Adani Enterprises P/E Ratio & Hindenburg Report Impact Explained in Layman Language

The price-to-earnings (P/E) ratio is a valuation ratio that compares a company's stock price to its earnings per share (EPS). It is calculated by dividing the market price per share by the EPS. The ratio is often used to determine whether a stock is overvalued or undervalued, with a higher ratio indicating that the stock is more expensive relative to its earnings. A lower P/E ratio may indicate that the stock is undervalued, while a higher P/E ratio may indicate that the stock is overvalued. However, it is important to note that a high P/E ratio alone does not necessarily mean a stock is overvalued, as it may be justified by factors such as strong growth prospects or a favorable industry outlook.

The price of the Adani Enterprises stock is 496 times its earnings, or, investors should be willing to pay this high a premium on its stock price to buy this share, while for the industry on average, the price of stocks is 53 times the earnings(which in itself may be high at the moment, also driven by Adani stocks cotributing to it).

Also note that the stock price has been driven up (artificially?) in the last year (94% growth) in prep for this FPO, so they can ask for this high a price.

Not many MFs are invested in Adani in spite of this growth.

The writing is on the wall now courtesy Hindenburg report against Adani group which has led to massive fall in the stock price.

Adani Group is an Indian conglomerate company headquartered in Ahmedabad, Gujarat, India. The group was founded by Gautam Adani in 1988 and operates in multiple sectors including agribusiness, energy, logistics, agri-infrastructure, real estate and aerospace. The group's flagship company, Adani Ports and Special Economic Zone (APSEZ) is one of the largest port developers and operators in India. The group has also invested in renewable energy projects such as solar and wind power.

Adani Group has been involved in controversies related to the environment, labor rights and human rights. The group's proposed Carmichael coal mine in Australia has been opposed by environmental groups due to concerns about greenhouse gas emissions and the potential impact on the Great Barrier Reef. The company has also been criticized for its labor practices and for allegedly not adhering to safety standards in its mining operations.

Though if we go back in history ...before dotcom bubble Yahoo was trading at 1900 times yes you read it right 1900 times earnings and was still being bought

What happened to those investors who bought at 1900 pe is for everyone to realise ..

There has to be a method to madness

That's the beauty of Financial Euphoria and Human beings reactions ....We tend to make and repeat same and same mistakes everytime....

Pls read Short History of Financial Euphoria by John Galbraith a knowledge powerhouse on how decades after decades we commit same investment blunders and not learn from past.

Make money using our bank nifty option tips and be a part of the profit making team.

You all must have read multiple things about Hindenburg Research. For info, the Hindenburg was a gas-filled flying transport in the 1930s. It was called the blimp and given the name Hindenburg later (for the then German chancellor). Did you know that the most famous of Hindenburg was the Good Year blimp? But here you had Hindenburg Research instead, setting us off to a bad year start.

Here are our views:

Hindenburg Research is an investment research firm based in USA which focuses on activist short sell trading activities. They look for companies that are bound to fail in a time frame- where they can earn returns. 

They also indulge in 'activism' which means that they try to take board seats in the company and wants to influence corporate decisions which will be make them more returns.

Now, coming back to the present case, the firm is trying to do exactly this (mentioned above) with the Adani Companies.

But here is an interesting and an unfortunate phenomenon they noticed- Adani Group is a family business which means ~75% of the listed companies' shareholding is with the family. Second, out of LIC's entire ~11 lac crore portfolio, 7% is invested in Adani group. Third, banks hold the pledged shares of Adani Group. 

These three shareholding 'stalwarts' will not sell- simply because of their interests and arguably the business fundamentals and returns. 

Now, Hindenburg Research is an influential research cum fund in the US. Furthermore, they have taken a negative bet against the company, because of its high leverage- foremost consideration. 

Apparently, they have faced negative returns in this bet. Sensing the global environment (recession in the US, laying offs by 'long tech stocks'), they released this report. They just couldn't fathom that an Asian Group has been doing so well when on their side, the companies are not able to sustain? 

They know with this report, on the biggest group of India- they could shake the panic retail traders in the Indian stock market (which obviously happened). Retail traders will take the report on face value and start selling..

The report seems well timed with the Adani FPO coming up. It seems clear that they wanted to spread panic and hence earn 'short sell' returns. 

Other worldwide brokerages are optimistic that Adani and Indian economy will be able to handle it.

Impact of Hindenburg Report on Adani FPO

There are changes proposed to the Adani Enterprises FPO after Friday's 20% fall has dragged share price 11% below the minimum offer price of the secondary sale. The options being considered now are extending the window of application or cutting the issue price below earlier floor price of the band.

MSCI seeks feedback on Adani Group and associated securities & is aware of the reports recently published regarding the group

MSCI is closely monitoring publicly available information regarding the situation