How Gautam Adani turned a crisis into an opportunity

Despite facing a brutal year, Gautam Adani, one of India’s wealthiest magnates, remains unshaken. His empire’s stocks plummeted in January after Hindenburg Research launched a scathing attack on his business, accusing him of fraud and manipulation. Adani dismissed the charges as a “malicious assault” on India but the master of infrastructure may soon find a silver lining in his short-seller’s onslaught.

On 23 January 2023, before Hindenburg Research released its report, the group’s market cap was over ₹19 lakh crore. At one point, the attack wiped out more than ₹12 lakh crore in market value from the group’s nine publicly listed companies. The Group’s market cap reached its lowest of 6.8 lakh crore in February 2023. Within ten months, the Adani stocks have bounced back strongly to reach a market cap of ₹15.14 lakh crore on 7 December 2023. This surge is more than 46% from its 52-week low caused by the panic created by the short-seller report.

The losses have significantly pared back to ₹5.3 lakh crore as of Thursday. Shares of the flagship Adani Enterprises are still 18% lower, but with valuations of ₹2.26 lakh crore and ₹2.19 lakh crore respectively Adani Ports and Adani Power are up 36% and 89% since the Hindenburg report was released.

Adani Group started firefighting Hindenburg-inflicted damage in February and March 2023 by keeping its existing projects on track and pairing off some of its debt. The Group made sure the Haifa Port was inaugurated on 31 January 2023 as per the schedule. To shore up investor confidence further, held roadshows in Singapore (27 February), Hong Kong (28 February – 1 March), London, Dubai, and the US (7 – 15 March 2023). GQG Partners invested ₹21,660 crore since March this year and has now made 82% returns on its Adani Group Investments as of 05 December 2023.

Global investors like GQG, Total Energies, and Abu Dhabi-based International Holding made significant investments in some of Adani’s companies, helping to dilute the family’s tight shareholding. In addition to previous $3.1 billion (~₹25000 crores) investments in Adani, TotalEnergies has now invested $300 million more to form Adani-Total JV for a 1,050 MW solar & wind energy project. The Group also paid off loans backed by stock: only 2.4% of the shares in Adani Ports, for example, remain pledged as of the September quarter, down from 17.3% at the end of December 2022.

In a way, the Hindenburg saga stress-tested some of the lingering concerns about the group’s debt leverage and valuations. Ten months later while net debt remains largely unchanged at around ₹1.8 lakh crore, EBITDA – an indicator to measure the group’s earnings and cash flow – has increased 47% Y-o-Y. The meteoric rise in EBITDA has reduced the consolidated debt-to-earnings ratio from 3.3 times to 2.5 times.

The Group’s four largest businesses by market capitalization namely Adani Enterprises, Adani Green Energy, Adani Ports SEZ and Adani Power trade between 89 and 202 times trailing earnings, as per LSEG data. These multiples are lower than the 315 to 845 times before Hindenburg made a splash. Through the crisis, Adani’s blue-chip backers like TotalEnergies, Wilmar International and its coterie of global banks including Standard Chartered and Singapore’s DBS remained loyal. Florida-based GQG Partners, which made big bets on the conglomerate this year, has seen the value of its investments in five group companies soar.

There is still doubt in some circles about the group’s minimum public shareholding, which is the percentage of shares that the public must hold according to the Indian securities regulator. But if violations are found they may attract little more than a fine from the Securities and Exchange Board of India. Supreme Court recently reserved the judgement on Adani-Hindenburg Row and indicated that there was no evidence to doubt the SEBI probe and the impartiality of expert committee members in probing the Adani-Hindenburg matter.

The U.S. (International Development Finance Corp) has also announced to invest ₹4600 crore in Adani’s Colombo port project thus rejecting any speculation that it was going to launch investigations against the Group.

The surprise winner of the saga maybe the Indian economy. The industrialist remains the country’s biggest private operator of critical infrastructure like ports, airports and power plants including both thermal and renewables. The Indian economy would have suffered a domino effect if the Group had collapsed due to the Hindenburg assault. The Group not only endured the crisis but also kept investing heavily in new ventures and finishing ongoing projects on schedule. Adani has become the world’s second-largest PV developer and India’s largest renewable energy producer with its 8.4 GW operational and 12.1 GW under construction portfolio. The Group’s investments in renewable energy and green hydrogen could help the fifth-largest economy cut its dependence on oil imports. Adani plans to build 3 additional Giga factories that will manufacture solar modules, wind turbines and hydrogen electrolysers.

Many businesses collapse under short-seller attacks. But Adani’s case was different: he emerged stronger from it. After a clean chit by the Supreme Court-appointed inquiry committee, the group has gained more acceptance and respect from its peers and regulators. Instead of giving in to the stress, Adani used the crisis to his advantage, showing his grit and foresight. He has not only defended his reputation but also strengthened his position as a leader in India’s economic development.