Tata Power Vs Adani Green Stock | Adani Green Business Case Study

Tata Power Vs Adani Green Stock | Adani Green Business Case Study

You come home from office and prepare for dinner butt suddenly the power goes out. You certainly look out the window where there is no light outside, power cut everywhere.

Then you wait for 1 hour, sweat comes, the battery of the mobile runs out, yet the light does not come, there is no way.

Today every household in india has this problem. Where there is no light for hours and we are troubled.

But, interestingly!

And where there is no light for hours due to power cut. On other hand. The stock price of adani energy and Tata power has increased by more than 300 percent since last two years.

Adani Green Business Case Study

Where tata power has made a profit of  ₹700 crores in 2021. Where as the other side Adani power is in loss of rs.182 crores.

And not just that, if you look at Adani power then Adani power is in huge loss since last 4 years. Same is happening with Adani green energy as well. Where it is at  ₹130 crore losses.

But if you see the stock price, its has increased by more than 2000 points in the last 2 years. ₹135 stock has become ₹2300 today, but how?

How a 7 year old company able to compete a 12-year-old tata power company? And when that company is huge, it still makes losses.

Is this a huge scam, or something is happening in the power business that not many people know.

And which is the most important powerful lesson, will be able to know from this business case study.

Adani power and adani green energy, to understand these companies' amazing growth, first of all, you'll have to understand how the power business in india operates.

Now pay very close attention. Any power business, to transport energy to your house.

Follows these three steps.

1. Power Generation.

2. Power Transmission.

3. Distribution.

But power business in india is governed by government policies. And all these things are under the concurrent list. 

The concurrent list means that all over india. Whatever decision is taken regarding the thing in that decision, central and state, both these governments will be equally involved.

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First of all, on the production level for power generation at the central level

These 2 ministries pass their decisions.

1. Ministry Of Power

2. Ministry Of New And Renewable Energy

The decision taken by both these ministries is passed on to the state level. At the state level power and energy department of union territories. This particular department takes further decisions after which policy-making is started. 

Which the central electricity regulatory commission and state electricity regulatory commssion. 

These two bodies implement. But there's a catch. And that catch is national electricity act 2003 under which in any particular area 

2 Things Are Controlled By Central, State Governments.

1. The Mode Of Generation.

The electricity to be produced in that particular area will that electricity be through conventional mode or through renewable mode?

And on this matter central government and state department of states. Both have an equal say as well as participate equally to decide. 

Whether in a particular area, which mode should be used to generate electricity. So, this is how it looks like.

For an example uttar pradesh has a place called Dadri. Government decides to produce thermal energy here.

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So first of all, government will look for a company that will be able to set up a thermal power plant.

In this case it was NTPC. Then, tenders for coal blocks will be released because coal blocks produce thermal energy.

Founder Of Adani Green

And after releasing the tender to all those coal blocks reach ntpc thermal power plant and from there power generation begins.

So you see here the government decides in a particular area however it is produced through what method it'll be done and by whom.

Electricity has been produced and now comes the second step and that is the transmission of electricity. To do this, central government and through which state transmission line will pass that particular state's government. 

Both these governments take a decision together. For an example: in dadri, uttar pradesh. Ntpc's plant produces electricity. And it has to be transported to maharashtra.

In this case an interstate transmission line will be set up. Even to set up this line these two bodies take the decision first.

2 Type Of Bodies Transmission

1. Central transmission utility control

2. State transmission utility control.

These two bodies together decide which company will do the transmission work. And then comes the final step and that is distribution. So, now look at this process very very carefully.

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The electricity that is produced in india all of it comes under the central government. And whichever state wants to use this electricity. That state purchases it from the central government.

After that, the state government sets the electricity price slab  that's the price of electricity for the people of the state after which the work of distributing the electricity is given to power distribution companies like Tata Power, Jsw And Adani Power. These companies set up distributing lines.

Distributing Lines Are Of Two Types. 

1. High tension lines.

High-tension lines are set up for industrial purposes. Those who require industrial electricity, high tension lines are set up. And those who require commercial/residential low tension lines are set up for them.

