Shares of Adani Green Energy have been pummeled in the last month after Hindenburg Research published a scathing report accusing the company’s top management of stock price manipulation and much more.
Currently, the share price of Adani Green is ₹509.55, down 84% from its 52-week highs, valuing the company at a market cap of ₹808 billion.
Adani Green Energy Share Price on NSE: ₹509.55
Adani Green Energy Market Cap: ₹808 billion
Adani Green Energy Share Price (52-week low): ₹439.10
Adani Green Energy Share Price (52-week high): ₹3,050
Let’s see if you should buy or sell Adani Green Energy shares right now.
What does Adani Green Energy do?
Adani Green Energy Limited is a leading renewable energy company in India that generates and sells electricity from clean energy sources such as solar and wind power. The company’s business model involves the following key elements:
Project Development: Adani Green Energy develops renewable energy projects through a variety of means, such as partnerships, acquisitions, and new construction. The company has a significant portfolio of renewable energy projects across India, including both solar and wind power.
Power Purchase Agreements (PPAs): Once a renewable energy project is developed, Adani Green Energy enters into long-term PPAs with utilities or other customers to sell the electricity generated by the project. These PPAs provide a stable and predictable source of revenue for the company.
Operations and Maintenance: Adani Green Energy is responsible for the ongoing operations and maintenance of its renewable energy projects. This includes monitoring and maintaining equipment, managing the supply chain, and ensuring compliance with regulatory requirements.
Financing: Adani Green Energy funds its projects through a variety of sources, including debt financing, equity investments, and government subsidies. The company has a strong balance sheet and has been successful in raising capital to support its growth.
Energy Storage: Adani Green Energy is investing in energy storage technologies, such as battery storage, to increase the reliability and stability of renewable energy projects. This will allow the company to provide more consistent and reliable sources of renewable energy to its customers.
Overall, Adani Green Energy’s business model is focused on developing, owning, and operating renewable energy projects that generate a stable and predictable source of revenue through long-term power purchase agreements. The company’s focus on renewable energy aligns with India’s goal to increase its renewable energy capacity, which presents significant growth opportunities for Adani Green Energy in the future.
What are the economic moats that Adani Green enjoys?
Some of the economic moats that could give Adani Green Energy a competitive advantage include:
- Scale: Adani Green Energy is one of the largest renewable energy companies in India. The company has a diversified portfolio of renewable energy assets allowing it to benefit from economies of scale and negotiate better deals with suppliers.
- Cost advantage: Adani Green Energy has a significant cost advantage over its competitors due to its access to low-cost financing and economies of scale. This allows the company to offer competitive pricing to its customers.
- Government support: The Indian government is committed to promoting renewable energy and has implemented policies and incentives to support the growth of the sector. Adani Green Energy has been able to benefit from these policies, which include tax exemptions, subsidies, and other incentives.
- Brand recognition: Adani Green Energy is part of the Adani Group, which is a well-known and respected brand in India. Adani brand recognition can help the company in attracting customers, suppliers, and investors.
- First-mover advantage: Adani Green Energy was one of the first companies to enter the renewable energy market in India. This has given the company a first-mover advantage, which could make it difficult for new entrants to compete with the company.
What are the threats and risks for Adani Green Energy share price?
As with any company, Adani Green Energy faces various threats and risks that could negatively impact its business. Some of them include:
- Regulatory changes: Any changes in government policies, regulations, or incentives related to the renewable energy industry could negatively impact Adani Green Energy’s business.
- Competition: The renewable energy sector is becoming increasingly competitive in India, with new players entering the market. Adani Green Energy may face pricing pressure and a loss of market share as a result.
- Dependence on government support: Adani Green Energy is heavily reliant on government policies, incentives, and subsidies to operate profitably. Any changes to these policies could negatively impact the company’s profitability.
- Availability of financing: Adani Green Energy requires significant capital to fund its growth and expansion plans. The availability of financing and the cost of capital could impact the company’s ability to execute its growth plans.
- Operational risks: Adani Green Energy operates and maintains a portfolio of renewable energy assets, including solar and wind power plants. Any operational failures, such as equipment failure, weather events, or natural disasters, could impact the company’s financial performance.
- Environmental risks: As a renewable energy company, Adani Green Energy is heavily invested in protecting the environment. Any incidents related to environmental degradation or non-compliance with regulations could damage the company’s reputation and lead to legal and financial liabilities.
Is Adani Green Energy a good buy?
Back in 2020, Adani Green stated it wanted to become the largest solar company globally by 2025 and the largest renewable energy company in the world by 2030. Its existing portfolio of renewable power generating assets stood at more than 2.5 gigawatts which should more than double in 2022 with 3.5 gigawatts under construction capacity. This operational capacity is forecast to touch 18 GW by 2025, as the company will invest 70% of its capital expenditures to expand its base of cash-generating assets.
The company ended the December quarter with 8.15 GW of operational capacity as it continues to get projects commissioned at an accelerated pace. Adani Energy has already increased its revenue from ₹20.5 billion in fiscal 2019 to ₹66.5 billion in the last four quarters. Its operating income has surged from ₹6.5 billion to ₹33.9 billion in this period.
Over the years, Adani Green has funded its growth on the back of interest-bearing debt capital. As interest rates have risen in recent months, the cost of debt for Adani Green is bound to increase, driving its profit margins lower. It ended the most recent quarter with ₹520 billion in debt, while its interest expense in the last four quarters stood at ₹18 billion.
Is Adani Green Energy stock overpriced?
Yes, shares of Adani Green Energy seem overpriced. Despite the pullback in Adani Green share price in 2023, it’s trading at 137 times forward earnings, which is very expensive. Comparatively, the stocks part of the Nifty 50 index have an average forward earnings of 21x. So, if we consider this average, Adani Green Energy is overvalued by more than 80%.