Adani Enterprises' Restructuring: Solving the Puzzle

By SP Tulsian & Geetanjali Kedia

Adani Enterprises (AE) is implementing a novel restructuring move, largely beneficial to its shareholders, by distributing the shares of Adani Port, Adani Power and Adani Transmission, held by it as Promoter of those companies, directly to the shareholders of Adani Enterprises. This Scheme has Record date of 4^th June, as fixed by AE, and share will trade on cum basis till tomorrow (Tuesday 2^nd June) and will go ex, with market opening, on Wednesday 3^rd June 2015. Scheme is as under:

1. 14,123 equity shares of Adani Port (APT) shall be offered for every 10,000 shares held in AE.

2. 18,596 equity shares of Adani Power (APO) shall be offered for every 10,000 shares held in AE.

3. 1 share of Adani Transmission (ATL) shall be offered for every 1 share held in AE.

4. Shareholders of AE will continue to hold equivalent number of shares of AE, which will trade, on ex-basis, post this restructuring move, at the reduced value, on stock exchange, after values of (1) to (3) will get reduced from it. AE will be left with its coal trading business and coal mining assets with requisite infrastructures thereto, having in Australia.

In the process, we need to understand the rationale and its effect on the share price of APT and APO. As there won't be any change in the issued & paid up equity of both these companies, share prices of APT and APO have no reason to correct from hereon. To understand the break-up of present value of AE share, we need to work it out, as under:-

1. 1 Share of AE will get 1.4123 shares of APT. This gives value per share to Rs. 440, taking closing share price of APT on 1^st June, 2015 being at Rs. 312 per share.

2. 1 Share of AE will get 1.8596 shares of APO. This gives value per share to Rs. 69, taking closing share price of APO on 1^st June, 2015 being at Rs. 37 per share.

3. Expect share of ATL, having face value of Rs. 10 each, to get listed at around Rs. 40 per share, in next one month.

4. Aggregating the above three values, we get an effective valuation of Rs. 550 for each share of AE, to be received by the AE shareholders.

5. Closing share price of AE, on 1^st June, 2015, is Rs. 633 per share, leading to residual value of 1 AE share at around Rs. 84 per share, which seems reasonable.

It may be noted that the Promoters’ stake in all the three listed companies viz., AE, APT and APO is at 75%, while FIIs, DIIs and OCBs are holding about 23% stake in AE, 21% in APT and about 20% in APO, with very low public float being held in all these three listed companies. With this restructuring, Adani family will be holding over 56% stake in APT and APO, while it will hold 75% in AE. Of the 18% increase in public float of APT and APO, major chunk will go to institutional shareholders. Post restructuring, since issued & paid up equity is unchanged in AE, APT and APO and retail float is also not increasing much, it indicates bullishness for all these 3 listed stocks.

Adani Port is the strongest company, amongst all these listed stocks of the Adani Pack and hence will see least selling, or exit by investors, those who will be receiving shares of APT in this restructuring move. However, APO may not have much appetite, due to low perception on the power generation stocks now. However, ATL will have good appetite on its listing, as Transmission and Distribution sector will be the most preferred business in the power sector, in the time to come.

So, post restructuring, AE will trade below Rs. 85 while APT may see renewed buying at the current levels. Due to high beta nature of all these Adani Group stocks, it won't be surprising to see share price of Adani Port moving close to Rs. 350 in this month and above Rs. 400 in this calendar year.

It may also be seen that Adani Port has seen delivery volume of close to 18 lakh shares on NSE & BSE today, while increase in OI of 11.50 lakh shares was seen in Futures on NSE. This indicates selling in cash segment with buying in Futures segment, by strong hands, which is again a bullish indicator.

It may also be noted that share price of AE moved from Rs. 633 on 7-5-14 to Rs. 800 on 26-5-14 and fell back to Rs. 633 today. This indicates the high beta nature of Adani Group stocks or the strength of the strong hands to manoeuvre the share price.

To conclude, take bullish view on Adani Port, followed by Adani Transmission as an investor, to reap good gains in time to come.

Disclosure – Have interest in Adani Port.