FT article just noise, says Cantor Fitzgerald; gives Adani Enterprises’ stock target price of Rs 4,338

New Delhi: Calling The Financial Times (FT) article “just noise from a long time ago,” US-based global brokerage Cantor Fitzgerald has given Adani Enterprises’ stock a target price of Rs 4,338 apiece, as the company's shares became top gainer on Nifty on Thursday.

The Adani Enterprises’ stock was the top gainer on the NSE benchmark amid a mega rally on the bourses, touching Rs 3,387 a piece, as the market shrugged off the FT report.

In a take on the FT article on the Adani Group which alleged the Group imported low-quality coal and then sold that same coal to state-owned entities, but priced it as high-grade coal, the brokerage said in its note that this specific purchase order of Tamil Nadu Generation and Distribution Corporation (TANGEDCO) was a fixed-price contract, “which the company won through an open, competitive, and global bidding process”.

“Adani was contractually obliged to supply coal to TANGEDCO at a predetermined price. TANGEDCO did this so that it could insulate itself from the volatility of coal prices,” according to the brokerage which reached out to Adani Group on the matter.

Cantor Fitzgerald further said the supplier under this tender (Adani) could supply coal that had a gross calorific value (GCV) between 5,800 and 6,700.

“If the supplier supplied coal with a lesser GCV, it would face a penalty taken out from the predetermined payment amount,” the brokerage firm noted.

The quality of the coal is tested not by the supplier (Adani), but by the receiving plant (TANGEDCO).

“The payment is then based on these findings. Thus, the assertion that Adani could buy lower GCV coal and sell it as higher GCV coal appears to not be plausible given testing is done by the buyer and payment is based on testing,” the note elaborated.

Ultimately, “both the upside and downside risk when it came to sourcing coal was borne by the supplier (Adani), given it was a fixed-price contract”.

The FT also based its reporting on customs and Directorate of Revenue Intelligence (DRI) reports.

“It is worth noting that, during the alleged time period (2012-2014), DRI and customs accused all coal importers of mis-declaring the quality of coal to be lower than it actually was. As a result, they wanted additional customs duties. So the fact that this report argues against what DRI/customs was saying back then also raises a red flag, in our view,” the global brokerage further said.

The Indian market has appeared to shrug off the report as Adani Enterprises was the top gainer in Nifty on Thursday with a 7.84 per cent rise. Adani Ports was also among the top three gainers with a 4.73 per cent rise.

“We believe the market is inferring that this is an immaterial story, as do we,” Cantor Fitzgerald said in its note

India is one of the fastest-growing economies and is heavily investing across a range of end-markets to support continued economic growth, which, “we believe bodes well for Adani Enterprises, as it touches nearly every aspect of life in India”.