Adani group is one of the most iconic business in the Indian business model and what absolutely mind-boggling about them is that in the past 10 years, Adani group single-handedly went to become India's largest private port operator, largest coal importer, coal miner, power producer, gas distributor, and largest edible oil importer.
Adani port has reportedly a good set of numbers with a strong performance from the port and other businesses.
How Hindenburg research is destroying Adani?
Let's discuss the background of Hindenburg, Hindenburg is an investment research firm, what they do is basically focus on activist short selling. They are outstanding in terms of short selling, they pick up candidates where they feel there are vulnerabilities, they analyze all the reports and they end up shorting stocks and make crazy amount of money. From 2017 to the present Hindenburg attacked 45 companies with a success rate of 75%.
On 23 Jan 2023, Hindenburg came out with a report titled Adani Group: How The World’s 3rd Richest Man Is Pulling The Largest Con In Corporate History. They had released a very dense report with references that seems legitimate. As a result within 3 days, Adani had to bear the burn of losses of around 65 billion $.
Adani group doesn't have a super profitable business to the bank yet. But even then they've managed to gather a debt of 2.2 trillion rupees.
Let's discuss some specific points about Hindenburg mentioned in their alleged report.
Debt fueled growth
Debt simply means, how much money you borrow and reinvest in the business. The handy amount of debt may show some positive effects on the stock price of the company. But it may be the artificial pump.
The current ratio is an important metric to look after the company whether the company is doing well or not. It is the ratio of current assets to liabilities. And if the current ratio goes below 1 then it creates problems for the company. Here, among 7 listed companies 5 companies are facing the ratio problem as they are below 1.
Promoters are pledging stocks
The pledge promoter holding is not a healthy sign for the company it just indicates that there is a lot of debt that the company has taken.
On top of that Adani had released FPO (Follow on Public Offer). FPO is generally to build up money as Adani's debt is going up year and year from financial year 21 to 22 it has gone up for almost all of its companies. Investors should be aware of where they used all the money they make. If they are doing FPO for the right reasons to make good plans which allow them to repay the debt and generate profits. But Adani himself said that they utilize money in building 2 additional businesses: green business and digital business. These businesses already have massive competition, which will be difficult to build up.
The float of the company is significantly less.
Promoter holding is roughly 73% of holding in Adani's company, the rest 27% by external parties. As stock price is a game of supply and demand. Here, 73% of promoter holding is completely under promoter, in any external factor if the stock is going up supply has limited the price of the stock can be skyrocketed.
LIC is an insurance company, practically run by the government. And among all the investments by insurance in Adani, LIC has 98% investment in Adani. LIC raised a stake in Adani group to over 70,000 crores and FPI's cut exposure.
Shady practices by companies
Hindenburg also mentioned the shady practices of the company which states Rajesh Adani who is currently managing director of Adani Enterprises was jailed in fraud cases multiple times. And similarly, other people who are engaged in enterprises were also been jailed for different purposes.
This was one of the biggest alleged fraud research by Hindenburg which has completely shaken the financial world right now.
And talking about the response from the Adani group, they have not given a satisfactory response from their side yet. This also has made analysts and stakeholders ask the question, "Has Adani scammed the people?"
Adani who was in 3rd among the richest people in the world is thrown from the top 10 to 15th position right now.
The way Adani stock price was going up and up. It was hyper-inflated and this cause an incident like this, which drastically affected all the investors who believe in Adani's business and invested their money in their company.
So as an investor, we must always learn the financials of the company in the very depth, try to understand the company's inner working strategy, and always be aware of the fishy behavior of the company.
This was all about Adani and the recent report by Hindenburg.
Thanks for reading :)
