Why Adani Group Stocks are Falling

Adani stocks have seen immense volatility in the last few months. Now once again, the group's shares are under pressure.

After rising for two sessions, the sell-off in Adani group stocks resumed on 3 April 2023.

Eight out of the ten Adani group stocks closed in the red on Monday, with Adani Green falling the most and accounting for a third of the total decline in the group's market capitalisation.

Adani Group Stocks Performance on 3 April 2023

Company	Change (Rs in billion)	Change (%)
Adani Green Energy	-Rs 76.9	-5.0
Adani Transmission	-Rs 61.5	-5.0
Adani Enterprises	-Rs 51.3	-1.9
Adani Total Gas	-Rs 27.4	-2.4
Adani Wilmar	-Rs 13.9	-2.6
Adani Ports & SEZ	-Rs 9.5	-0.7
Adani Power	-Rs 4.3	-0.6
NDTV	-Rs 0.4	-3.1

Source: Equitymaster

As a result, the group's combined market capitalisation fell by Rs 219.9 billion (bn) on Monday, kicking off the financial Year 2023 on a negative note.

The group stock started falling in September 2022 amid concerns over high debts, when Gautam Adani briefly became the world's second richest, with US$ 150 bn in personal wealth.

The selling intensified following Hindenburg Research's scathing report that alleged accounting frauds, stock manipulation, and money laundering.

Although the Adani group stocks recently recovered after the group took measures to address investor concerns, they suffered another setback on Monday.

#1 Probe in Adani Group's offshore transaction

According to a media report on 3 April 2023, India's market regulator is investigating a possible violation of related party transaction rules in the conglomerate's dealings with at least three offshore entities linked to the brother of group founder Gautam Adani.

The investigation concerns the conglomerate's dealings with at least three offshore entities connected to him.

These entities have reportedly engaged in multiple investment dealings with unlisted subsidiaries of the conglomerate over the past 13 years.

The report alleges that Vinod Adani is associated with them as either a beneficial owner or director.

The market regulator is examining whether the lack of disclosure regarding these connections constitutes a breach of regulations governing related-party transactions.

Reacting to the news, eight out of the ten Adani group stocks closed in the red on Monday.

#2 Loan repayment concerns

On 28 March 2023, The Ken published a report casting doubt on Adani group's claim of fully repaying US$ 2.2 bn in share-backed debt.

The report highlighted that regulatory filings reveal that banks have not released a substantial proportion of the shares held as collateral by the promoters, despite the Adani group's assertion of having completely repaid the US$ 2.2 bn share-backed debt.

According to the report, the Adani Group had only partially repaid the loan amount to avoid pledging more shares and any action against it by the lenders.

Banks had only released the pledged shares of Adani Ports & SEZ after the prepayment announcement, while the pledged shares of Adani Green and Adani Transmission were still withheld by banks even a month after the loan repayment.

It was unusual as pledged shares are typically released immediately after the borrower settles their debts.

This resulted in a resumption of the selloff in the stocks last week, with all ten Adani Group stocks trading lower.

Adani Power, Adani Transmission, Adani Green, and Adani Total Gas shares locked in 5% lower circuit limits, while the conglomerate's flagship entity, Adani Enterprises, lost up to 7.8% of its value, making it the worst performer.

Additionally, the group's cash cow, Adani Port, recorded a decline of 5%.

What next?

Even after the enormous wealth destruction in Adani stocks, the group seems to have a promising future and has already laid out a comeback strategy to address debt concerns.

The Adani group aims to boost group-level operating earnings by nearly 50% to around Rs 910 bn over the next two fiscal years, helping lower its leverage ratios and assuaging the concerns of investors and creditors to whom it owes around US$ 23 bn (Rs 1,886 bn).

In recent meetings with creditors, the group has outlined plans to lower the group's leverage ratio from 4.2 times now to 3.1 by the end of the financial year 2024, chiefly by increasing earnings rather than reducing debt.

According to the latest plan, the group targets to accelerate earnings growth by bringing higher efficiency across its eight key businesses.

The group's logistics arm Adani Logistics is planning to double its train capacity, increase the multi-level logistics park count to 15 from nine currently, increase grain silos capacity by 2.5 times to 2.5 million (m) tonnes, and increase warehousing capacity by 40 times from 1.5 m square feet currently.

It is likely expected to be one of the next key growth drivers for the group.

Furthermore, Adani Total Gas plans to increase EV charging stations from 32 to 500, with a plan to expand it to 1,500 in the next two years; the company's second biogas plant will be commissioned by January 2024.

In the meantime, you could quickly refer to both fundamentals and valuations of Adani group stocks on Equitymaster's Indian stock screener.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...