Adani, a Year Later: Investors Are Embracing India’s Humbled Champion
Summary
Things are looking up for Indian infrastructure giant Adani Group, raising questions over whether investor memories are too short.A year ago Adani Group, India’s infrastructure poster child, lost over $100 billion in market value in a matter of days following the publication of a short-seller report.
That was then—these days, things are looking up for Adani, at least in the markets. Adani Enterprises, the group’s flagship, has clawed back 90% of the market value it had lost since Hindenburg’s report, alleging stock manipulation and accounting fraud, was published on Jan. 24, 2023. An Adani Green Energy dollar bond, which yielded around 40% last February, now yields less than 8%.
What are investors to make of this?
Adani’s recovery has hinged on a mix of real progress on debt, political tailwinds and good luck. It helps that Indian regulators haven’t revealed any smoking guns: the official investigation cleared Adani Group of 22 of 24 possible violations. Adani Group has always denied Hindenburg’s allegations.
Beyond that, the group has begun to deleverage, albeit only at the margin—thanks to both higher earnings and some debt repayment. Gross debt at the group level fell from 2,211 billion Indian rupees, equivalent to around $26.66 billion, in March 2023 to 2,194 billion Indian rupees in September 2023, according to Bernstein Research’s calculations. Meanwhile earnings before interest, depreciation, tax and amortization, or Ebitda, at Adani companies were up 47% year over year to $5.3 billion in the first six months of the financial year that will end in March 2024, according to the group. Adani Green Energy’s net debt to Ebitda ratio is now at 7.28, versus 10.8 a year earlier, according to FactSet. That ratio is also significantly down at other group companies.
Besides higher earnings, the group has also managed to attract new investment. GQG Partners, the Qatar Investment Authority and TotalEnergies have pumped $5 billion into Adani-linked entities, some of which has been used to pare debt, free up pledged shares or buy back shares and bonds. Last week, credit rating agency S&P Global said the group has demonstrated that its refinancing needs for 2024 are adequately addressed.
The reasons investors have been willing to slug in more cash despite Adani’s still-high leverage and lingering governance concerns are complex, but strong political and policy tailwinds blowing from New Delhi are probably a key factor.
Adani’s troubles happened to coincide with an enormous push by New Delhi to upgrade India’s infrastructure to take advantage of a once-in-a-generation opportunity to become a manufacturing hub as foreign investors desert China. The simple reality is that, despite Adani’s troubles, there just aren’t that many other good ways to bet on an Indian infrastructure boom.
In November, a U.S. government development agency announced that it would provide more than $550 million in financial assistance to Adani’s port terminal project in Sri Lanka. The funding was seen as an endorsement of the group’s importance.
Nikhil Nigania, an analyst at Bernstein, says that lack of alternatives is part of what drives investor interest in some Adani group companies. Adani is one of a handful of Indian infrastructure companies that have ability to raise vast sums of money, and the experience to build and operate profitable infrastructure assets. Chairman Gautam Adani’s well-known and longstanding association with Prime Minister Narendra Modi, who is almost certain to win a third term in elections this year, may have also helped assuage some market concerns.
Even so, worries over high leverage are unlikely to disappear completely. In December, Adani Group said it plans to spend seven trillion Indian rupees on infrastructure over the next decade. Adani Group has about $4.7 billion in debt and bond obligations due in the next financial year ending March 2025, according to Bernstein. Out of this debt, more than half belongs to Adani Green Energy. S&P Global says it still sees governance as a “relative weakness" in its rating analysis of Adani Group entities.
The Adani empire has survived, for now at least, its brush with market panic. But heavy leverage and lingering questions still leave it vulnerable to changing global market conditions or abrupt sentiment shifts, should any new governance concerns come to light.
Write to Megha Mandavia at megha.mandavia@wsj.com
