What could be the drivers for delisting Adani Power from bourses?
After the much talked about delisting of Vedanta, it is now Adani Power that is planning to delist from the bourses. The final call will be taken in its board meeting on June 03 next month.
Low valuations hold the key
If you look at Vedanta and Adani Power, they are present in sectors which tend to get tepid valuations in the market. The reasons are nor far to seek. Metals are hard to differentiate and power has its problem with PPAs and coal supply flows. All this has led to depressed valuations of these stocks. For Adani Power, the value addition from being listed on the bourses is reducing by the day. Adani group, perhaps, believes that for such complex sectors, valuations from PE funds would be easier than the market. That could explain the delisting.
Quoting at bargain prices
Many promoters have complained that in the aftermath of the COVID-19, the shares of many capital intensive stocks were quoting at less than half the book value. That makes the stock a bargain but the market is not willing to admit that argument. In such cases, it does make sense for the promoter group to delist the company and take it private. In sectors like power, with easy access to PE funding, keeping your stock listed at low price levels actually becomes a liability as the stock does not offer the promoters the currency any longer.
Stock not as currency
One of the problems that power companies have faced in India is that the private power companies do not get the kind of valuations that NTPC gets. For example, Adani Power has capacity of 10,500 MW and is likely to increase to 12,500 MW shortly. But the market will value the company at just over Rs.1 crore per MW. This is unlike the case of NTPC which commands closer to Rs.2 crore per MW. At that kind of valuation, the listing really does not offer much of a value to the promoters. Like in the case of Vedanta, the promoters would rather get full control over the cash flows of the business when stock values are not able to offer them the currency.
Is delisting justified?
Analysts have argued that a decision to delist a company may be unfair to the shareholders as they miss out on future growth. But, for the promoters, it is just a trade-off. It is tough for promoters to keep the companies listed when the market is not offering any value. This is more so when the macro conditions are such that the stock is actually available at below the book value. That makes the stock a bargain for the promoters as the benefits of going private outweigh the benefits of staying listed. In such cases, the delisting is absolutely justified as long as the existing shareholders are given a good price. Adani Power may be the start of many more such cases!
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