m-cap and underlying growth in revenues and profits.

For example, Adani Enterprises’ m-cap was up 637 per cent between December 2014 and September 2022. By comparison, its consolidated net sales on trailing 12-months (TTM) basis was up 90 per cent during the period while reported net profit, on TTM basis, was down 70 per cent.

This gap in earnings and m-cap was even bigger in case of Adani Transmission, Adani Total Gas and Adani Green Energy. In contrast, there was no such gap in case of Adani Power and Adani Ports & SEZ.

The recent decline in the m-cap of the group stocks has plugged some of the gap between m-cap and earnings, leading to a sharp decline in the valuation of Adani stocks on price to earnings and price to book value basis.