Hindenburg Research Report - Adani vs Bear or Adani - A SCAM
After Hindenburg's report Adani group stocks crashed a lot. The market value of listed Adani firms declined 21.8%, with a total value loss of ~ 4.1 trillion after the release of this report.
Jan 24 value = 19.2 Trillion
Jan 27 value = 15.1 Trillion
How do we look into this matter? Should we take this as an alarm and exit or this is just an unresearched report published by a random short seller company, that wants to make a profit via shorting Adani group of companies, or is it a plan to fail ADANI FPO. What should we do? The decision is yours, here I am describing some facts in layman's language that will help you to take the decision.
- Hindenburg Research Report
- Who Is Hindenburg Research?
- What is Hindenburg Research Report?
- Who Is Hindenburg Research?
- What is Hindenburg Research Report?
- Adani group of companies and their share pledged value
- ADANI GROUP FINANCIALS & VALUATION
- Adani Group Management
- What IF
Hindenburg Research Report
Who Is Hindenburg Research?
Founded by Nate Anderson, CFA, CAIA, Hindenburg Research specializes in forensic financial research. In particular we often look for situations where companies may have any combination of:
- Accounting irregularities
- Bad actors in management or key service provider roles
- Undisclosed related-party transactions
- Illegal/unethical business or financial reporting practices
- Undisclosed regulatory, product, or financial issue
What is Hindenburg Research Report?
On 24th Jan 2023. Hindenburg Research reveals the findings of their 2-year investigation, presenting evidence that the INR 17.8 trillion (U.S. $218 billion) Indian conglomerate Adani Group has engaged in a brazen stock manipulation and accounting fraud scheme over the course of decades.
- Gautam Adani, Founder, and Chairman of the Adani Group has amassed a net worth of roughly $120 billion, adding over $100 billion in the past 3 years largely through stock price appreciation in the group’s 7 key listed companies, which have spiked an average of 819% in that period.
- they also claimed that, even if you ignore the findings of our investigation and take the financials of Adani Group at face value, its 7 key listed companies have 85% downside purely on a fundamental basis owing to sky-high valuations.
- Adani Group has a significant amount of debt, which makes it a riskier business to invest in.
- 5 of 7 key listed companies have reported ‘current ratios’ below 1, indicating near-term liquidity pressure
- The group’s very top ranks and 8 of 22 key leaders are Adani family members
- The Adani Group has previously been the focus of 4 major government fraud investigations.
- We have identified 38 Mauritius shell entities controlled by Vinod Adani or close associates. We have identified entities that are also surreptitiously controlled by Vinod Adani in Cyprus, the UAE, Singapore, and several Caribbean Islands. etc.
for more, you can visit Original Report.
Hindenburg Research are pointing out some major problems in Adani group, First of all they highlight the Debt issue, so look at this if they are saying right or wrong.
Adani group of companies and their share pledged value
- Adani group has an 87.94 percent equity stake in Adani Wilmar, a major player in edible oils and staples. The entire stake is currently locked in as per the data available from BSE. However, no stake is pledged by promoters in this company. Adani Wilmar has an m-cap of Rs 70,767 crore as on 25 January
- In the case of Ambuja Cements, the cement maker company, acquired by Adani Group last year along with ACC, promoters owned a 63.22 percent stake. No stake is pledged by the promoters in the company now as per the information on BSE. Ambuja Cements has m-cap of Rs 91,359 crore.
Adani Group's Pledged share values
Via these charts, we can clearly see that Adani has a huge debt burden and its debt-to-equity ratios are high. 5 companies of Adani Group have Debt to equity ratio higher than 1. Adani green energy's ratio is 7.7 which is too high for a company. Even 4 companies of the Adani Group have a current ratio has less than 1. It's indicating near-term liquidity pressure, if something happens in the short term then it may effect their business very much. A company’s ‘current ratio’ is a measure of liquid assets less near-term liabilities.
From a solvency perspective, multiple listed entities in the group are highly leveraged relative to industry averages: Four of 7 of these entities have negative free cash flow, indicating that the situation is worsening.
Adani Group's Debt to Equity ratio
From the above charts and graphs, we can say that the Adani group has a huge debt burden but is it a new thing that we can come to know from Hindenburg's Research report? Or is this the only reason to crash? I don't think so. Because it is known to all investors and they also disclosed it in their financial reports.
So let's go to their second important allegation which is valuation. Let's look at their valuation.
