Wednesday, February 15, 2023

Adani Story 1: Did Aswath Damodaran miss out on Real Estate Terminal Value in the Adani Valuation?

I view Prof. Aswath Damadoran of NYU Stern as the God of Valuation.  His masterpiece, "Control, Complexity and Politics: Deconstructing the Adani Affair!" is an essential read for any student or professional of finance.

The one aspect that I did not see in the masterpiece is the potential terminal value upside from real estate.  Many of Adani's businesses (airport, seaport etc.) "sit" on large tracts of land.  True the land is given for a special purpose, and the contracts from the Government impose limitations on exploitation of real estate.  But, one stroke of the pen - and lo and behold - everything changes.

For instance, in Mumbai, Adani got the contract for the 2nd airport (Navi Mumbai) through competitive bidding - and many believe through Government prodding, the 1st airport too was transferred to Adani.  This 1st airport is bang in the middle of the costliest city in India.  Once the 2nd airport (located about 35 kms from the 1st) becomes operational, any number of reasons can be offered to shut down the 1st airport.  Imagine what happens to the land and Adani then!

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