On January 24, Hindenburg Research will investigate the company’s finances and operations and publish a report on any deficiencies. On January 24, the company alleged that the Adani Group was highly indebted, that there was fraud in the accounts, and that the Adani Group manipulated the share price to their liking. The Adani Group has denied the allegations and initiated legal action against them. But investors got scared and started withdrawing money. Adani Group has thus lost nearly Rs.16 lakh crore in its market value.
Regarding the debt of Adani Group, New York University Finance Professor Aswath Damodaran said: Adani Group’s debt overall is three times more than it should be. This is bad business practice. Not fraud. Looking at the graph of their cost of capital, the Adani Group’s leveraged leverage on debt is very small, if anything. There is significant risk if the loan is not subsidized by the government or the bank.
Adani Enterprises, the flagship company of the Adani Group, is heavily indebted. 18,530 crore in debt to the company. But in reality its debt is Rs 41,000 crore. Reducing their debt burden now not only reduces the risk of failure, but also lowers capital costs. Said thus.
Aswath Damodaran wrote in an earlier blog post, “Despite all the shortcomings, the Adani Group remains the dominant force in the Indian infrastructure sector. Other companies in the industry are not as competitive. A growing company needs to finance its growth. That funding will come from selling shares or through debt. Those who value control over the company will take out loans regardless of the increased cost of financing and increased risk of the company in exchange for selling shares. That is what is happening at Adani Group. The fair value of Adani Enterprises is Rs 947 per share.” As mentioned. On Feb. 28, Adani Enterprises’ share price rose as much as 15% to close at Rs 1,371.