ADANI GROUP FINANCIALS & VALUATION
The 7 key Adani listed companies have seen their stock prices mysteriously surge over the past 3 years – with most increasing multifold – ranking them individually among the largest companies in India. Both Adani Enterprises and Adani Ports feature in India’s Nifty 50 index and 6 of the companies are included in the MSCI India Index
*this data is collected from the Hindenburg website
From the above data, we can see the valuations metrics are way higher but I do not agree with their implied downside. Some of Adani's companies are working in emerging markets and in India, they are one of a kind. So giving it a proper valuation is a tough job and we all know that the market always values the future, in the future when Adani's profit will grow then it will adjust automatically. But, we have to admit that some of the company's valuations are way higher & in recent times they had raised significantly.
So, it can be a reason for a correction, but not a reason to crash for a stock more than 70-80%.
So let's go to their 3rd important allegation which is Management. Let's look at their Management.
Adani Group Management
The Adani Group has been managed by the family since its formation. Beyond Gautam Adani, the Adani Group’s 22-person leadership team features at least 8 members of the Adani family. For that reason, they had mentioned the Adani group as a family affair.
They also mentioned some previous cases that happened in previous times. Just like the cases of Rajesh Adani, the younger brother of Gautam Adani had been arrested twice in 1999 & 2010, he helped plan a Diamond trading scheme between 2004 to 2006, as alleged by DRI investigative records. Now he Currently Serves As Managing Director Of A “Vital” Part of the Adani Group.
They also mentioned the case of Samir Vora, brother-in-law of Gautam Adani. He was allegedly a Ringleader of the same diamond trading Scam and was accused of repeatedly making false statements to Regulators, per the same DRI Fraud investigation. Now, he was subsequently promoted to Executive Director of Adani Australia.
They also mentioned Vinod Adani's Case.
(Source: *this diagram is collected from Hindenburg website & Diagram of suspected scheme reproduced from a public post by Indian Politician Mahua Moitra)
There are some Mauritius-based funds that have more than 90% assets in the Adani group of companies.
*All data are collected from the trendlyne.
They also made some allegations against their auditors.
Records show Shah Dhandharia paid INR 32,000 (U.S. $435 in 2021) in monthly office rent.
— Hindenburg Research (@HindenburgRes) January 25, 2023
The only other listed entity we found that it audits has a market capitalization of about INR 640 million (U.S. $7.8 million). (49/x) pic.twitter.com/KM45syz5SM
They also mention Ketan Parekh Scam. Leaked emails show that the CEO of Elara had dealings with notorious stock manipulator Dharmesh Doshi, partner of Ketan Parekh, even after Doshi became a fugitive for his alleged manipulation activity. How does Adani respond to this relationship, given that Elara is one of the largest “public” holders of shares of Adani?
From my point of view if there is a problem in management then it will be good to avoid this kind of stock, it can be a reason for Adani's group of companies' sharp correction. But some of these allegations are old.
Now we should wait for the SEBI investigation report.
- Now just wait and watch Adani stocks become a falling knife don't try to catch them wait for SEBI's report if it says ok then invest in it.
- If you are a current shareholder then you can use a stop loss according to your analysis and risk-taking ability.
- If you are in a healthy profit situation then you should book some amount of profit according to your own research.
LIC HOLDING
LIC's investment value was 76814 cr, after the sharp correction of 27jan 2023, it lasts only 53365 cr. LIC lose 23449.90cr.
What IF
What if this report becomes false, it will be the greatest short squeeze ever. Indian market will bloom. Adani stocks will bounce back at the same pace, as they correct. Foreign investors will get confidence and they will eventually invest more in India.
LIC, SBI & other PSU bank shares will show a huge amount of upside movement.But...
What if Hindenburg's report is right, in that case not only Adani stocks but also Indian market will crash.
- Adani FPO will become a huge failure.
- PSU banks will crash a lot. Retail investors, as well as FIIs, lose hope and this, will let the Indian market down and it will require enough time to come back.
- PSU & other banks have to sell their holdings if the collateral value falls below a threshold.
- It will create a downward spiral & it will be the beginning of a domino effect because other traders also short their position. It causes great damage.
- Not only PSU banks, but Private banks will also crash a lot because they co-lend each other it will affect their loan book.
- And eventually, retail investors lose their hard earn money.
NOTE:- This is clearly my opinion, I am not a SEBI registered advisor. If you want you can ignore this
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