Adani Rs 20,000 crore FPO opens today: Should investors go for it?

What will the proceeds be used for?

As the ports-to-energy conglomerate is looking to foray into new areas, it is planning to use the proceeds of this fund-raise for capital expenditure in certain ventures and also to repay the debt of some of its businesses.

Capital Expenditure: Of the total fund raised from the FPO, the company has proposed to invest Rs 10,869 crore in capital expenditure for green hydrogen systems, airports, and for construction of a greenfield expressway. Last year, Adani had said his group would invest over $70 billion in the energy transition space.

Debt repayment: The Gautam Adani-led company plans to utilise another Rs 4,165 crore for repayment of loans availed by its subsidiaries, Adani Airport Holdings Ltd, Adani Road Transport Ltd, and Mundra Solar Ltd.

What is the FPO price band?

The company has fixed the floor price of the FPO at Rs 3,112 per equity share, a 13% discount from last Wednesday’s closing price of Rs 3,595.35 apiece on BSE. The price band of the issue has been set at Rs 3,112-3,276 per share. On the following Thursday, the company’s scrip, which shot up by 126 % in the last year, fell 3.72% at Rs 3,461.6 on the BSE, facing selling pressure from investors who were worried over the high pricing of the FPO.

How has the stock price behaved?

Over the last eight trading sessions, the share price of Adani enterprises has declined by around 10%, and over the past one month, as of mid-January 2023, it has fallen over 16%. Market experts say that since the FPO will come at a discount to the current trading price, the share prices have fallen in anticipation of the same.

While the FPO size is huge, leading brokerage houses feel that the FPO may get subscribed fully despite a weak secondary market condition, as the company has generated return for investors in the past and there is interest among foreign investors towards it. However, if the market price falls further, it can impact the investor response to the FPO.

What does it have for retail investors?

The company is offering a discount of Rs 64 per share to retail investors. This works out to just 2.05% of the floor price of Rs 3,112 per share. “It is very important for us that every Indian is able to participate in the wealth creation story. One way to do that is to encourage participation in equity markets. Our objective is to reach out to as many retail investors as possible,” said Jugeshinder Singh, Chief Financial Officer, Adani Enterprises.

However, many public issues that hit the capital market in the last two years have disappointed the investors, with their share prices quoting at a huge discount to their offer prices. These companies overpriced their share issues leaving almost nothing on the table for investors.

What is the minimum bid lot?

The minimum bid lot in FPO is four shares and in multiples of four shares thereafter, the company said in a filing to exchanges.

Should you invest?

While the share price of Adani Enterprises had skyrocketed from Rs 134 in April 2020 to cross Rs 4,100 in December 2022, market experts say that retail investors should stay away from the issue as it has already moved significantly. “While those who really want to invest may put in a small amount in the issue, they should wait for the company’s plans to materialise for the next phase of growth. In any case, the stock is trading at the exchanges and investors can buy whenever they want. There is no need to rush,” said a leading analyst.

The company’s capital base is set to expand after the FPO which, in turn, is likely to impact the market price after the issue. However, much will depend on how the company performs in the coming quarters.

What is the total borrowing?

As of September 30, 2022, the total borrowing of the company stood at Rs 40,023.50 crore compared with Rs 32,189.62 crore as on September 30, 2021, as per the red herring prospectus filed with the BSE.

By what percentage will promoters’ stake be diluted post-FPO?

As of the quarter that ended December 2022, the promoter’s shareholding in Adani Enterprises stood at 72.63 per cent. Post FPO, the promoters’ stake will reduce by 3.75 per cent to 68.88 per cent of the company. The public shareholding in the company was at 27.37 per cent, of which FIIs owned 15.39 per cent of the company as of end-December 2022, the BSE data showed.