ADANI | St. George Capital

Can Adani Make a Comeback?

Overview

Adani group (or Adani Enterprises) founded by billionare CEO Gautum Adani, is an Indian MNC corporation that undertakes a large variety of production and operations within India. Its subsidiaries engage in services such as power production and distribution all over India, laying down optical fibres to improve telecom solutions for companies and customers, and many more operations across states in India. They faced a large adversity recently which caused their company (and subsidiaries) valuation to suffer a large kickback. However due to economic development along with the solid foundation and influence they have over Indian consumers, there is still hope for Adani group.

Adani’s setback and overvaluation

Already a prominent figure, Gautam Adani has propelled his group to dominate various sectors within India, earning a reputation for reliability and safety among investors and customers. However, in January 2023, a report surfaced accusing Adani of offshoring income through a Mauritian bank account and using those funds to purchase additional shares of Adani Group, artificially inflating the share price and company valuation.

In response, SEBI launched an investigation and charged Adani with share-price manipulation. Consequently, from January to February 2023, the Adani Group experienced a $35 billion loss, severely damaging its reputation and that of its subsidiaries. Additionally, Hindenburg Research revealed that five Mauritian-based companies held significant short positions in Adani Energy before the Hindenburg report was published. While Gautam Adani accused Hindenburg of deliberately driving down the stock price, this claim was not pursued further.

Regulatory changes

In early 2024, SEBI implemented new policies aimed at preventing similar issues in the future. They mandated that all investors making investments over 3 billion rupees from a foreign account must provide full disclosure of their intent and investor profile. This measure is designed to prevent information mismatches and increase transparency.

Additionally, in January 2024, SEBI introduced a framework to regulate short positions in the Indian markets, specifically prohibiting "naked" short positions. This means investors must disclose their intent to hold a short position, provide details on the timing and placement of the order, and fulfill the obligation to deliver the security at the time of closing the position. These regulations aim to enhance market integrity and prevent manipulation.

Large impending changes could pave a new future

With Adani Group's subsidiaries spanning numerous sectors, and with rapid changes occurring across the Indian economy, there are significant opportunities for the group to increase revenue. Adani Energy Solutions, a dominant and stable entity in energy production and distribution, benefits from substantial investments in long-term projects across India.

Since Narendra Modi became Prime Minister, there has been a strong emphasis on transforming India into a developed economy, primarily through increased expenditure on infrastructure and construction projects. As renewable energy becomes more prevalent, there is a gradual shift from traditional sources like coal. Adani Energy can capitalize on this trend by expanding its customer base to include more contractors across various industries, thereby attracting more business nationwide.

Additionally, the global shift towards AI is impacting many industries, including energy. In India, there is growing interest in using AI to integrate renewable energy with large data centers, automating the control and management of national grids. Adani Energy can invest in this technology or enhance its production through these innovative methods. This strategic move would likely attract a large shareholder base, allowing Adani to reap substantial benefits.

Final Thoughts

Despite a significant setback in 2023 due to allegations of share-price manipulation and offshoring income, which led to a substantial drop in valuation and reputational damage, the Adani Group remains influential in India. Recent regulatory changes by SEBI, aimed at increasing transparency and preventing similar issues, provide a framework for recovery. The evolving Indian economy, with its focus on infrastructure development and renewable energy, presents numerous opportunities for the Adani Group to capitalize on. Strategic investments in long-term projects and technological advancements, particularly in renewable energy and AI integration, position the group for future growth. Despite the challenges, the Adani Group's strong market presence and strategic initiatives offer a path toward potential recovery and continued success.

References

Agarwal, N. (2023, December 19). 2023 drilled $35 billion hole in tycoon Gautam Adani’s wallet. The Economic Times.
Standard, B. (2023, May 30). Adani-Hindenburg Saga: Two Mauritius firms in report were under I-T lens. Business Standard.

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