Timing of Hindenburg report is curious; market reaction overdone: Analysts

The sharp fall in Adani group stocks following a report by a well-known US activist investor Hindenburg Research LLC that said it was shorting them presents a good opportunity to buy these stocks lower from a long-term perspective, said analysts, who suggest that the market’s reaction to the report is overdone.

The Hindenburg report comes on the heels of Adani Enterprises’ (AEL) plans of Rs 20,000 crore follow-on public offer (FPO) announced a few days ago.

"We are shocked that Hindenburg Research has published a report on 24 January 2023 without making any attempt to contact us or verify the factual matrix. The report is a malicious combination of selective misinformation and stale, baseless and discredited allegations that have been tested and rejected by India’s highest courts," Adani group said in a release.

Among the listed plays, Amubja Cements was the worst hit and lost 9 per cent to Rs 451.30 levels in intra-day trade. The average trading volume more-than-doubled as compared to past two weeks. Over 11 million equity shares had already changed hands on the NSE and BSE till noon.

"That the stocks can fall ahead of the mega FPO was expected. That said, there is nothing fundamentally wrong in these Adani group companies. The valuation, however, was a concern; the sharp fall has taken care of this worry as well to some extent. The fall in Adani group counters presents a good opportunity for investors who can buy and hold from a medium-to-long term perspective," said Deven Choksey, managing director, K R Choksey Shares and Securities.

Adani Ports and Special Economic Zone, ACC (down 7 per cent each); Adani Power, Adani Wilmar, Adani Total Gas, Adani Transmission (down 5 per cent each); and Adani Enterprises (down 4 per cent) were the other top losers in intra-day trade on Wednesday. In comparison, the S&P BSE Sensex was down 0.93 percent at 60,413, after hitting an intra-day low of 60,308 on the BSE.

According to a Bloomberg report, well-known US activist investor Hindenburg Research LLC said it was shorting the empire’s stocks and accused firms owned by Asia’s richest man of “brazen” market manipulation and accounting fraud.

The key listed Adani companies, according to Hindenburg Research LLC, have taken on substantial debt, including pledging shares of their inflated stock for loans, putting the entire group on precarious financial footing. 5 of 7 key listed companies have reported ‘current ratios’ below 1, indicating near-term liquidity pressure.

"Even if you ignore the findings of our investigation and take the financials of Adani Group at face value, its 7 key listed companies have 85 per cent downside purely on a fundamental basis owing to sky-high valuations," the Hindenburg Research LLC report said.

Vinit Bolinjkar, Head of Research at Ventura Securities, too, suggests that there is nothing fundamentally wrong with Adani group stocks and questions the timing of such a report, especially ahead of AEL’s FPO.

"I don’t think there is anything wrong with the group’s businesses. The information provided by Hindenburg Research LLC report regarding Adani group was already in public domain. That said, Hindenburg already has a short position in these (Adani group) stocks. So the timing of the Hindenburg report is curious. From a corporate governance viewpoint, Adani has been raising debt – both in India and overseas – and has been subject to ‘know your customer’ (KYC) in both these markets. The markets’ reaction is to the Hindenburg report overdone. Adani Ports, Ambuja Cements are good businesses and are built on a solid foundation and are not castles built in the air," Bolinjkar said.

Meanwhile, AEL has set the price band for its Rs 20,000-crore FPO at Rs 3,112-Rs 3,276 per share. The FPO will remain open between January 27 and January 31. AEL is raising Rs 10,000 crore in the first tranche. The rest will be raised from investors through one or two additional tranches over an 18-month period.