Adani Group Stocks Fall after New Allegations. What Next?

Editor's note: Almost seven months after a US short seller came out with its big report on the Adani group and shook the markets to its core, another organisation funded by George Soros and Rockefeller Brothers Fund was said to be planning another 'expose' on certain corporate houses in India.

The media was divided and digging hard at identifying which corporate house will be exposed this time.

Some thought it could be the Adani group once again as Soros had earlier questioned the turmoil at Adani's empire and how it could weaken PM Narendra Modi's hold on the government.

Turns out, what's said to be one of the biggest scandals in history is getting even bigger. It's the Adani group in question once again.

Just when shareholders of Adani companies thought things were getting back to normal and Gautam Adani is all set to take the group to its next leg of growth, new findings have dismissed all their hopes.

According to finding by the organization backed by Soros, millions of dollars were invested in some publicly traded stocks of Adani Group via 'opaque' funds based in Mauritius.

Exclusive documents obtained by Organised Crime and Corruption Reporting Project (OCCRP) revealed that hundreds of millions of dollars were invested in publicly traded Adani stock by alleged business associates who have widely reported ties to the group's majority shareholders, the Adani family.

The non-profit organization cited review of files from multiple tax havens and internal Adani Group emails as backing for the recent findings.

In response, the Adani Group has dismissed the allegations.

The group said that these allegations appear to be part of an orchestrated effort by interests funded by George Soros and supported by sections of foreign media, aimed at reviving unsubstantiated claims from the Hindenburg report.

It added that the Mauritius funds investigated by the firm had already been named in the Hindenburg report and the "allegations are not only baseless and unsubstantiated but are rehashed from Hindenburg's allegations."

As we said back in January 2023 when the Hindenburg report came out, these developments will keep the group companies under scrutiny for a long time.

The same appears to be happening. Today, once the news about the latest findings were out, Adani stocks started falling brutally giving Deja-vu to shareholders.

Adani Group Stocks Fall After OCCRP Allegations

Just to put things into context, this is not the only cause of concern for the Adani group at the moment.

The group recently saw an auditor resignation at one of its firms while the SEBI has submitted its report to the Supreme court (SC).

The Indian market regulator was investigating for months on the allegations made by Hindenburg Research.

Auditor Resignations & SEBI Probe at Adani Group

Unexpected events like an auditor resigning or a stock being put under ASM framework can send shockwaves, leaving shareholders on the edge.

Retail investors have added a lot of exposure to Adani group stocks after the Hindenburg report eroded its marketcap up to 60% in select companies like Adani Total Gas.

The recent news of an auditor resigning and the subsequent SEBI probe into the Adani Group stocks has raised concerns.

This situation couldn't have come at a more pivotal moment, as most stocks within the group have staged a recovery since the aftermath of the Hindenburg debacle. These developments could define the next course of action.

15 August 2023 was the D-day when the Securities and Exchange Board of India (Sebi) was to conclude with its investigation into the Adani-Hindenburg issue. Following a request from SEBI, the Supreme Court had allowed it an extension.

Although the case was originally scheduled for a hearing on 15 August 2023, the hearing was postponed for 29 August 2023.

Earlier this week, the market regulator SEBI informed the apex court that it was still awaiting information from five tax havens on actual owners behind foreign investors investing in the conglomerate.

In a status report, it stated that out of the 24 matters it was probing, findings in 22 are final.

The official details of the SEBI report are still made public so far.

A Business Today report also states that the apex court has once again postponed the hearing.

Earlier this month on 15 August 2023, we wrote about each Adani company in detail and what the near term prospects look like.

Take a look...

#1 Adani Enterprises

Adani Enterprises share price fell over 2.5% in intraday trade today. In 2023 so far, the stock is down over 35%.

Earlier this month, Adani Enterprises reported a consolidated net profit of Rs 6.7 bn for the quarter ended June 2023, compared to Rs 4.7 bn reported last year. Revenues on the other hand declined 38% to Rs 254.4 bn on the back of a correction in coal prices.

In the past, the stock has been on a roller-coaster ride mainly due to the big moves the company keeps making be it renewable energy or green hydrogen.

The company has now figured its next ambitious focus, the data center business. This segment of Adani Enterprises already has an orderbook of 110 MW from hyperscale and enterprise customers. You can read more about data centers here.

In its corporate earnings filing, the company said several roads that it is building are in various stages of completion with one 58% complete.

Adani Enterprises is a business incubator of the Adani group and houses several businesses such as data centers, airports, roads, solar manufacturing, wind turbine manufacturing, and mining.

