Adani Group Witnesses ‘Brutal Selling’: 3 Key Insights by Hindenburg!

Adani Group stocks are witnessing a brutal sell-off for the second day, which has also taken a toll on the broader markets, especially the banking space. Hindenburg Research, which is known to investigate and throw up light on financial frauds and scams across the globe is now alleging the Adani Group of a financial scam which is being termed as the ‘largest in corporate history’. 

From the beginning of the week (till 9:26 AM IST, today), Adani Transmission (NS: ADAI ) is down 22.56%, while Adani Enterprises (NS: ADEL ) and Adani Power (NS: ADAN ) are down 5.12% and 9.85%, respectively. Adani Ports and Special Economic Zone Ltd (NS: APSE ) has also cracked 11.78%, while its two cement companies ACC (NS: ACC ) and Ambuja Cements Ltd. (NS: ABUJ ) have plunged 11.45% and 12.84%, respectively. As the panic is escalating in the group, here are 3 key notes to take away from Hindenburg’s 2-year research that is triggering the selling spree.

First of all, Hindenburg is sticking its neck out in saying that even if you ignore their mind-boggling allegations, the group companies are still exorbitantly overvalued and have a potential downside of as big as 97% (taking P/E into consideration)! Btw, I always wondered how come a Nifty 50 stock (Adani Enterprises) can trade at a P/E of 500+, despite the fact that the company has a 5-year profit growth of a negative 4.7% and operates at a profit margin of only 1.1% (FY22).

Secondly, concerns were also being raised regarding the excessive debt on the Group, which is already known to the investing community and has been flagged in the past as well. From a solvency perspective, multiple listed entities in the group are excessively leveraged relative to industry averages. The current ratio of most of the companies of the Group is less than 1, indicating a concerning short-term liquidity risk.

Thirdly and one of the most important revelations is, Hindenburg has also found traces of shell companies being set up by the Group for money laundering. Shell (LON: RDSa ) companies are paper companies that are incorporated solely for the purpose of money siphoning of funds. They don’t have real/physical operations.

The research report said, “Gautam Adani’s younger brother, Rajesh Adani, was accused by the Directorate of Revenue Intelligence (DRI) of playing a central role in a diamond trading import/export scheme around 2004-2005. The alleged scheme involved the use of offshore shell entities to generate artificial turnover. Rajesh Adani was arrested at least twice over separate allegations of forgery and tax fraud. He was subsequently promoted to serve as Managing Director of Adani Group.”

It has also identified 38 shell entities in Mauritius controlled by Vinod Adani who is Gautam Adani’s elder brother or his close associates. 

The 106-page-long eye opener is playing a major role in the market-wide selling for the last two sessions, raising concerns over the financial stability of the system, in case the Group comes down like a house of cards.