Adani Group Stocks and Pidilite Industries: Two Sides of the Same Coin?

On June 2021, the Indian conglomerate, Adani Group suffered a significant drop in its stock prices following the release of a critical report by the investment research firm - Hindenburg Research. The report alleged that Adani's businesses were overvalued and that the company had misled investors and regulators.

The Hindenburg report focused on Adani's port operations in the city of Mundra, which it claimed were overvalued by as much as $6 billion. The report also alleged that Adani had artificially inflated the value of its subsidiaries through opaque transactions and accounting practices. Furthermore, the report accused Adani of using a network of shell companies to evade taxes and other regulatory requirements.

The Fall Of Adana’s Share Prices

The report caused Adani's shares to fall sharply on the Indian stock market, with some of its companies losing up to 25% of their value in just one day. On the day the report was released, Adani Group companies collectively lost more than $13 billion in market value.

However, Adani denied the allegations made in the report, calling it "blatantly erroneous" and "motivated". The company also issued statements to reassure investors that its financial position was strong and that it would take legal action against those spreading false information.

Since then, the Adani Group has made efforts to restore investor confidence. It has announced plans to divest its stake in certain businesses and has also appointed external consultants to review its accounting practices. However, the fallout from the Hindenburg report has continued to cast a shadow over Adani's reputation and financial prospects.

Pidilite Being A ‘BAAP’ Stock Could Also Prove To Be Volatile?

While Adani stocks have become a hot topic for the start of 2023, it's worth noting that there are certain consumer-based companies that may seem safe to invest in but are actually a huge gamble. By this, we mean one of the most popular Indian companies - Pidilite.

Pidilite being a "Buy At Any Price" (BAAP) has its own share of disadvantages. Buy At Any Price (BAAP) is also not a common or recommended investment strategy. Investors typically seek to buy stocks at a reasonable or discounted price, based on factors such as a company's financial performance, growth prospects, and industry trends. Paying too much for a stock, regardless of its underlying fundamentals, can expose an investor to greater risks and lower potential returns.?

Pidilite has a P/E ratio of 95 times with ROCE and ROE of 26% and 21% respectively in FY22. Its 5-year average P/E ratio is 61x and the stock is currently trading at 2 standard deviations from its 10-year average. Considering the company’s performance in the last 10 years, Pidilite has grown profits at an average of 21% from FY14-FY17, while the average net profit for the next 5 years (FY18-FY22 period) The growth rate was dismal at only 7%.

Why did the share price jump 10 times in 10 years? The answer is simple, the PE multiple increased from 37x in FY14 to 95x in FY22.

Similarity Between Adani And Pidilite Industries

Adani Group and Pidilite Industries are very different companies operating in different industries. Adani Group is a conglomerate with interests in infrastructure, energy, ports, and logistics, among other sectors. At the same time, Pidilite Industries is a manufacturer of consumer and industrial products such as adhesives, sealants, and coatings.

However, one similarity between Adani Group and Pidilite Industries is that both companies are publicly traded on Indian stock exchanges. As a result, their stock prices are subject to market forces, including investor sentiment, macroeconomic conditions, and regulatory developments.

Another potential similarity between the two companies is their financial performance, which could impact their stock prices. For example, if either company reports strong financial results, it could boost investor confidence and increase their stock prices.

In the case of Pidilite Industries, it's important to evaluate the company's financial performance and prospects before making any investment decisions. And when considering investing in Adani Group, their reputation in the media along with their financial performance, both play an important role.

Final Thoughts

One common approach to investing in stocks is to diversify your portfolio across different sectors, industries, and geographic regions. This can help to spread out risk and potentially mitigate losses in the event of market downturns or sector-specific challenges.

It's also important to establish a clear investment goal and timeline and to stick to a disciplined investment strategy. This may involve regularly reviewing and rebalancing your portfolio, and avoiding emotional reactions to short-term market fluctuations.