Devina Mehra values Adani Enterprises lower than Aswath Damodaran at ₹645/sh. Here’s why?

Adani Enterprises share: Extending the debate initiated by valuation guru Aswath Damodaran on fair value of Adani Enterprises shares, Devina Mehra, wife of ace Indian investor Shankar Sharma, has said that the Adani Enterprises share price may drop further to ₹645 per share levels, if the assumption in regard to cost of capital is increased from 10 per cent to 12 per cent.

The finance professor had recently wrote in his blog that Adani Enterprises share price may drop to ₹947 apiece assuming cost of capital at 10 per cent.

Devina Mehra, who is wife of ace investor Shankar Sharma as well, shared her views on Adani Enterprises share price from her official twitter handle citing, “We all know by now Prof @AswathDamodaran ‘fair value’ calculation of Rs.948 per share for Adani Enterprises.

Here’s what happens if you vary the assumptions.

If Cost of capital increases from 10% to 12% (logical as Risk free yields are 7.3% in India), the value drops to 645.”

Justifying her assumption on cost to capital, the IIM — Ahmedabad pass out said, “Prof.

Damodaran himself mentions an equity risk premium over risk-free rate of 4.5%.

So 12% appears logical even without accounting for the fact that infrastructure projects have more uncertainty & typically higher risk premium.

Cost of capital = Risk-free rate + Risk Premium.

While sharing various assumptions and terminal growth rate, the DCF value expert believes that Adani Enterprises share price may further go down if the cost to capital further goes northward.

In her DCF calculation, Devina Mehra of First Global says that Adani Enterprises share price may drop to 584 apiece, if the cost of capital is raised to 12.50 per cent.

She went on to add that Adani Enterprises share price may further drop to 529 per share if the cost of capital is assumed 13 per cent.

Devina Mehra further explained that Adani Enterprises share price would drop below ₹500 levels and may hit ₹478 apiece levels, if the cost of capital becomes 13.50 per cent.

However, in case of cost of capital being assumed at 14 per cent, Adani Enterprises share price may further drop down to 430 per share levels.

Of course, if you want to assume higher growth rates you can see those values as well. The elephant in the room and the reason why I stopped giving a lot of importance to DCF calculations in general? Almost all DCF models assume a company grows every year into perpetuity,” Devina added.

However, the investment expert maintained that in real life, not even 10% of the companies meet this test.