Are Adani stocks overvalued? Here’s what Aswath Damodaran has to say

Hindenburg Research, an American short-selling firm, said that it held short positions in the Adani group through US-traded bonds and non-Indian-traded derivative instruments. It accused the group of participating in brazen stock manipulation and accounting fraud schemes over decades, after which the share price of all the listed companies tumbled to the tune of 50%.

Valuation Guru Ashwath Damodaran who teaches corporate finance and valuation at the Stern School of Business at New York University believes Hindenburg’s description of Adani as “the biggest con” in history is a “hyperbole”. He said that a con game has no substance and its only objective is to fool other people.

In his blog musings on markets, he deconstructed the Adani affair and said that if one is looking for advice on whether to buy or sell the shares, one will be disappointed.

Damodaran mentioned that Adani, notwithstanding all of its flaws, is a competent player in the infra business. This is especially true in India, which is filled with frauds and incompetents, he said.

He said that Hindenburg should be complimented for its legwork but its critique of the Adani Group rests on a mix of serious contentions, circumstantial evidence and questionable claims. He said that if Adani was manipulating earnings, it was “not doing a very good job, reporting low margins and return”.

He said that he is not tempted to buy shares in the group’s companies and this has little to do with Hindenburg’s report. He added that the risks increase if family group companies are built around political connections, “where you are one political election loss away your biggest competitive advantage”.

Damodaran thinks that even with the share price of ₹ 1,531, the company is priced too high, given its fundamentals (cash flows, growth and risk) and before factoring the damage that might have been done to the company’s reputation and long-term value, by this short selling episode.

He said that a valuation of Adani Enterprises (NS: ADEL ) with upbeat assumptions on revenue growth and operating margins, and without factoring any of the Hindenburg accusations of fraud and malfeasance, yields a value of just about ₹ 945 per share, well below the stock price of ₹ 3,858 per share.

Written by Simran Bafna

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