After a stormy start to 2023, the Adani Group found itself in the line of fire yet again. Still dealing with the aftermath of the Hindenburg expose, the group saw a fresh controversy from a report released on August 31,which alleges secret share trading activities by the Adani promoters between 2013 and 2018.
The Organised Crime and Corruption Reporting Project (OCCRP), a network of investigative journalists, funded by organisations like George Soros' Open Society Foundation and Rockefeller Brothers Fund, published this report. Following its release, Adani Group stocks fell between 2% and 4%, with Adani Green declining the most.
Interestingly, Adani Group stocks swiftly recovered after this initial setback. The market appears to have paid little attention to this new release and is treating it as old news, since it is essentially an extension of the previously published Hindenburg report. The short seller’s report had a series of revelations, including the presence of Mauritian shell entities to manipulate stock prices.
Adani Group stocks were beaten down heavily post the Hindenburg release. However, they managed to recover some value between March and May. Adani Ports and Adani Power also exceeded their January values. Equity fundraising and robust operating performance by the companies in FY23, as well as positive market sentiment aided this bounce-back.
Adani Ports and Adani Power recovered from the Hindenburg impact
But before we dive into Adani Group’s big comeback, let’s examine the key claims highlighted under the OCCRP report.
Adani family’s alleged associates secretly hold portion of public shareholding
The OCCRP report names two close associates of Vinod Adani, the elder brother of Gautam Adani (chairperson of the group). They are Shaban Ahli from the UAE and Chang Chung-Ling from Taiwan. Chung-Ling was also mentioned in the Hindenburg report as someone with “close links and connections to the Adani Group”.
The report claims that both these individuals began investing in group companies like Adani Enterprises, Adani Power and Adani Transmission in 2013. These investments were made through a complex structure of investment funds based in Mauritius and Bermuda.
In four years, Ahil and Chung-Ling amassed over 12% of the shares in the free float of the company, with an estimated share of over 3% in the overall holdings. Notably, Vinod Adani was only recognised as part of the promoter group in March 2023. So, if these individuals were indeed his proxies, then the group may have violated SEBI’s minimum public holding requirement of 25%.
A part of Adani companies’ free float was held by Ahli & Chung-Ling in 2017
The consistent buying by these individuals may have inflated the stock prices of group companies. Consider the case of Adani Enterprises before its demerger in June 2015. Its stock nearly tripled in value in just 2.5 years, despite profits rising at a much lower 10% CAGR.
Adani Enterprises’ stock rose 3X between 2013 and 2015
The two funds mentioned in the OCCRP report no longer appear in the shareholding data of Adani Group companies. In fact, one of them was closed down in February 2022. However, their mentions provide a lead for SEBI, which is already investigating Hindenburg’s claims on the directive of the Supreme Court.
While legal troubles are far from over for the Adani Group, it has been working on regaining the market’s confidence since March.
GQG Partners’ equity funding rescues Adani Group
Following the Hindenburg controversy, GQG Partners, led by Indian Chairman Rajiv Jain, emerged as the star investor for Adani Group. Promoters diluted their stake, and this American investment firm poured in nearly Rs 35,000 crore across Adani companies between March and August. Qatar Investment Authority also parked Rs 3,920 crore in Adani Green last month.
GQG Partners invested funds across Adani Group companies
Foreign investments not only salvaged the stock prices of group companies but also helped in reducing promoter-level debt and stock pledges. Adani Ports’ promoter pledge percentage declined significantly between the December 2022 and June 2023 quarters. However, the promoter pledge for Adani Power remains unchanged as it received funding only in August.
Promoter pledges fell for most Adani companies between Dec 2022 and June 2023
Notably, these fundraisers took place through the secondary market and did not involve fresh issues of shares. However, group companies like Adani Enterprises, Adani Green and Adani Transmission have received board approval to raise around $4 billion through qualified institutional placements over the next 12 months.
According toJugeshinder Singh, the group CFO, Adani companies and their promoters aim to raise $50 billion in equity in the next two decades. After drawing flak from the street for being high on leverage, the company is taking the equity route to fund its investment plans.
Healthy cash generation eases investor concerns
Adani Group's robust operating performance and surging cash flows have played a key role in restoring investor confidence. Most Adani companies, except for Adani Power, registered double-digit EBITDA growth in FY23. Adani Enterprises stole the show with a 2X increase in EBITDA and a 3X rise in net profits. Its stellar performance in the integrated resource management division, which basically involves coal trading, aided its growth in FY23.
Adani Enterprises’ EBITDA more than doubles in FY23
Thanks to higher EBITDA, the interest coverage metric improved for most Adani companies in FY23. The top Adani companies by market cap carry a long-term debt of over Rs 2.15 lakh crore as of FY23. Hence, an improved debt servicing capability is encouraging.
ICR of most Adani companies improved in FY23 due to higher EBITDA
Healthy operating profits also led to a 60%+ jump in operating cash flows for all group companies combined, excluding the recently acquired ACC and Ambuja Cements. Free cash flows also turned positive this year after steadily declining between FY20 and FY22.
Adani Group saw a jump in operating cash flow, turned free cash positive in FY23
Long-term ambitions and investment plans remain intact
The ambitions of the Adani Group remain unchanged, despite the Hindenburg debacle. The group aims to transform Adani Ports into India’s largest transport utility by 2030, handling a billion tonnes of cargo annually. The goal of expanding renewable energy capacity under Adani Green to 45 GW in 2030, from its current 8GW, is also in the works.
For the newly acquired cement players, Adani Group seeks to achieve a combined cement capacity of 140 million tonnes per annum by 2028. Ambuja Cements recently acquired a majority stake in Sanghi Industries for Rs 5,000 crore to achieve this aim. With this deal, its cement capacity, combined with that of ACC, has risen to 73.6 MTPA.
During the recent annual general meeting, Gautam Adani said, “India is well on track to become a $25-30 trillion economy by 2050. It will add a trillion dollars to GDP every 18 months in the next decade.” Adani Group seeks to positively contribute to this growth story. But only time will tell whether it can successfully navigate its legal hurdles in the coming months.
This analysis by Trendlyne is meant for investor education - to help understand companies and make informed investment decisions on their own. It should not be considered an investment recommendation.