NEW DELHI: Though Adani Group companies witnessed massive routs in the past seven days, their returns in the past three years have been impressive. The Group’s 10 listed companies’ valuation (in terms of market capitalisation) on the Indian stock market has halved or fallen by over Rs 9 lakh crore in the past seven trading sessions since the US-based short-seller Hindenburg Research published its scathing report on the port-to-power conglomerate controlled by billionaire Gautam Adani.
Despite the recent correction of up to 58%, these stocks have given stellar returns in three years, highlighting the extraordinary rally the Group witnessed just after the first wave of the Covid-19 pandemic.
According to the NSE data, shares of the Group’s flagship company, Adani Enterprises Ltd (AEL), rallied from Rs 222 on February 1, 2020, to Rs 1,531 on February 3, 2023, giving a return of nearly seven times.
Similarly, Adani Green Energy rallied from Rs 186 on February 1, 2020, to Rs 936 on February 3, 2023 (5x return), Adani Transmission rallied from Rs 330 on February 1, 2020, to Rs 1,396 on February 3, 2023 (4.2x), and Adani Power rallied from Rs 60 on February 1, 2020, to Rs 192 on February 3, 2023 (3.2x). Only Adani Ports (APSEZ) has given a return of less than 2x during the three years.
Adani Total Gas and Adani Wilmar became publicly listed companies more recently while the Group acquired ACC ltd, Ambuja Cement and NDTV only in the calendar year 2022.
While a handful of market analysts attributed the stock rise to Adani Group’s aggressive foray into new businesses and its large-scale expansion in existing businesses via mergers & acquisitions and winning on government contracts, Hindenburg in its January 24 report accused the Group of jacking up share prices via shell companies in tax havens such as Mauritius and Cyprus.
“Our research indicates that offshore shells and funds tied to the Adani Group comprise many of the largest “public” (i.e., non-promoter) holders of Adani stock, an issue that would subject the Adani companies to delisting, were Indian securities regulator SEBI’s rules enforced,” the report noted.
Hindenburg claims shell companies formed by Vinod Adani (brother of Gautam Adani) seem to serve several functions, including stock parking / stock manipulation and laundering money through Adani’s private companies onto the listed companies’ balance sheets to maintain the appearance of financial health and solvency.
“Our analysis found that offshore suspected stock parking entities accounted for up to 30%-47% of yearly ‘delivery volume’ in several Adani listed companies, a flagrant irregularity indicating that Adani stocks have likely been subject to ‘wash trading’ or other forms of manipulative trading via the suspect offshore entities,” it said.
‘Delivery volume’ is a unique daily data point that reports institutional investment flow. Hindenburg, which has a short position on Adani stocks, said that solely on financials taken directly from the companies, the Adani Group appears to be highly overvalued. “On a blended basis, compared to industry peers, we see 85%+ downside purely on fundamentals,” it said.
The Adanis have called the Hindenburg report “maliciously mischievous and unresearched” and said it was evaluating legal action. The Adani Group in a 413-page response likened the damning allegations to a “calculated attack” on India, its institutions and growth story, saying the allegations are “nothing but a lie”. It said the report was driven by “an ulterior motive” to “create a false market” to allow the US firm to make financial gains by dragging stock prices down.
Since the Hindenburg report became public, Adani Group has lost Rs 9 lakh crore m-cap. The total m-cap of the group has come down to Rs 10 lakh crore on February 3, 2023, from Rs 19.2 lakh crore as of January 24, 2023. Shares of the group firms have crashed up to 58% in the aftermath of the report.
The Group is facing pressure as global financial firms are cutting down the value of its bonds. Credit Suisse Group has assigned a zero lending value for notes sold by three Adani firms while S&P Global Ratings downgraded its outlook on APSEZ and Adani Electricity to negative from stable. Meanwhile, Fitch and Moody have downplayed the concerns. Fitch Ratings on Friday said there is no immediate impact on the ratings of the Fitch-rated Adani entities and their securities, and that it expected no material changes to its forecast cash flow.