Insiders indicate the presence of some top Opposition politicians in London for a meeting last year with some financial honchos, possibly bankers. The meeting was organised by a person once considered the big boss of Indian telecom. Funding was planned for Hindenburg and people in India identified to work on the report.
Corporate India’s biggest puzzle in recent years still remains unsolved, the big picture has not emerged yet. There are only whispers in the corridors of power about the exact reason that triggered the Hindenburg report, leading to the collapse of Adani Group’s shares.
The debate now stretches at two ends. Was it genuine research? Or was it a conspiracy planned by the Opposition parties to give the BJP-led NDA government its biggest jolt? And was, in the process, the Adani Group collateral damage?
Insiders in the national capital indicate the presence of some top Opposition politicians in London for a meeting last year with some financial honchos, possibly bankers. The meeting, it is reliably learnt, was organised by a person once considered the big boss of Indian telecom. Opposition politicians were—it is learnt—felt the best way to create mayhem for the ruling NDA would be to create trouble for Adani because he was considered BJP’s tap of cash.
Funding was planned for Hindenburg and people in India identified to work on the report. Else, the Hindenburg report would not have been timed to damage the Rs 20,000 crore follow-on public offer (FPO) of Adani Enterprises. It is now becoming clear that the Hindenburg report was written in India by a handful, apparently orchestrated by the likes of George Soros.
The FPO was aimed to silence this very accusation that the conglomerate is over-leveraged. Hindenburg Research encouraged global investors to stamp out Adani shares. But the secondary attempt to destabilise the Indian markets failed abysmally. The idea was to create panic selling just as Hindenburg cronies short sold Nifty and Bank Nifty futures.
There were other developments also.
Consider this one. There was a brouhaha on pledges of $250 million to Russian banks by Vinod Adani and that this was part of the promoter shares and there was no disclosure of such pledge to SEBI. The news report in Forbes was tweeted aggressively by many, including Hindenburg.
What is the offence in non-disclosure of shares pledges by Vinod Adani? These are offshore transactions.
If he defaults on those loans and pledged shares are sold by the lender, then this in no way affects promoter holding. Russian banks can sell or offer to sell back to Adani.
Problem is in India everyone is in a mad rush to crucify.
SEBI vide its circular dated 7 August 2019, had asked for “additional disclosure w.r.t. encumbrance of shares by promoters of listed companies along with PAC, the detailed reason to be specified. The said circular will come into effect from October 1, 2019. Applicability: Combined encumbrance by Promoter + PAC is equal to or exceeds 50 percent of their (Promoter+PAC) shareholding in the company or 20% of the total share capital (Equity + Preference) of the company. The disclosure shall also be made if such encumbrance level increases the thresholds.” No one bothered to check if the threshold was crossed.
Today, everyone wants a slice of Adani.
Now consider this one. A wire agency flashed news that GST agencies have raided Adani Wilmar warehouses in Himachal. The fact: An inspector went to one warehouse to examine whether there were cash payments from the warehouse. And then, the Himachal Pradesh GST announced that they could not find any violations by Adani Wilmar.
This was followed by the news that Life Insurance Corporation (LIC) neared all-time low on fears of loss in Adani Group portfolio. What many did not notice is that LIC investment in the Adani Group is 0.9% of its total corpus. And that LIC touched all-time low four months back.
Now, shouldn’t the Securities and Exchange Board of India (SEBI) conduct a thorough investigation into what many claim are agenda-driven hedge funds and short-sellers?
So, let’s go point by point.
Many do not like the meteoric rise of Adani, they blame the conglomerate for allegedly using investigating agencies like the Enforcement Directorate and the Central Bureau of Investigation to subdue rivals, like they claimed it happened when Adani acquired the Mumbai airport. In reality, the Mumbai International Airport (MIAL) was acquired when GVK did not pay both the principal installment and interest for years. Adani offered to clear the dues if the pledged shares could be transferred to him. GVK’s promoters were asked to respond within a fortnight, but they did not. The banker transferred the shares to Adani. GVK refuted claims made by Congress leader Rahul Gandhi that Adani pressured him.
The conglomerate is reaching out to millions in the hinterland with its community-centric initiatives. Its experts teach scientific ways of growing apples to Himachal farmers, and also offer free medicare. A 300-bed government hospital in Kutch has been turned into a 900-bed operation by the group.
What Adani got in Kutch was the right to operate—it was just a minor port without even a rail connection. Now this desert patch is India’s largest port. And yet, Gautam Adani is pilloried by India’s Opposition political parties as a billionaire without a base. The bulk of his projects have been won through open tender, not through government grants. Globally, Adani acquired jetties and ports outsmarting in competitive auctions big guns like Dubai World and Maersk. The Sri Lanka terminal will cost $750 million and Haifa port $1.18 billion.
And on 23 February 2023, Adani Green won a $442 million wind farm contract from Sri Lanka.
