Rs 20,000-cr Adani Enterprises FPO opens on Jan 27: Should you subscribe?

Adani Enterprises' Rs 20,000-crore follow-on public offering (FPO) sent shares southwards in Thursday's intra-day trade, as they slumped over 4 per cent and hit a two-month low at Rs 3,446 per share. Analysts, however, suggest subscribing to the offer and re-iterated bullish tone on the counter, given the conglomerate's large play on renewable energy.

"The FPO will be a good buying opportunity for investors as money is allocated towards renewable, road assets, and other infrastructure assets including airports. Since renewable energy is the next growth trigger for the domestic economy, any company which focuses heavily on this form of energy would attract investments. Therefore, we expect a positive proposition on the counter than before," said Deven Choksey, managing director, KRChoksey Holdings.

Adani Enterprises (AEL) has set a price band of Rs 3,112-Rs 3,276 per share for its Rs 20,000-crore FPO. The floor price is at a 13.4 per cent discount to the stock's Wednesday's closing price, while the top-end is close to 9 per cent below. AEL is offering an additional discount of Rs 64 to retail investors.

Around 50 per cent portion of the offer is reserved for the qualified institutional buyers (QIBs), while 35 per cent is reserved for retail investors, and 15 per cent for high-net worth investors (HNIs). AEL's FPO Committee will meet on January 25 to finalise anchor investor allotment, and again on February 1 to finalise the offer price. The FPO is expected to open on January 27 and close on January 31 for other investors with a minimum bid lot of four FPO shares.
 
Shares in the offer will be issued on a partly-paid basis, where investors have to pay 50 per cent of the FPO's offer price per share on one or more subsequent calls. This, analysts said, makes the offer an attractive investment method.
 

 

Vinit Bolinjkar, Head of Research at Ventura Securities, expects shares of Adani Enterprises to re-rate in the long-term, owing to their rapid expansion spree.

"Since Adani Enterprises will dilute 10 per cent stake in the company, in order to raise funds, we expect further dilution on the line. We foresee the stock to re-rate in the long-term given their heavy investment action, and estimate 80 per cent upside from the current market price over two years," he added.

Of the Rs 20,000 crore proceeds of the FPO, Rs 10,869 crore will be used for green hydrogen projects, work at the existing airports and construction of a greenfield expressway. Another Rs 4,165 crore will go towards repayment of debt taken by its airports, road and solar project subsidiaries. These include Adani Airport, Adani Road Transport, and Mundra Solar.

The proceeds will also be utilised towards construction of green-field expressway, improvement works of certain airport facilities, certain projects of green hydrogen ecosystem, and other general corporate purposes.

As Adani Enterprises is an incubator of all businesses, Choksey said that renewable space, too, shall be incubated gradually and can potentially be de-leveraged into a separate entity. He recommends investors to 'hold' the stock and use any correction as a buying opportunity.

On the bourses, shares of shares of Adani Enterprises have soared 78.41 per cent so far this fiscal year (FY23), as against 4.2 per cent rise in the S&P BSE Sensex, during the same period. Moreover, Adani Enterprises' shares have surged 95 per cent over the past year to Rs 3,596.7. The stock is trading at a valuation of over 141 times its one-year forward earnings. By comparison, Reliance Industries Ltd. — India's largest firm by market value — is at about 20 times, according to data compiled by Bloomberg.