Adani counters the Hindenburg narrative supported by strong rally of its stocks

After a hammering on the stock market for the previous two weeks in the aftermath of the allegations levelled by Hindenburg, shares of Adani Group have seen a bounce back this week. As the markets closed on Wednesday 8th February 23, the worst-hit stock of Adani Enterprises gained 100% from the lowest level in the last two weeks. Though it is much lower than its previous high, the fast recovery assumes significance in the face of current circumstances.

While the stocks fell sharply as an initial reaction, clarification from banks and other financial institutions declared that their loans to the Adani Group were within regulations which have helped cool down the negative sentiment.

On Wednesday 8th Feb 23, nine out of ten, Adani Group stocks were trading in green. Adani Transmission climbed 4.87% to Rs 1,312.70. Other than Adani Enterprises, Adani Ports rose 8%, whereas Adani Wilmar and Adani Transmission were locked in the upper circuit by 5% each.

Stock	CMP	Recent low	Recovery
Adani Enterprises	2049	1017	101%
Adani Ports	598	394	51%
Ambuja Cements	384	315	21%
ACC	2041	1696	20%
Adani Wilmar	419	361	16%
NDTV	227	201	13%
Adani Transmission	1314	1198	9.60%

Data as on closing trade on 8th February 23

Adani Enterprises was scheduled to raise funds via the FPO route in the last week of January and the Hindenburg report was released on the eve of the FPO. Many critics of the Adani Group expected the FPO to fail. However, thanks to the backing of some corporate houses and family offices, the FPO was fully subscribed. This was the first blow to the narrative built by the Hindenburg report, which if anything is a compilation of allegations that don’t seem to have a substantial base.

Gautam Adani in a bid to build investor confidence decided to withdraw the FPO as the price band was much higher after the fall in shares of Adani Enterprises. This sent out a clear signal that the group was working in investor interest. Another salvo fired by the Adani Group was the prepayment of loans to the tune of a $1.1bn loan that was not due until September 2024. The loan was from a series of banks including Citibank, JPMorgan, Deutsche Bank, Barclays, and Japan’s SMBC Group. Adani group has released 12% of promoter holding in Adani Ports; 3% of promoter holding in Adani Green; and 1.4% of promoter holding in Adani Transmission towards repayment of this debt.

With this, Gautam Adani has been able to silence naysayers who doubted the groups’ ability to repay debt. Though the group still has high levels of debt due to the nature of capital-intensive businesses and acquisitions that it has made over the years. It will take a few years for some of these businesses to generate enough cash to pare down the debt levels substantially.

The last few days also saw the results of Adani Group companies declared for Q3FY23. The results indicate that the businesses are generating revenues as well as profits and there is no cause for undue concern.
Adani Ports reported a 13% YoY decline in the profit after tax at Rs 1,336.51 crore for Q3FY23. The company reported a profit after tax at Rs 1,535 crore in Q2FY22. Though the revenues have grown 14% YoY to Rs 5051 crore.

Adani Green Energy’s consolidated profit more than doubled to Rs 103 crore in Q3FY23 compared with Rs 49 crore in Q3FY22. Its revenues grew 53% on a YoY basis to Rs 2,258 crore in Q3FY23 from Rs 1,471 crore in Q3FY22.

Ambuja Cements reported a 46% rise in its Q3FY23 standalone profit at Rs 368.99 crore against Rs 252.81 crore YoY in Q2FY22. Revenues from operations grew 10% YoY to Rs 4,128.5 crore from Rs 3,739.9 crore in Q2FY22.
As the events have unfolded in the last few days, the Adani Group is clearly taking steps to protect its reputation as well as its investors.

The Hindenburg report may just be a thing of the past and the shares of group companies could rise further from here on. It will be an interesting case study to evaluate these at the end of FY23 and track the journey that these stocks have traversed since touching their lowest point after the Hindenburg report.

ABOUT THE AUTHOR

Ketan Sonalkar (SEBI Rgn No INA000011255 )

Ketan Sonalkar is a certified SEBI registered investment advisor and head of research at Univest. He is one of the finest financial trainers, with a track record of having trained more than 2000 people in offline and online models. He serves as a consultant advisor to leading fintech and financial data firms. He has over 15 years of working experience in the finance field. He runs Advisory Services for Direct Equities and Personal Finance Transformation.

Note – This channel is for educational and training purpose only & any stock mentioned here should not be taken as a tip/recommendation/advice

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