The year 2022 marked the golden phase of the Adani Group of Companies. Gautam Adani, the chairperson of the Adani Group of Companies, had risen to the list of top 10 billionaires in the world, but he couldn’t hold that position for long, as the hidden storm in the form of the Hindenburg Report wrecked the Adani’s blooming ships in early 2023. It has struck so hard that Adani has lost about 7 billion dollars in just a single day of launching the Hindenburg report. According to India Today, Adani has lost more than 70 billion dollars as a result of an explosive report released by US-based short seller Hindenburg Research.
Adani’s seven listed companies have witnessed a heavy decline in their share prices in the aftermath of the Hindenburg report. Therefore, this article will discuss the ability of Adani’s stocks to bounce back in the coming months.
Adani Business Overview
Adani businesses are spread across various sectors. The Adani Group of Companies has demonstrated its sectoral dominance through its rapid growth.Let’s assess their business plan using three parameters.
Dominant Growth: Adani has emerged as a dominant player in various sectors within a short time span. Adani Airport has become the largest airport operator, 1/3rd of the total flight in the country passes through Adani owned Airport. If we talk about Adani port, 25% of the country’s Cargo passes through it. Besides these Adani is India’s biggest coal trader and edible oil importer.
Developments based on Debt: One of the major reasons behind Adani’s quick success is its capital-intensive projects, which are largely based on debt. Adani has borrowed 80,000 crores from Indian banks. However, amid increased debt-based development, which poses a significant risk, one positive development could be seen as the majority of Adani’s debt is secured. In the event of the Adani Group’s bankruptcy, Indian banks will be on the safer side.
Adani’s Connection with govt: Even though the company’s major developments are funded by debt, Adani is still able to raise funds through various investment giants, and that is because Adani has close connections with the ruling government. This gives investors confidence and assurance that their money will not be lost because of the government’s involvement in the business.
What is Hindenburg Research?
Hindenburg Research is the US-based short-selling firm whose work portfolio includes investigating and reporting on publicly traded companies. They specialize in forensic financial research. They look for fraud and corruption in businesses.
Some popular cases:
- Nikola
- H.F foods
- Wins Finance.
Hindenburg Allegations and Adani’s Response
| Allegations | Response |
|---|---|
| Hindenburg alleged that the Adani group is investing their own funds in their own stocks through shell companies. | Adani responded that neither have any control or knowledge about the source of funds as the companies are publicly traded nor do they require it. |
| Hindenburg raised questions about Adani’s close association with Amicorp. Who is involved in 1 MBD International fraud. | Adani responded to this by saying that Amicorp. Is the provider of secretarial services to various companies, including Adani. It also accused Hindenburg for building a false narrative. |
| Hindenburg alleged that the trustlink CEO, who has been alleged by the department of revenue intelligence for involvement in a fraud of using shell companies with Adani | Adani responded that the trustlink is one of their secretarial service providers, It also added that the trustlink CEO is not the director in any of the Adani entities. |
| Hindenburg questioned Vinod Adani’s network of shell entities. It also asked to reveal information about his roles, deals and entities. | On this Adani made a clear statement that Vinod Adani does not hold any managerial position in any of its listed entities or subsidiaries. |
| Hindenburg sought details about OFS ‘deal to buy the portion of Adani green. It said Adani should disclose all the offshore shell entities that participated in the deal. | Adani’s response on this was that as per Indian Law all listed companies are required to have a public shareholding of a minimum 25%. |
Also Check: Adani Power Vs Tata Power
Future of Adani Stocks: Will it recover back?
Let’s assess the prospects of Adani’s revival through various parameters.
Pros.
- Futuristic Growth: Most of the projects of Adani group of companies across various sectors such as port, roads, green energy etc. have huge growth potential in future as they are capital intensive projects and since they work under National interest, which automatically provides them government support. They are striving towards India’s infrastructural growth. By seeing these future prospects, investors are able to justify the valuations of the Adani group of companies. which could act as the biggest plus point in Adani’s revival.
- High profitability: Most of the Adani stocks have shown higher profitability growth in recent financial years which increases their chances of recovery. Among various adani companies , Adani Power has shown remarkable growth from -984 cr. in FY19 to 10,310 cr. in TTM. This aggressive growth in profits will build the investor’s confidence again.
Net Profit Growth(in Cr).
| FY19 | FY20 | FY21 | FY22 | TTM | |
|---|---|---|---|---|---|
| Adani Ports | 4,045 | 3785 | 5,049 | 4,795 | 5,285 |
| Adani Enterprises | 506 | 1,040 | 1,046 | 788 | 1,967 |
| Adani Green | -475 | -68 | 182 | 489 | 587 |
| Adani Transmission | 840 | 1,107 | 1,620 | 1,700 | 1,414 |
| Adani Power | -984 | -2,275 | 1,270 | 4,912 | 10,130 |
| Adani Wilmar | 376 | 461 | 729 | 804 | 723 |
| Adani Total Gas | 229 | 436 | 472 | 505 | 501 |
- Secured Debt: Most of the debt raised by the Adani group of companies (specifically from Indian banks) is secured. As per the data, 90% of Adani’s debt is secured. which could minimize the impact on the Indian economy in the event of bankruptcy.
Cons.
- Higher Valuation: Most of the Adani stocks are excessively overvalued, which raises concern among cautious investors. Adani Enterprises has a P/E ratio of 175. If we talk about Adani Green, it has a P/E ratio of 149. A higher valuation is only justified when the company has enormous future potential and a track record of success in its development projects.
- Higher Debt to Equity ratio: Adani group of companies usually have higher D/E ratio, this is because most of the developmental projects of Adani are financed through debt.
Also Check: Tata Group Vs Adani Group
Conclusion
At the end of the article, it can be stated that the Adani Group of Companies is involved in various capital-intensive projects. Failure to do so will not only impact India’s infrastructural growth but will also impact its economic growth. But on the other hand, since they are involved in various developmental projects that have the capability to generate enormous profits, which could help them pay all their liabilities,
Therefore, if we talk about Adani’s future potential, we could very much justify its recovery.
