Skip to main content

Is Adani power a good buy? | Fundamental Analysis

What does Adani Power do? 

Adani Power is a coal based electric power generation company that has approximately 10,000 megawatts generation capacity.

Balance sheet analysis

  • The company's average current ratio for the last three years is 0.58, and the industry's current ratio is 1.96. Current ratio of the company has not been increasing in the previous ten years. It means the company is not capable of paying its debt by selling its assets in the short term, which is a bad sign for a company.
  • Average ROE for the last three years is -1.53, which is even lower than the industry's average i.e., -0.05. It means that the management is not effectively using its assets for generating profits.
ROE over the last 5 years
  • Average debt-equity ratio over the previous three years is 27.8, which is much higher than the industry's average(1.86). Though the power sector is a capital intensive industry, 27 times debt to equity is a financial risk for the company. It means company won't be able to cover all outstanding debts in the event of a business downturn using shareholder's equity.
  • Overall, the balance sheet of Adani Power is not good. The company is not able to manage their assets and liabilities well.

Income statement analysis

  • Revenue and EBITDA are decreasing for the last five years, which is not a good sign for the sustainability of the company.
  • EPS has been negative for the previous five years, which means Adani Power has been consistently losing money.

EPS Over last 5 Years

  • Adani Power's income statement is not looking great in the previous 3-5 years, and it shows that the company is not currently profitable.

Cash flow statement analysis

  • Operating cash flow to sales ratio has been positive and increasing over the last five years, which is a good sign for the company that it has been successfully turning its cash to sales.
  • Cash from investing activities during the previous five years has been negative, which means the company is funding in its expansion. It is a good sign for the company.
  • The company's free cash flow has been positive and has been increasing for the last five years. But, the owner's earnings are negative and have been decreasing over the same period, which is a bad sign for the growth of the company because the owner is losing cash over a while.
Owner's earnings over last 5 years

  • Overall, Adani Power has a weak cash flow statement because the owner's earning has been cynical and decreasing in the last five years.

Valuation

According to Stockylab, Adani Power's fair value/intrinsic value stands at Rs. 68.14 using different valuation methods while the company is trading at Rs. 38.15.

Recommendation

  • The company is trading below its fair value, which is a good sign to buy, but its fundamentals(balance sheet, income statement, and cash flow statement) are not very strong.
  • That's why Stockylab has a buy call with 72% confidence in the recommendation. 

To find out more undervalued stocks, check out our Android and iOS app.
Made with Love (StockyLab Team)
On a mission to make stock picking easier for everyone.
Please leave your comments/questions below. We are listening.

Resources
Labels:

Comments

Post a Comment

Popular posts from this blog

What is Reliance Industries Ltd. rights issue?

What is the rights issue? Before discussing the Reliance's right issue, we need to understand what a rights issue is. It is an invitation to the existing shareholders in which a shareholder has a right to purchase shares at a discounted price. Existing shareholder of a company get three options: Exercise their right to buy the shares at a discounted price. Renounce their right to buy the share. It can be done by selling their right on the market which can be exercised by another investor.  Do nothing. What is Reliance's rights issue, and why are they issuing them? On May 16, Reliance Industries Ltd  announced  that it would open its Rs. 53,215 crore rights issue for the subscription. They set the rights issue price at Rs. 1257 which is 14 percent discount to the last closing price (Rs. 1459) on May 15. May 14 is the record date for the rights issue, which means only shareholders who own the shares of the company by that date are eligible to participate in exercising the r...
Post a Comment
Read more

Reliance JIO: Three big deals in 3 weeks. Why?

"We have a very clear road map to becoming a zero-net-debt company within the next 18 months, that is by 31 March 2021," Mukesh Ambani (Chairman, Reliance industries) announced this in an annual general meeting (AGM) last year. He wants to bring the net-debt (not gross debt) from Rs 1,61,035 crore to zero by March 2021. He also set a target to grow the company's EBITDA by 15% annually over the next five years. Reliance was a debt-free company until 2012, but since then,debt has increased by 400%. Reliance's high net-debt: One of the primary reasons for the colossal debt of Reliance industries is the investment in Reliance Jio. The company has so far invested close to Rs 3 lakh crore in Jio, and the total debt grew by Rs 69,000 crore in just last year. Another reason is the Rs 1 lakh crore investment in the petrochemicals business in the last 10 years.                          ...
Post a Comment
Read more

Modi Package Announcement: What it means for the economy?

The Indian economy is a clear victim of COVID-19 and we have been staring at the unemployment numbers and the dismal performance of the stock market for almost 3 weeks now. After the initial stimulus package of Rs 1.7 Lakh Crores aimed at farmers and daily wage workers, Prime Minister Modi has tried to inject the lagging economy again with a stimulus package of Rs 20 Lakh Crores this time. How does this impact the economy? We have listed down some of the impacts of this package. 1. The power distribution companies     There was already a 3-month halt on any payments for the electricity bought by these companies like Power Finance Corporation( PFC ), Rural Electrification Corporation Limited( REC ), etc. In today's announcement, Nirmala Sitharaman said that we will add Rs 90,000 crore to clear outstanding bills and salaries for the employees. 2. China     As China's manufacturing industry tries to recover from COVID-19 , Modi is trying to entice foreign investment i...
Post a Comment
Read more