Adani Power Share Price Falls 1.33% to Rs. 140.30: What’s Dragging the Stock?

Overview

• Adani Power share price slipped 1.33% to Rs. 140.30, with price action showing short-term caution.

• The company holds 16.61% power sector market cap, second only to NTPC.

• Strong sales growth contrasts with falling profits and elevated leverage levels.

Adani Power share price was trading at Rs.140.30, down by 1.33% at press time on December 29. The stock kicked off the day at Rs.142.19. During the day, it fluctuated around a tight range, touching Rs.142.49 and Rs.140, respectively.

Although there was weakness during the day, overall trading activity was decent. The volume stood at nearly 4.86 million shares with a value of approximately Rs. 6,827 crore. This is lower than the average value over the past 20 days, implying that there was no heavy selling pressure here. Here’s an in-depth analysis of the Adani Power share price based on Moneycontrol data. 

Market Position

The company is one of the leading players in the power industry in India. It is the second-largest company, contributing 16.61% to the total market capitalisation of the industry, second to NTPC. Its current market value stands at Rs. 2.7 lakh crore.

The total annual sales of Adani Power stood at Rs. 55,474.57 crore, contributing more than 10% to the sector's total revenue. All this translates into leverage, long-run visibility, and negotiating capacity to purchase fuel or PPAs.

Adani Power share price chart on Moneycontrol shows a dip of 1.43% at the time of writing:

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Profitability Metrics

The long-term growth of Adani Power shares has been strong. The net sales have been growing at a rate of 16.64% annually, and the operating profit has recorded a faster rate of 32.70%. However, profit has been weakening recently.

Over the last year, profit has fallen by approximately 5.4%, showing pressure on profit margins despite increased revenue. The return on capital employed is 16.7%. The latest half-year return on capital employed is 17.69%, which is the lowest point in recent years. Hence, the company has been able to obtain an average quality rating.

Valuation Snapshot

Currently, the price to earn trailing twelve months of Adani Power stock stands at 22.5. It is lower than the average price to earn in the industry, which is 26.76. However, the price-to-book ratio of 4.64 and the EV-to-capital employed of 3.2 suggest that the current market prices are high. So, there may not be much left to gain unless the earnings momentum picks up.

Technical Outlook 

The stock’s mildly bullish setup is retained, although it temporarily fell. Adani Power has shown strong returns across various periods, with increases of 23% in the last six months, 34% so far this year, and more than 40% last year.

These returns are considerable when compared with BSE 500 index. The critical levels for support are around Rs. 140- Rs. 138, and the resistive levels around Rs. 143- Rs. 145, based on the pivot point levels.

Debt and Risk Factors

The primary risk, however, remains leverage. The Debt-to-EBITDA ratio of 3.48 times and Debt-Equity ratio of 0.83 suggest a relatively high leverage position of the firm. It may be easily managed in times of stability, but could be challenging in times of lower demand or cost inflation in the power sector.

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Investor Outlook

Adani Power has been a fundamentally strong stock that is susceptible to valuation considerations. On the positive side are its size, relatively strong sector performance, and overall long-term story; however, there is leverage and a recent weakness in profitability that merit careful tracking. As an investment stock, this would be better placed in a ‘BUY’ situation, according to analysts on Moneycontrol.

FAQs

1. Why is the Adani Power share price down today?

Adani Power traded lower, mainly on the back of a slight profit-taking rally, in the last one-year period. The stock was giving above 40% returns every year, and some traders wanted to book their profits.

2. Is Adani Power fundamentally strong?

Yes, Adani Power is fundamentally strong in terms of size and growth of sales and operating profits. The sales and operating profits have grown quite well over the years, though the fall in profits and moderate Return on Capital Employed suggest recent challenges.

3. Are the current market prices of Adani Power stocks overpriced?

The stock is also trading with a P/E ratio lower than the industry average, and the price-to-book and EV ratios are also high, so the upside potential is limited until the earnings growth strengthens.

4. What are the main technical levels to focus on?

The initial support level for Adani Power ranges between Rs. 140 and Rs. 138, while the resistance level is visible at Rs. 143 to Rs. 145. A definitive breakout or breakdown from the same could act as a pointer to the subsequent trend.

5. What is the biggest risk for Adani Power investors?

High leverage remains a concern. Given the company's Debt-to-EBITDA ratio of 3.48 and its currently high debt-to-equity ratios, the company's flexibility could be under strain in conditions of low demand or increased costs.