But wait a minute and look at this very carefully. Tata power and adani green energy. On one side tata power's market capitalisation is 69,200 crores.

On the other hand adani green's market capitalisation is 3,82,000 crores profit. While tata power's profit is 2,700 crores adani green is in a loss of 130 crores. 

But the most interesting thing is the stock price. If you look at the stock price then in the last 2 years. Tata power's stock price has increased by 281%.

While adani green, which is in losses has increased by more than 2000%. And this is shocking because most people are seeing the incredible growth in adani green's stock price and investing in it Without even knowing the company's real picture.

I know what you're thinking. If this is so, then in the last 2 years without earning any profit. How did adani green's stock price increase by 2000%?

Well, behind this there are 3 important factors that most people don't know about. 

First factor, experience not money. Power sector is capital intensive heavy machines, land, technology, labour. Every single thing is needed. But the thing is, you can afford all of this with money.

But there's one thing that doesn't come with money. And that is experience. Tata power has been operational for the last 112 years. They are used to all types of market conditions and facing all types of market challenges.

On the other hand, other companies which are new in the market have money. They have infrastructure too but, they don't have as much experience as tata power.

Moreover, capital is invested in power business to recover the entire capital. A company needs at least 20 to 30 years of life. 

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And his is how it changes the game. First of all the government sets the power generation modes and prices. 

Then the government decides to declare a contract. But if government gives contracts to old companies. Then the benefit to old companies is that the government has already set the price.

But the old companies the capital that they invested in land, labour and technology has already been recovered. But on the other hand the new companies face a lot of problems in recovering their costs. 

Why? Because they've just set their costs and they haven't been operational long to recover it. And as a result new companies are in a loss for some time.

Tata power is india's largest power company which has been working with the government for long. And on the one hand while adani green only works in renewable energy.

Tata power works in both renewable energy and conventional power. So, inn near future if government plans a power project in a new region and if it of conventional mode in that case.

Adani green won't get that project but tata power will crack the business reason being adani group's other company adani power is less experienced than tata power. 

This brings us to the second important factor and that is government push on green energy. The indian government, by 2030,  has set a target of producing 500 gigawatts of renewable energy out of which only 100 gigawatts has been achieved.

So, you see in the market the space for 400 gigawatts is still empty. And most people know that adani green is expanding very aggressively.

So, a majority of the investors have the confidence that in the coming time. Adani green may capture a good market space.

But on top of everything even if tata power is doing power generation power transmission and power distribution still an investor is such a thing who believes in it.

That is the third important element political support. Once again, not against any political party but if you look at the series of events very carefully. Then you will realize that adani group has very powerful political connections.

And due to this most retail investors think that if the government is favoring a particular business group so much, then its growth is guaranteed.

But, you know what? Behind incredible increase in a company's stock price. The most important hand is of institutional investors.

Institutional investors study the market and give the most importance to public sentiment. When they see positive public sentiment for a stock. They start to pour in crores and crores of money.

After which, stock price slowly starts spiking. And as a result the retail investor has double confidence in his investment and he keeps investing more and more money.

And when this happens in a great volume then stock price suddenly shoots up which is currently happening with adani green.

So, you see in these cases fundamentally however the company is but in a short period of time the company's stock price rockets very suddenly.

But you know what whenever something like this happens. So in these cases you should always take a step back because in such a case, you may lose all your money. This brings us to the most important thing.

What are the powerful lessons that we can learn from this case study and implement in our investment journey?

Lessons From Case Study

1. Always look at the business.

Before purchasing any stock not the stock price, not the company's name. But understand the company's work.

You see no matter how well the stock is performing if you don't understand that company's business. Then you should not pour in money.

2. Keep an eye on political parties.

For any investor, it is very important that you study the political environment. Because there are many such cases where no matter how bad the business performs.

If the political party wants, if the government wants, then that business will sustain in the future. But there is also one more saying that in politics things can change overnight.

So, if you want to take a risk it's up to you. But on top of everything if you want to be a smart investor then always study the company and its business.

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