Adani Enterprises, Adani Green, Adani Power, Adani Total Gas: Adani group shares fall on debt concerns

Adani group shares extended recent losses on Tuesday morning after valuation guru Aswath Damodaran said the Gautam Adani-led group collectively carries about three times as much debt as it should, adding that the group is overleveraged.

In his latest blog, Damodaran pointed out good and bad reasons for borrowing and also talked about the right financing mix. He said Adani Enterprises, in his assessment, carries too much debt, with actual debt more than double its optimal debt. He said reducing Adani Enterprises' debt load will not just lower its risk of failure, but also lower its cost of capital.

Shares of Adani Enterprises fell 4.95 per cent to hit a low of Rs 1,135. Damodaran's blog came at a time when a media report suggested that SBI-led lenders that are conducting an annual review of Adani Enterprises Ltd have decided to maintain status quo on credit limits sanctioned for Gautam Adani's flagship company.

Adani Power Ltd was down 4.27 per cent to Rs 133.55. Adani Transmission Ltd declined 5 per cent to Rs 642.55. Adani Green Energy Ltd also fell 5 per cent to Rs 439.35. Adani Total Gas Ltd slipped 5 per cent to Rs 680.20. Adani Wilmar dropped 4.71 per cent to Rs 328.

"The Adani Group collectively carries about three times as much debt as it should, confirming that the group is over levered as well, but note that this is bad business practice, not a con. In fact, as you can see from the cost of capital graph, there is little, if any, benefit in terms of value added to Adani from using debt, and significant downside risk, unless the debt is being subsidised by someone (government, sloppy bankers, green bondholders)," Damodaran said.

Adani group stocks have been under pressure ever since Hindenbug Research came out with several allegations including stock manipulation and accounting frauds.

Damodaran in a recent interview to India Today TV said even if he assumes that Adani group has 38 shell companies, he does not believe in allegations of stock manipulation, as Adani companies are not small in size, even if they have low float. He noted that the market capitalisation of Adani group companies jumped by over $100 billion dollars and, to do that, one needs a lot of trading.

In the same interview he said LIC's investments in Adani group companies one of its better bets in 20 years.

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