The Congress Party—hyperventilating with its criticism of Adani—was the one which gave him initial ports with land acquisition, or the port-rail connectivity. Once ships waited for nearly a month at Mundra, now high automation and speed is the hallmark of Mundra. Adani is now building ports in West Bengal, Odisha and Kerala, all non-BJP states and handles a quarter of India’s total freight. The Congress governments in Rajasthan and Chhattisgarh want Adani to invest in their states.
Can you manage everything without exceptional business skills and become global number 3? What happened to those regional infra giants who wanted to ride the boom of 2003? They are now deadwood. In more than one sector, Adani’s projects have become the very backbone of India. His base is expanding in India and abroad, not shrinking.
THE VALUATION
Now let’s shift to the valuation of the Adani Enterprises that has become the biggest talking point in India.
Well, it is not a company that fits into traditional silos. It has features of several types of companies including an incubator. Many of the new businesses that the Adani group is foraying into are being incubated within the confines of Adani Enterprises. In short, valuation of the conglomerate is not an easy task.
So how does it work?
One of the ways that the market will value a company is through the sum of its parts where the value of each of the different businesses within the fold is calculated and then brought together to arrive at a final valuation. Even that part is difficult as far as Adani Enterprises is concerned because a lot of the new businesses are not established ones where valuation comparisons are available. These are the data centres, the green hydrogen plan etc.
Therefore, investors are looking at these businesses and the potential that they hold, to arrive at the kind of value that they are paying for the company. This is where the situation becomes complex because on paper as compared to existing earnings the valuation might look expensive but this might not be the actual case especially when one looks at the huge potential that the new businesses have.
Worldwide, there are examples from Amazon to Tesla how investors give large valuations to companies long before they are able to show the actual results in their quarterly results.
Recently, it was reported that the US markets have lost close to 8% n February, the biggest fall in years. In comparison, the Indian markets have fallen 5-6%. But the Western media projected as if India has collapsed to the levels of 2008.
And then, the whole linkage of the rise of Gautam Adani and his wealth to Narendra Modi becoming the Prime Minister at the Centre is a narrative that has no basis. The period from 2014 to 2019 when the Adani group stocks had not caught the fancy of the markets saw little in terms of appreciation of the stock prices for them.
It is only in the last three years, as the equity markets took off after Covid, the group companies have seen an appreciation in value. The market capitalisation of the group was around Rs 2 lakh crore at the start of Covid and has gone up after that to reach a peak of around Rs 18 lakh crore before having come down. This movement also tallies with the way in which we know how stock markets behave. The stock market does not provide linear returns but when something catches its attention then the rise is sharp and this can be significant. This is exactly what has happened with the Adani group companies. The data which is there in plain sight is a clear rejection of any suggested linkage to the Prime Minister’s stint in power.
Now let’s focus on the equity markets.
The Indian equity markets have seen a sharp rally in the phase after Covid struck. The Nifty has more than doubled from the values seen at the end of March 2020. Several companies have done far better and this includes companies across different market capitalisations. Even if one takes a look at the Nifty components then companies like Tata Motors, JSW Steel, M&M, Tata Steel etc., are multi-baggers. There are a lot of factors in addition to the overall market rise which has given rise to this situation for Indian corporates.
The shifting of business away from China along with the rise of India as an alternative supplier has increased confidence in the business environment in the country. The supply chain shocks that shook economies across the world also played an important part and now increasingly India is being considered as one of the main bulwarks of the global economy.
The situation post the outbreak of Covid also witnessed a change in the outlook of foreign portfolio investors, who shifted their attention and money towards India and away from China. This increased money flows into Indian companies, especially strong corporations. The Russia-Ukraine war prolonged the stress in the global economy, but for investors this was the time to look at places where there was confidence about growth as well as execution. Adani group companies led by Adani Enterprises fit the bill as their track record of execution of projects has been consistent and they were the recipients of this interest along with India as a whole.
At the same time the incubator role played by Adani Enterprises also could not be ignored by investors as it has successfully brought a range of companies to scale ranging from Adani Ports and SEZ to Adani Wilmar stretching across a range of industries. All this together contributed to the interest and consequent rise in value for Adani group companies’ stocks.
A big reason for the increasing business confidence in India is the focus on creating infrastructure across the country. The Central Government has budgeted for nearly Rs 10 lakh crore as capital expenditure in this year’s budget. If one looks at the capex plans of Indian companies, it will be clear many have big plans themselves.
It is not surprising that the equity markets were giving higher valuations to companies that are linked to the overall growth of India.
One more factor in the equity markets is the fear of missing out.
Investors are forever on the watch to replicate the success of one investment by looking at similar opportunities in other companies. This happens for companies within a single group too which often moves in tandem. This can also be an explanation for why different companies from the Adani group rose in valuation together as investors broadened their hunt for better returns by factoring similar higher growth across the group companies.
Critics need to be able to understand India’s growth story and paint an accurate picture.