Why Is Adani Green's Share Price Falling?
For the past couple of weeks, the market's behaviour has been unpredictable. While a few sectors have gained considerably, there are some sectors which have plunged around 15-20%.
Each day, this impulsive behaviour of the market is making investors wonder about how they should invest in different sectors.
Take for instance the green energy sector. All companies involved in the green energy business have their charts in the red.
The volatility of the market has shown a bearish mood in the renewable energy sector, a sector which was termed as a hot favourite.
Big players like Adani Green Energy, Borosil Renewables, KP Energy, Websol Energy Systems, and Zodiac Energy, all have exhibited downward trends in the past one month.
Among these stocks, Adani Green, the big multibagger stock of 2021, has fallen more than 23% in the past month.
Let's dig a little deeper into the probable cause for the fall.
#1 All Adani group stocks fall
Since April 2022, all stocks from the Adani group have seen a sharp decline owing to the market selloff among other concerns.
Have a look at the table below which shows the performance of all Adani group companies in the month gone by.
#2 Sectoral effect?
In March 2022, the Indian government announced to raise renewable energy capacity to 500 Gigawatt by 2030.
Renewable energy production capacity was roughly 10 GW in 2005, and it has expanded to around 100 GW by December 2021. That's a 16.6% compound annual growth rate over 16 years.
To contribute to India's renewable energy dream, Adani Green aims to become the world's largest renewable energy company by 2030 with a pioneering effort to help India's transition to renewable power generation.
When this news came out, big players like Adani and Reliance decided to Go Green!
Investors were aware of the great capacity of Adani Green and how it would bring a great amount of business to the firm.
Adani Green moved up by more than 50%, rising from Rs 1,945 to Rs 2,970 in a span of 18 days in April 2022.
With the government taking actions in favour of the green energy sector and the price of fossil fuels like petrol & diesel skyrocketing around Rs 105, the green energy sector boomed.
Observing the scope of green energy sector companies, people started investing in green energy companies, and the share price moved up with a large volumes.
A bullish trend was visible in all renewable energy stocks in April 2022.
Today, when the trends are deviating in this highly volatile market, the mini bubble seems to have burst.
#3 Valuation concerns
Adani group stocks were the biggest gainers since the March 2020 crash. Chart out any company's graph and you'll see a sharp arrow rising upwards.
So, it was only a matter of time before the markets took note of this and brought down the most overvalued stocks.
Adani Green Energy is among the top 5 most overvalued stocks in India. It trades at a PE multiple of a whopping 710 while its price to book value is also an expensive 157.
Investors are falling head over heels for this green energy company even though its fundamentals are not looking good.
The company has made losses in four of the last five years. Its balance sheet is loaded with debt. It has not paid dividends for the past five years.
Yet the stock trades at a stratospheric PE.
For a weak balance sheet and a loss-making profit and loss statement, Adani Green's valuations clearly seem to be in a bubble.
So why are investors loving this company? Well, they see it as one of the prime beneficiaries of the disruptive shift in the energy landscape.
A shift where traditional hydrocarbon-based energy will be replaced by green energy like solar and wind.
#4 Interest rate concerns
Adani Green funds all its capex through debt from holding companies, debentures, and foreign currency loans.
With the US Federal Reserve all set to hike interest rates to combat inflation, Adani Green might feel the burden on its books. It couldn't generate positive free cash flows in the financial year 2021.
How the stock of Adani Green Energy has performed recently
After the surge in share price from March end to mid-April 2022, the stock has fallen quite a lot.
Over the last 30 days, Adani Green share price is down 23.4% while over the last one year, it has gained 58.9%.
The current market capitalisation of Adani Green stands at Rs 3,428,955.15 m.
About Adani Green
Incorporated on 23 January 2015, Adani Green Energy currently has a project portfolio of 20,284 MW, and it's one of India's largest renewable energy enterprises.
The firm administers 5,290 megawatts of wind energy and solar power facilities in 11 Indian states, including Uttar Pradesh, Rajasthan, Punjab, Maharashtra, Gujarat, Madhya Pradesh, Chhattisgarh, Andhra Pradesh, Karnataka, Tamil Nadu, and Telangana.
Adani Green has a 5.29 Gigawatt (GW) project portfolio and an operational capacity of 2.32 GW.
In its Q4 results, Adani Green posted over 16% rise in consolidated net profit to Rs 1,210 m, mainly on the back of higher revenues.Happy investing.
(Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.)
This article is syndicated from Equitymaster.com
(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)
