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 argues that its profits are proof of the strength of its business.
“It’s unfortunate we had to go through this politicised, malicious report,” 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 profit after tax for the three months ending in March to Rs7.8bn ($95mn) from the same period last year, with coal trading and mining profits before interest and tax roughly doubling.
But the conglomerate, whose growth has been driven by snapping up government contracts and a years-long acquisition spree, has had to adapt in many ways after the short-seller attack. Adani has been forced to pull back to conserve cash after the report wiped some $100bn off the market capitalisation of the group’s companies and Adani Enterprises called off a $2.4bn follow-on equity offering.
Adani Enterprises said in a stock exchange filing on Wednesday that it was considering a new share sale to raise funds but did not specify an amount. Its board will meet to decide on Saturday.
The group, which denies Hindenburg’s allegations, has slowed down acquisitions and has been buying back bonds to shore up confidence.
The company has told investors and market analysts that its headlong growth — into new sectors including media and data centres — is on pause. “We understand from management that they are trying to go slow on capex across the board,” said Rachna Jain, a director at Fitch Ratings’ infrastructure and projects team. “And even on core areas they are trying to trim growth.”
In 2022, Singh said Adani Enterprises would spend $5.3bn on capex in the 2024 financial year. This month, he revised down the estimate to $3.8bn.
Adani Ports and Special Economic Zone, the conglomerate’s logistics arm, slashed its capex for this year by half compared with last year and launched a $650mn bond buyback which it said was in part “to convey the comfortable liquidity position of the company”. Adani’s Ambuja Cement said this month it cancelled an engineering contract worth Rs18bn.
The group also appears to have pulled back on seeking some government tenders. Adani Green Energy, the group’s renewable power arm, did not win any of 30 new renewable power tender offers issued in India in April, according to JMK Research, a Gurgaon-based consultancy.
Asked about the company’s absence from new bids in an earnings call this month, Adani Green Energy’s head of business development said: “We have a large pipeline of under-construction projects . . . we already have significant capacities tied up. So, we are focusing on value accretion opportunities and will time those as it comes by. We are not necessarily aggressive right now in the market.”
An Adani spokesperson said the group had not altered its overall strategy for participating in tenders or investment plans for its core infrastructure business. “Capex in new areas of investment, outside the core, is being re-evaluated in the short term as we continue our work with relevant parties 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 purchasing an $847mn coal power plant in India in February and has since refrained from making new deals, which has had an impact on the broader market as it suffers a slump in M&A activity.
Adani built his empire on a “blitzkrieg” of acquisitions, said a Mumbai banker. The tycoon’s quiet period “will impact investment banking revenues for sure because he’s important to the business”, the banker added. “It’s like if the Chennai Super Kings leave the Indian Premier League,” he said, referring to the second-placed team in the top cricket league.
Following the short-seller attack, analysts expect Adani will struggle to secure new financing. Adani Green Energy, which is developing a 25GW renewables portfolio, had quarterly profits of Rs5bn and has to make a $1.25bn repayment on two bonds in 2024.
“A report like Hindenburg’s does raise additional questions in the mind of investors,” said an analyst who asked not to be named for fear of repercussions from Adani, “making it more difficult to raise capital in already challenging markets.”
“They’ll be careful about things like corporate governance because now people are watching them really closely,” said Anish Teli, managing partner at Mumbai-based fund manager QED Capital.
On Friday, index provider MSCI said it was cutting the weight of two Adani stocks. It had reassessed the size of the free float — the proportion of shares available for trading — of Adani Total Gas, Adani and TotalEnergies’ city gas business, and Adani Transmission, a power unit, from 25 to 14 per cent and 25 to 10 per cent, respectively. MSCI calculates a stock’s weighting based on its free float.
Adani said it was working “on enhancing the depth of [the] share register and of [the] free float across our portfolio of companies”.
Despite rejecting Hindenburg’s findings, Adani has responded to one criticism by changing an auditor at one company. Hindenburg’s report criticised Shah Dhandharia — the auditor of Adani Enterprises and Adani Total Gas — as a “tiny firm” that “hardly seems capable of complex audit work”.
Last week, Adani Total Gas replaced the Ahmedabad-based auditor four years before its term was set to expire and announced Walker Chandiok, the Indian affiliate of London-headquartered auditor Grant Thornton, as its new auditor.
“If you want to have some sort of comfort in the audit process, you have to rely on big auditors,” said Sharmila Gopinath, India specialist adviser to the Asian Corporate Governance Association. She added that this assurance was especially important to foreign investors.
An Adani spokesperson said Adani Total Gas had intended to switch its auditor before Hindenburg’s report.
At home in India, the Supreme Court in March directed Indian markets regulator Sebi to investigate the conglomerate.
The short seller’s report has also had an impact on Indian politics. Opposition parties have seized on the issue to browbeat Prime Minister Narendra Modi a year ahead of a national election.
Modi and Adani, both from the state of Gujarat, are widely perceived to have a close relationship that analysts say is now a political liability for the prime minister.
“Modi cannot be too complacent on the Adani issue,” said Shruti Kapila, professor of history and politics at the University of Cambridge.
The way Modi deals with the Hindenburg report is what “will really matter, particularly the way he is punishing opposition leaders”, said Kapila. “That could backfire.”
Additional reporting by John Reed in Bengaluru