Adani crisis unlikely to spill over to other Indian conglomerates

The dramatic fall in the Adani Group’s shares following allegations by Hindenburg Research is unlikely to spill over to other Indian conglomerates as they fare well on key business parameters, according to Bloomberg Economics.
 

Most major companies, including Reliance Industries Ltd. and the Tata Group, scored higher than the ports-to-power conglomerate in a BE analysis of governance, liquidity and leverage conditions at India’s top 17 business houses.

“Adani is an outlier, not representative of India Inc. as a whole,” economists Abhishek Gupta, Scott Johnson and Tom Orlik said in their report Tuesday. “India’s conglomerates do not yet rank among global majors like Apple and Tesla. But neither are they about to collapse in a heap of governance failures.”

In its Jan. 24 report, short seller Hindenburg Research alleged accounting fraud and stock manipulation by Gautam Adani, triggering a stock rout at the billionaire empire, wiping out $127 billion off the group’s market value. Adani has repeatedly denied the accusations.

It has a relatively low proportion of freely-tradeable shares, which means excessive control by founders that led to rich valuations, the economists said. It also has one of the lowest liquidity ratios among peers, they added. 

Its flagship firm Adani Enterprises Ltd. is covered by just two analysts, against an average of 33 for the 50 biggest companies, according to the report. Though the group is highly leveraged compared to peers, its profits are sufficient to cover interest expenses, it said. 

The crisis has raised questions about India’s credibility as a global growth engine and a destination for international investors. Earlier this month, MSCI reduced the free float of four companies owned by Adani, while Moody’s Investors Service cut its outlook on Adani Green Energy and three other group firms.

“Short sellers likely won’t be dominating the narrative on India Inc. in years ahead,” the economists said. “With India’s GDP once again set to outperform, the country’s firms will have a chance to take another step on the path from national champions to global majors.”