A cause of concern for investors is the company postponing its green hydrogen projects for the time being. All because of the Hindenburg rout. The group plans to restart the ambitious plans in 2026.

The company initially planned to use part of the funds raised from the FPO for funding its green hydrogen projects. But the FPO never went through.

At the current price, the company trades at a PE multiple of 164x while it trades at a price to book multiple of 20.8x.

Adani Enterprises hit a 52-week high of Rs 4,189 on 21 December 2022 and a 52-week low of Rs 1,017 in February this year.

You can now refer to both fundamentals and valuations of Adani group stocks on Equitymaster's Indian stock screener.

We recently added a new section in the screener where you can view the fundamentals of companies within a business group on one screen. This should help you get a better grip on fundamentals, business group wise.

Dig deeper into top Adani group stocks now.

#2 Adani Ports

Adani Ports share price fell over 2% to hit a low of Rs 771 in intraday trade today on the BSE. In 2023 so far, the stock is down 4%.

The exit of Deloitte Haskins & Sells LLP as the statutory auditor for Adani Ports is the primary reason that triggered a sell-off across group stocks today.

The board of Adani Ports have accepted the resignation of Deloitte Haskins & Sells LLP as the company's auditor and replaced them with MSKA & Associates Chartered Accountants.

Read this again - Deloitte was engaged with only one Adani-Group company, Adani Ports - and had qualified the firm's FY23 accounts on related party transactions. Although a case can be made on repeated change in auditors seen by the Adani group.

Last week, Adani Ports reported a sharp spike in its consolidated net profit to Rs 21.1 bn on the back of double digit growth in revenue. The company's revenue climbed 23.5% to Rs 62.5 bn on the back of additional revenue generated by fresh acquisitions.

This year, Adani Ports paid US$ 1.2 bn to acquire the Haifa port in Israel. The Port of Haifa is the second largest port in the country in terms of shipping containers and the biggest in shipping tourist cruise ships.

The auditor concerns notwithstanding, Adani Ports is in a strong position. It expects cargo volumes at 370-390 MMT resulting in a revenue of Rs 250 bn in FY24. The company is spending a massive Rs 45 bn as part of its capex for the year.

At the current price, the company trades at a PE multiple of 26x while its price to book value multiple comes to 3.6x.

#3 Adani Power

Adani Power shares declined 1% today. In 2023 so far, the stock is down 5%.

Shares of the company were just starting to move up after posting good numbers for Q1, but recent developments have brought it to a standstill.

Last week, Adani Power posted an 83% jump in its net profit to Rs 87.6 bn while total revenue grew by 16% to Rs 181.1 bn. The growth was mainly due to improved volumes and higher one-time revenue recognition on account of regulatory claims and late payment surcharge.

In its filing, the power company said EBITDA growth was supported mainly by prior period income recognition and incremental contribution of the Godda power plant.

Power stocks have seen a run-up in their stock prices from the simple fact that they've been trading at bargain prices. Therefore, amid the current market scenario, where the broad stock market is trading close to record highs, long-term investors are increasingly finding power stocks appealing.

But Adani Power has always traded in the uncharted territory with valuations offering no comfort. At the current price, the stock trades at a PE multiple of 7.5x while its price to book multiple comes to 2.9x.

#4 Adani Green Energy

Among the group companies, Adani Green has always been the most overvalued stock.

Today, shares of Adani Green declined around 2.1%. In 2023 so far, the stock is down 50%.

The stock was hot property just a week ago when INQ Holding LLC, a wholly owned subsidiary of Qatar Investment Authority, Qatar's sovereign wealth fund, bought a 2.7% stake in Adani Green for Rs 39.2 bn.

Bulk deal data shows that INQ Holding bought 42.6 million shares at Rs 920 apiece.

Before this, GQG Partners and other investors too had invested in the renewable energy arm of the Adani group. GQG then raised its stake in Adani Green from 3.5% to 6.3%, putting in a net Rs 96 bn.

Last month, the company raised Rs 123 bn via QIP to expand its green energy operations.

Adani Green has ambitious plans to grow its renewable power capacity to 45 GW by 2030 through solar, wind and solar-wind hybrid solutions as major contributors.

In its first quarter results, the company posted a 51% growth in its net profit to Rs 3.2 bn while revenues spiked 55% to Rs 20.6 bn.

Adani Green trades at a PE multiple of 155.6x and a price to book multiple of 25x.

#5 Adani Wilmar

Adani Wilmar shares dropped 2% today. In 2023 so far, the stock is down 38%.

