Worst might be over for Adani Group but ‘investors still cautious’
▶ India’s apex court ruling out a separate inquiry on Hindenburg allegations could signal a turning point, analysts tell Rebecca Bundhun in Mumbai
The worst of the troubles for Adani Group may be over after a US short seller’s scathing report last year rattled investors and wiped billions of dollars off the conglomerate’s market value and its billionaire founder’s personal wealth.
Analysts say the situation seems to have turned a corner for chairman Gautam Adani and his group’s recovery will continue.
Last week, India’s Supreme Court ruled a separate inquiry was not needed beyond the investigation being carried out by the country’s markets regulator, the Securities and Exchange Board of India (Sebi), following Hindenburg’s allegations of financial wrongdoing.
“This may signal a turning point, potentially marking the end of the worst phase of the crisis and positively impacting the group’s standing and investor confidence,” says Nilesh Tribhuvann, founder and managing partner of White & Brief Advocates & Solicitors.
“The Adani Group has been proactive in its recovery, raising over $15 billion through equity and debt, regaining investor confidence and re-establishing its bankability.”
It has been a tough time for Mr Adani and his conglomerate – which has interests in sectors including ports, airports and energy – after Hindenburg in January 2023 alleged financial irregularities including stock market manipulation and improper use of tax havens.
The Adani Group has denied
the allegations but the accusations resulted in $150 billion being wiped off the market value of its companies at one point. Mr Adani also had tens of billions of dollars wiped off his personal wealth.
The win in India’s apex court is a major milestone and its significance was reflected on Friday when Mr Adani managed to temporarily regain his position as Asia’s richest man.
He overtook Reliance Industries’ Mukesh Ambani as his net worth rose $7.7 billion in a single day to $97.6 billion on the Bloomberg Billionaires Index. The index on Sunday showed Mr Adani has since slipped back below Mr Ambani, with wealth at $94.5 billion. Mr Ambani’s wealth stood at $97.5 billion. However, year-to-date Adani Group’s founder has still managed to increase his net worth by more than $10 billion.
Adani’s stocks rallied last week on the news, with market experts expecting the companies to continue clawing back the lost ground, as they believe the group is now in a stronger position to regain investors’ confidence.
Flagship Adani Enterprises ended the week up more than 5 per cent after the verdict. Adani Ports, India’s largest private port operator, gained more than 12 per cent.
“We believe that the group is placed on a stronger footing from here on,” says Manish Chowdhury, head of research at StoxBox broker.
While the conglomerate and Mr Adani have managed to recover most of their losses, they have not bounced back completely to the levels they were at before the crisis hit.
Mr Adani’s wealth was at $118.9 billion on the Bloomberg index shortly before Hindenburg’s report was published. Adani Enterprises is down 25 per cent on its peak share price of more than 4,000 rupees ($48.09). The company’s share price currently
stands at 3,009 rupees as of market close on Friday.
The conglomerate’s combined market capitalisation is still about $50 billion short of its levels before the crisis, Bloomberg has calculated.
While things are looking up, risks remain.
“The future is unpredictable, [but] if the group is able to properly handle this crisis, it may mark a turning moment,” says Hari Shankar Shyam, chairman of executive education at Sharda School of Business Studies.
“The capacity of the Adani organisation to manage its debt, keep investor trust and carry on with commercial operations without major setbacks are only a few of the variables that will determine how the organisation emerges from the crisis.”
So far the group has made major strides in dealing with the situation.
“Working on a recovery plan, the business has been aggressively adjusting its growth objectives, slowing down acquisitions, deleveraging and fortifying its financial sheet,” says Mr Shyam.
Despite the crisis, last year, the Adani Group managed to secure investments from GQG Partners, refinanced a $3.5 billion loan and outlined plans to invest $100 billion in green energy.
Adani Ports last week said it would raise up to $600 million by selling debentures – a type of long-term business debt not secured by collateral.
There is still work to be done. Given the extent of
Hindenburg’s allegations, “some investors may choose to exercise caution”, Mr Shyam says.
Investors are still awaiting the conclusion of Sebi’s inquiry into the Adani Group.
The Supreme Court has given the market regulator another three months to complete its investigation, having already extended the deadline twice.
Last year, India’s apex court also set up an expert panel to investigate if there had been any regulatory lapses and the panel concluded there were none, with no conclusive evidence of manipulation of stock prices by the group.
The regulator has said it will take appropriate action based on the outcome of its inquiry.
“Once Sebi’s report comes out in the remaining cases and if it comes out clean”, this will help to massively restore investor confidence in the Adani Group, says Niranjan Shastri, programme chairman at NMIMS Indore’s School of Business Management.
There will be a continued “cautious approach” when it comes to the valuation of companies, he says.
Even before Hindenburg’s report, some market analysts had expressed concerns about the valuations of Adani stocks and the conglomerate’s levels of debt. The Hindenburg saga has forced the group to work harder to “align its corporate strategy with the larger shareholders’ interest”, Mr Chowdhury says.
Certainly, lasting lessons have been learnt.
“The lessons emphasise the paramount importance of good governance, due diligence for investors, realistic valuations for companies and regulatory vigilance,” says Mr Tribhuvann.
“We recognise the Adani crisis as an opportunity for corporate India, investors and regulators to enhance transparency, diligence and robust regulatory frameworks for a more resilient market environment.”
While the conglomerate and Mr Adani have recovered most of their losses, they have not bounced back completely