The curious case of “Adani Group”
Originally published on May 25 ‘21
One of India’s biggest conglomerates, the Adani group today spans across seaports, airports, renewable energy, power, transmission, utility, edible oil, and many more industries. With the combined market capitalization of six Adani companies listed on the bourses being 8.5 lakh crores INR, the company’s rise in the last decade has been nothing short of meteoric.
At the helm of the company is Mr Gautam Shantilal Adani, Asia’s second-richest man, who’s frequently in the news, albeit for political crossfire. He started his empire in humble beginnings with diamond trading and then importing PVC pipes under Adani Enterprises, then a partnership firm. The rest is, as they say, history.
However, maybe not all’s that well for the group. Closer scrutiny of the firm’s rise is warranted to identify red flags, if any, and understand how they might affect the firm’s performance in the future.
A high CFO turnover makes our heads churn. 10 CFOs in the last 3–4 years across the six listed companies have called it quits. Recently, Mr Deepak Maheshwari, erstwhile CFO of Adani Ports and Special Economic Zones, resigned from his post with immediate effect. His predecessor Bhamidipaty Ravi had resigned in 2018 on grounds of preoccupation and that too with immediate effect. Adani Enterprises Limited itself has seen 3 resignations in the last 5 years. Adani Green Energy has seen 3 CFOs since its inception in 2015. In fact, when Mr Ashish Garg had quit in 2019, the post was vacant till February this year. The CFO’s post at Adani Transmissions is still vacant at this point. Adani Power has also seen a frequent change in persons for the top finance job. Even Adani Total Gas has seen two CFOs since its demerger from Adani Enterprises and listing on the exchange.
This is indeed a major red flag and probably indicates that the way financing is being undertaken at Adani companies is not conventional.
In spite of the low D/E ratios of all except Adani Green Energy, the Interest Coverage Ratio of most companies are nauseatingly low. Interest Coverage Ratio indicates how many times the EBITDA of the firm can cover its interest expenses. This indicates the high rates of cost of borrowings that these companies have been obtaining their funds at.
To add to this mess, the way the group companies have been panning out, post their demerger from Adani Enterprises Ltd, the related party transactions indicates a lot of cross-lending amongst the firms. Additionally, investments had been made by unlisted companies into unrelated listed companies in the last decade.
While the Adani group can proudly claim it’s never defaulted on its payments, it has nonetheless required intra-group aid to maintain that proud stature. A scroll.in deep-dive pointed out how Adani Enterprises was able to bail out Transmissions when nearly all other power distribution companies were defaulting on their payments.
There is a very interesting cycle that can be observed when it comes to Adani group’s companies. Each of them has a marginal public shareholding.
The duality of the situation is that companies have been meaning to fuel growth by raising funds by selling equities while at the same time, Adanis seem to like to keep as much control of their enterprises as they can. It is highly likely that the purpose of listing these companies in the first place was to get these high valuations, making it easier for them to raise funds through debt and equity in the domestic and overseas markets by pledging their assets.
Some of the Institutional Investors are prominent names such as the Life Insurance Corporation of India and Elara, but it also has lesser-known names such as Albula, Cresta and Asia Investment Corporation which are funds that are registered in the same building in Mauritius as per scroll. Interesting, to say the least.
P.S. Recent updates: Adani group is finally under scrutiny by long investors after veteran investigative journalist Sucheta Dalal indirectly hinted towards stock operator action in the said group companies. Also an ET article claimed the accounts of FII investing in the group companies have been frozen by NSDL.
