The contrarian case for the Adani Enterprises share price

By:
on Feb 20, 2023
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  • Adani Enterprise stock price has remained on edge recently.
  • The stock has plunged by more than 61% from its YTD high.
  • A contrarian case for Adani Group can be made.

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Adani Enterprises (NSE: ADANIENT) share price has continued reeling in the past few weeks as concerns about the Indian conglomerate continue. The stock plunged by over 5% on Friday to trade at 1,600, the lowest level since February 7. In all, it has crashed by over 61% below its highest point in 2023. Other parts of the conglomerate like Adani Power, Adani Port, and Adani Green Energy have also plunged.

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The contrarian case for Adani

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Adani Enterprises stock seems like a toxic asset these days following the scathing attack by Hindenburg Research. With all the negative headlines, the stock has taken a beating, which has dragged the net worth of Gautam Adani to about $55 billion. In 2022, he was the second-richest man in the world with a net worth of over $120 billion.

Still, a contrarian case can be made about Adani Enterprise shares. First, while Hindenburg’s report was scathing, it did not accuse the company of having accounting issues similar to those of Enron. The closest the report came was when it focused on the company’s auditor, a small company in India.

Also, the report did not focus on issues in Adani’s core business such as lack of demand. Instead, it accused it of being significantly leveraged, which could see it struggle to pay its debt. But investors have always known about Adani’s debt situation. It was nothing new.

Adani has taken measures to reassure investors. For example, the company has continued making its debt payments on time. At times, the company has made its coupon payments ahead of time. The company is also working to reduce its growth forecasts and cut its net debt to EBITDA from 3.2. Further, it has slowed down its investments and acquisitions.

The most contrarian case for Adani is that, unlike Evergrande, the company has some valuable assets that are still generating substantial resources. For example, it is a leading player in the Indian port and energy industries, which are expected to continue delivering cash flows.

Meanwhile, the company is considering bringing in a big four audit company to look at its books. Another likely catalyst is the decision by MSCI to postpone its free float of its updates. 

Adani share price technicals are worrying

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Adani Enterprises

Last week, I wrote that Adani stock had formed a rare death cross pattern, which pointed to more weakness. That view was accurate as the stock has moved lower since then. It could also continue dropping and retest the year-to-date low of 1,020 INR, which is about 37% below the current level.

However, in the long term, we can’t rule out a situation where Adani Enterprise stock rebounds as investors buy the dip. 

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