CLSA has dropped coverage on Adani Transmission saying that the stock is driven by speculative interest and lack of ‘real’ effective liquidity’, keeping valuation at a stratospheric 16 times premium to the sector. It had a sell rating and target price of Rs 146 on Adani Transmission.
The stock has doubled in the last three months on limited free float and inclusion in FTSE and MSCI indices which led to passive buying, said CLSA. Promoters own 75 per cent in Adani Transmission, and of the balance, 81 per cent is owned by closely-held foreign investors-which are common across the Adani Group and hardly liquid, said CLSA. This effectively leaves a free float of 5 per cent.
The brokerage said Adani Transmission’s acquisition of Reliance Infrastructure’s Mumbai assets at an enterprise value of Rs 12300 crore was excessively expensive.
“Adani Electricity Mumbai’s FY20 results validate our argument that this expensive acquisition is hurting the bottom line, as the company reported a loss after accounting for the accrued yield on perpetual debt taken to fund the M&A,” said CLSA.
Adani Transmission remains the most expensive regulated utility stock at 20.3 times FY21 price to book value, said CLSA.