Shares of the company came under pressure recently after there were reports of Adani group considering selling a stake in Wilmar. Shares of Adani Wilmar fell up to 5% on 9 August 2023.

Adani Commodities, an arm of Adani Enterprises, and Wilmar hold 43.97% each in the company.

However, Adani group's flagship firm later clarified there was no such event that requires disclosure and they're not looking to sell stake.

In the first quarter of FY24, Adani Wilmar's revenue fell 12% and came in at Rs 129.3 billion (bn).

The company reported a loss of Rs 790 million (m) as against profit of Rs 1,940 m in the corresponding period of the previous year. The management said the loss was due to falling edible oil prices as well as high-cost inventory.

Edible oil prices have fallen more than 50% in less than a year, hit by lower consumer demand in developed economies, easing of supply in the Black Sea region, and strong production of oilseeds.

However, lower edible oil prices meant demand for the product surged, resulting in a 25% jump in volumes for the company. But the jump in volume did not offset the fall in price for edible oil.

The recent export ban on wheat has also added to some pressure for Adani Wilmar.

The company has been putting in efforts to revive the premium brand of Kohinoor basmati rice. It has signed various Bollywood stars for its targeted market ad campaigns.

The company is also leveraging the existing setup of edible oil business to scale up food & FMCG. It's also planning for forward integration into value-added downstream products in oleochemicals & castor oil.

At the current price, the company trades at a PE multiple of 125x and a price to book multiple of 6.2x.

#6 Adani Total Gas

Adani Total shares declined 1.9% today. In 2023 so far, shares are down 82%.

The company recently posted its Q1 results where consolidated net profit came in at Rs 1.5 bn, up 9% compared to the year ago period.

The company's CNG volumes increased by 18% in the quarter under review led by a reduction in CNG prices along with network expansion of CNG stations.

Meanwhile, PNG volume decreased by 6% due to lower offtake by consumers on lower alternative fuel prices.

In an interview, the company's CEO when asked about capex plans said Adani Total Gas has 33 geographical areas in India, which translates into 94 districts in India, where it has licenses from the regulator.

It basically wants to cater for every corner of these areas and for this, it's setting up stations. The company has planned investment of Rs 150-200 bn in the next seven to eight years.

At the current price, Adani Total trades at a PE multiple of 130x and a price to book multiple of 23x.

#7 Adani Energy Solutions

Adani Energy Solutions (erstwhile Adani Transmission) was the top loser today and fell over 3% to Rs 791. The stock is down 68% in 2023 so far.

The company recently posted a 5.9% drop in its June quarter profit to Rs 1.8 bn.

Adani Energy is now focusing on smart metering and it has already received a LoA (Letter of Award) for three projects in Andhra Pradesh with a contract value of Rs 37 bn.

Last week, the company announced financial closure for its US$1 billion green high voltage direct current (HVDC) link project.

In an interview, the company's MD Anil Sardana said that it has a heavy order book of over Rs 200 bn for its transmission segment, which will be executed over the next 2-3 years.

There will also be a Rs 750 bn pipeline that for participating in terms of bidding in the next few quarters.

In the March 2023 quarter, the company achieved an impressive collection efficiency of 100.6% and experienced significant growth in its consumer base, expanding by nearly 2%. These achievements were due to effective revenue management strategies and a strong operational framework.

At the current price, the company trades at a PE multiple of 70x and a price to book multiple of 7.8x.

What next?

So there you go. If you're a shareholder in Adani companies, keeping up with their latest developments is the way to go. That'll help you come across any red flags.

So far, there's nothing big to report that can cause a Hindenburg-like crash in Adani companies.

The auditor's resignation came only after it asked Adani Ports to conduct an independent inquiry on related party transactions flagged by Hindenburg.

In response, Adani Ports said the allegations had no effect on financial statements and the reasons cited for quitting were not convincing to warrant such a move.

On the concerns about the probe, reports already state that only minor red flags, if any, are expected to come out from the expert panel appointed by India's top court in May this year.

Back then, the watchdog had "drawn a blank" in its investigation into 13 overseas entities alleged to be fronts for Adani companies. The probe is now listed for hearing on 29 August 2023.

As more developments come out soon, expect some volatility in Adani stocks. The sudden dip in Adani stocks can be temporary. Or there could be a much bigger story here. No one knows for sure.

If you're an investor in any Adani group company and are facing a dilemma of holding or selling, check out Co-head of Research at Equitymaster Rahul Shah's video. In it he explained what to do with Adani group stocks.

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...