How Adani sold Adani Green 20% stake at Rs 456 per share – Beat The Street

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Adani Green and Total SE deal highlights

Valuation of Deal

How Adani Sold Adani Green 20% stake at Rs 456 per share

Fishy Facts about Adani Green

Networth , Debt and Valuation

Business Risk

Peer Comparison

Adani Green Q3 Analysis

Introduction

Founded by Gautam Adani in 2015, Adani green is one of the largest and fastest growing renewable company in India.

“The company develops, builds, owns, operates and maintains utility-scale grid-connected solar and wind farm projects”- .They are generally into solar and wind power plants- they built these plants and sell the energy generated from this powerplants.

Key customers of AGEL include the National Thermal Power Corporation (NTPC) and Solar Energy Corporation of India (SECI) and various State Discoms

In Jan-21, Adani Green and its promoters entered into binding agreement with French energy major Total SA for investment of $2.5 billion.

French energy company TOTAL S.A on 19th Jan-21 said it will buy 20% stake in Adani Green Energy Ltd as well as a 50% stake in a 2.35 gigawatts (GW) portfolio of its operating solar assets for $2.5 billion(Rs.18298 cr) Besides, Total will also get a seat on the board of Adani Green Energy.

Source: Company Presentation

Valuation of Deal

Hence out of $2.5 billion (Rs. 18,298 cr), Rs. 4,017 cr is for 2.35 GW assets held in AGE23L (Adani Green Twenty Three ltd- jv b/w Adani & Total). Therefore, 20% stake sold by promoters at 14281 cr. Valuing Adani Green at Rs. 71405 cr where as market cap in Jan-21 is around Rs 174,000 cr.

How Adani sold Adani Green 20% stake at Rs 456 per share

Fishy Facts

1. Adani Green is the only co. with more than 1L cr mcap with ZERO ANALYST COVERAGE
2. Adani Green mainly rallied due to low free float but recently promoter sold their 20% stake to Total bringing down promoter stake to 55%.

Valuation

Considering Rs 0.12 EPS OF Q3 FY21 and assuming next 12 months EPS even at Re 1.
Its trading at PE of 1116. This means to earn Re 1 you are paying Rs 1116.
while other metrics are as follow:
PE 591 (based on EPS(TTM) of Rs 1.89)
PB 74.39
Market Cap 174000 cr
Networth 2084 cr
Debt 22639 cr
This clearly highlights expensive valuation.

FPI holdings raising more questions than answers

FPIs who invested in Adani Green have very high exposure to Adani Group which raises suspicion.

Facts about FPIs

A. penalised by Sebi: Elara & APMS

B. featured in Paradise Paper (financial data leak regarding tax heavens) : ARMS & Cresta Investment

C. invest only in penny stock except Adani group: Elara and Albula

Source: ET Prime

Business Risk

A. Reuters report said Adani Green’s 8 GW contract, with an assured tariff of Rs 2.92 per KW from government-owned Solar Energy Corporation of India, didn’t have any guaranteed customers as yet. No agreement has been signed yet with distribution companies, which increases the associated project risk, analysts said.

B. Agressive growth comes with some cost, in case of AGEL its tariff. Their portfolio average tariff is below APPC ( average power purchase cost ) which leads to lesser profit margin.

C. Though 14815 MW portfolio ensures bright future for AGEL but of that only 3245 MW is operational. Non operational assets are cost center which eats profit from revenue generated from operational assets.

Comparing AGEL valuation with recent ReNew Power-RMG SPAC deal

Note : AGEL market capitalization as on 27th Feb-21 while valuation of ReNew Power taken from recent deal

Its very clear that AGEL has expensive valuation even though both purl- play renewable companies have same power generating capacities.

Roadahead for Renewable Energy

Adani Green ‘s future plans

Final Thoughts

India has bright future for renewable energy with Modi Government vision is to develop 100 GW renewable energy capacity by 2022 while Adani Green is on path to create 25 GW portfolio by 2025. Carbon neutral need and EV are catalyst to these bright visions.

The company seeks to become the largest solar power company by 2025 and the largest renewable power company in the world by 2030.

AGEL does not have exact same peer listed on bourses but any listing of any pure renewable player (like Tata Solar, Tata Renewables, Jsw Renew Energy) can bring blue sky valuations of AGEL to ground as their IPO valuation will not be this much expensive

But

”Adani is into power business as well as power politics”

Thanks for reading

CA SUDARSHAN BHANDARI

Note : No content of this blog should be construed to be investment advice. You should consult a qualified financial advisor prior to making any actual investment or trading decisions. All information is for educational and informational use only. The Author accepts no liability for any interpretation of article or comments on this blog being used for actual investment. This is purely an information services, and any trading done on the basis of this information is at your own, sole risk.

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Beat The Street

Beat The Street is a Financial and capital market-based blogger & Youtube platform that is managed and owned by Nimish & Sudarshan who have worked for big consultancy firms as research analysts. Both have a deep knowledge of the capital market and economy and having experience of more than 5 years in this field. Their aim is to bring unique and curated analysis to investors and the public so that they can make informed decisions. They share their analysis and opinion via youtube and blog.
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