Adani Transmission - High growth potential

Excerpt from rakesh-jhunjhunwala.in

Adani Transmission – ideal combo of security and growth
Mudar Patherya has given ten cogent reasons why Adani Transmission is the ideal stock with the security of a fixed deposit (assured returns) and the excitement of growth (higher incentives). These are as follows:

(i) Adani Transmission is the Power Grid of India’s private sector power transmission entity. It has achieved its 2020 capacity target three years ahead of schedule;

(ii) the returns on the assets — power transmission lines from one point to another — have been secured through long-term annuity revenue contracts with the government;

(iii) the business is marked by high profitability; the Ebitda (earnings before interest, taxes, depreciation and amortisation) margin was 92 per cent in the first quarter of this financial year;

(iv) the moment the company stops expanding, it can select to patiently draw debt down and become a cash cow — or keep expanding capacity, with a relatively stretched but secured balance sheet (which is what it is doing);

(v) it has reconciled two business models, the pass-through where the government provides a pre-agreed return of 18 per cent internal rate of return (IRR) equity, with all costs reimbursed (five projects) and a tariff-based competitive bidding (TBCB) model, where the lowest cost company wins (nine projects);

(vi) the business is largely de-risked the moment a transmission network is activated — a high penalty for delaying or defaulting customers ensures timely inflow for Adani Transmission;

(vii) as the government graduates an increasing number of projects to TBCB, Adani Transmission expects to flex its muscle, using cutting-edge HVDC lines that deliver network availability much higher than the mandated average;

(viii) the company has graduated to investment-grade rating, making it possible to raise low-cost global funds (the second biggest profitability driver). The company’s 10-year $500 million bond offering attracted ~35,000 crore of borrowing interest, translating into a premium;

(ix) the company possesses deep competence through senior managers who, in their previous jobs, commissioned an aggregate 25,000 circuit km, providing Adani Transmission with rich intellectual capital (in land aggregation and right of way), making it possible to commission faster and cheaper (huge edge in a TBCB environment), leading to a 18-19 per cent equity IRR return, around 400 basis points higher than what is assured by the government;

(x) the company has demonstrated it can acquire transmission networks with speed, which has helped eliminate risk and prepone revenue inflow.

14 PM

Financials:

37 PM

Triggers:

Reliance Infrastructure to buy the Mumbai city power business

Valuation:

This is Varinder Bansal’s valuation when it was trading around 40,

Another from stock Utiliities:

RISK :

  • As of Oct 2017 , valuations look stretched. It has run up a lot ever since, currently at a PE of 63.46
  • Cyclical nature of transmission business.

Here they gave target of 55.

Disclosure: Holding from 60 levels

not only PE is high Mcap to operating profit is also more than 12 and stock has not shown any growth in operating profit. How such high valuations are justified.

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Hi,

Thanks for initiating the topic. Any reason why the FY18Q1 numbers are much less than all quarter numbers in FY17?

Adani Transmission - FY17Q1

source: valueresearchonline

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He is Varinder Bansal and not Nigel

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Poor results PAT down 33%
http://www.bseindia.com/xml-data/corpfiling/AttachLive/5272f34d-39e7-4168-833e-fd1de8652c47.pdf

@naruto do you hold it? you didn’t give your disclosure.

hi @ishandutta2007

Disclosure: Not invested. Tracking because of the high p/e

Anyone have a clue about huge jumps in Revenue/Profits this quarter?

The huge jump is because of Reliance transmission biz got reflected in the books of Q3. We can extrapolate this for the Annual results.

Apart from the above, the newly acquired Reliance Mumbai assets will add close to 7000 crores revenue to the books once it is approved by respective authorities.

If market recognises this, I am hoping a massive re-rating of the stock. Also, any new win of transmission lines/debt reduction will only brighten the prospects of the business.

Risk: Piling of huge debt.

Disclosure: 30% of my portfolio. not thinking of reducing it, though it is risky.

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I think the current results do not give a clear picture, Revenue from new business has been included but there is no change in interest cost or debt. One the interest cost reflects new debt for these acquisition we may see much lower numbers.

Hey guys,

I am totally surprised that all adani company with overvalued multiple 100 PE, are clearly pumped by LIC consistently for last several quarters. It clearly shows government (Modi) backed pumping of its share prices. Does anyone know about the ties between the two? While searching on internet i see clear ties between them, isn’t it an obvious display of Chroniysm? Does Adani control this nation? ( Disclaimer : i have no policitcal biases, but i was really surprised to see consistent increase in stake by LIC in all adani stocks ).

Thanks.

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I was pleased to find that this is down to 2500 odds from 4300, till i looked at 2020 prices.

Astonishing growth in stock price, a PE of 335 still.

LIC seems to have increased the holding every time the market has fallen, notably in March and June 2022.

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Point by point rebuttal by Adani group to global short seller report
Adani Portfolio January 2023 Global Call Short Seller Response.pdf (825.7 KB)

Where’s the rebuttal in this?

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Adani response

https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.adani.com/-/media/Project/Adani/Invetsors/Adani-Response-to-Hindenburg-January-29-2023.pdf&ved=2ahUKEwjdz8jFvu78AhX3VWwGHbvFCzkQFnoECBEQAQ&usg=AOvVaw1yYdKp3OogRuAYBbLdKKBA

Hindenburg response

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