More than three months after short seller Hindenburg Research accused Indian tycoon Gautam Adani’s conglomerate of engaging in stock price manipulation and accounting fraud, the company says its profits are proof of the strength of its business .
“It’s a shame we had to go through this politicized and damaging relationship,” he said Adani Group chief financial officer Jugeshinder “Robbie” Singh on an earnings call for flagship company Adani Enterprises last week. “But you see the numbers.”
Adani Enterprises more than doubled its after-tax profit for the three months ending March to Rs7.8 billion ($95 million) from the same period last year, with profits from the coal trading and of mines before nearly doubled interest and taxes.
But the conglomerate, whose growth has been driven by government contract hoarding and years of buying sprees, has had to adapt in many ways after the onslaught of short sellers. Adani was forced out to save cash after the report wiped out about $100 billion from the market capitalization of group companies and Adani Enterprises canceled a subsequent $2.4 billion equity offering.
Adani Enterprises said in a stock filing on Wednesday that it was considering a new stock sale to raise funds, but did not specify an amount. His council will meet to decide on Saturday.
The group, which denies Hindenburg’s allegations, has slowed acquisitions and bought back bonds to boost confidence.
The company has told investors and market analysts that its precipitous growth — in new industries including media and data centers — is on pause. “We know from management that they are trying to slow down investment across the board,” said Rachna Jain, director of the projects and infrastructure team at Fitch Ratings. “And even in the central areas they are trying to reduce growth.”
In 2022, Singh said Adani Enterprises will spend $5.3 billion on capex in the 2024 financial year. This month, he revised the estimate down to $3.8 billion.
Adani Ports and Special Economic Zone, the conglomerate’s logistics arm, cut capex in half for this year compared to last year and launched a $650 million bond buyback that it said was in part “to convey the company’s comfortable liquidity position.” Adani’s Ambuja Cement said this month that it had canceled an engineering contract worth Rs 18 billion.
The group also appears to have withdrawn from pursuing certain government tenders. According to JMK Research, a Gurgaon-based consultancy, Adani Green Energy, the group’s renewable energy arm, was not awarded any of 30 new renewable energy public tender offers issued in India in April.
When asked about the company’s absence from new offerings in an earnings call this month, Adani Green Energy’s head of business development said, “We have a large pipeline of projects under construction. . . we already have significant capabilities engaged. So, we’re focusing on value accretion opportunities and will time those as they arise. We are not necessarily aggressive at the moment in the market”.
An Adani spokesman said the group has not changed its overall strategy for bidding for tenders or investment plans for its core infrastructure business. “Capex in new investment areas, outside the core, is being reassessed in the near term as we continue our work with stakeholders to address the economic fallout” of the short seller’s report, the spokesperson added.
Dealmaking has also taken a back seat. Adani pulled out of its $847 million coal-fired power plant purchase in India in February and has since refrained from making any new deals, which has impacted the broader market as it suffers a slump in activity of merger and acquisition.
Adani built his empire on a “blitzkrieg” of takeovers, said a Mumbai banker. The tycoon’s quiet period “will certainly have an impact on investment banking revenues because it is important for the business,” the banker added. “It’s like the Chennai Super Kings leaving the Indian Premier League,” he said, referring to the second-place team in the top cricket league.
After the attack by the short sellers, analysts predict that Adani will face difficulties in obtaining new financing. Adani Green Energy, which is developing a 25 GW renewable energy portfolio, reported quarterly profits of Rs 5 billion and is due to repay $1.25 billion on two bonds in 2024.
“A report like Hindenburg’s raises further questions in the minds of investors,” said an analyst who asked not to be named for fear of repercussions from Adani, “making it harder to raise capital in already tough markets.”
“They will be watching out for things like corporate governance because now people are watching them very closely,” said Anish Teli, managing partner at QED Capital, a Mumbai-based fund manager.
On Friday, index provider MSCI said it was trimming the weight of two Adani stocks. It had revalued the size of the free float – the proportion of shares available for trading – of Adani Total Gas, the town gas business of Adani and TotalEnergies, and Adani Transmission, a power unit, from 25 to 14 percent and from 25 to 10 per cent, respectively. MSCI calculates a stock’s weighting based on its free float.
Adani said he was working “to improve the depth of [the] register of shares and of [the] free floating in our portfolio of companies”.
Despite rejecting Hindenburg’s findings, Adani responded to a criticism by switching an auditor at one company. Hindenburg’s report criticized Shah Dhandharia – the auditor of Adani Enterprises and Adani Total Gas – as a “small company” that “barely appears to be able to do complex audit work”.
Last week, Adani Total Gas replaced the Ahmedabad-based auditor four years before his mandate expired and announced Walker Chandiok, the Indian affiliate of London-based auditor Grant Thornton, as its new auditor.
“If you want to have some kind of comfort in the review process, you have to rely on great reviewers,” said Sharmila Gopinath, India consultant at the Asian Corporate Governance Association. She added that this guarantee is especially important for foreign investors.
An Adani spokesman said Adani Total Gas planned to change its auditor ahead of the Hindenburg report.
At home in India, the Supreme Court in March ordered Indian markets regulator Sebi to investigate the conglomerate.
The short seller report also had an impact on Indian politics. Opposition parties seized the issue to intimidate Prime Minister Narendra Modi a year before the national elections.
Modi and Adani, both from Gujarat state, are widely perceived to have a close relationship which analysts say is now a political responsibility for the prime minister.
“Modi cannot be too complacent on the Adani issue,” said Shruti Kapila, professor of history and politics at Cambridge University.
How Modi deals with the Hindenburg report is what “will really matter, especially how he is punishing opposition leaders,” Kapila said. “This could backfire.”
Additional reporting by John Reed in Bangalore
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