Adani Group CFO Jugeshinder Singh, who was among speakers on Day 2 of Kotak Chasing Growth – 2023 Conference, said his group prepared the response on 88 Hindenburg Research allegations within two days.
Hindenburg’s scathing report came on January 24. Singh said the first day was utilised to ensure that the claims are tested. Singh said the group’s infrastructure portfolio was fully ring-fenced and rating agencies re-affirmed the same within 24 hours.
On the Day 2, audit committees that Singh said were 100 per cent independent went through board meetings and completed all audits. He asserted that nobody will find anything untoward in the nine companies that he looks after.
Singh said the response was sent to the market regulator Sebi in two days. The key takeaways from Singh’s speech were later published by Kotak Institutional Equities in a note on January 21.
Singh, as per Kotak Institutional Equities, said that the good thing about the 88 questions raised by Hindenburg was that, 65 were related to the listed companies, 6 related to media reports and rest were on family offices. He stated that none of the 65 questions were not something they didn’t disclose previously.
The Adani group’s m-cap has seen a steep erosion of Rs 11,10,706 crore ($134 billion) in m-cap from Rs 19,19,888 crore level on January 24 following Hindenburg’s allegations of stock manipulation and accounting fraud. While the Adani group has denied the allegations, there has been no respite to Adani group stocks that are falling since.
Ten of Adani Group stocks commanded a combined m-cap of Rs 8,09,182 as of Tuesday’s closing, which was less than HDFC Bank’s m-cap of Rs 9,18,703.53. The combined m-cap of Adani group companies stood at Rs 19.19 lakh crore as on January 24, which was higher than the m-cap of Reliance Industries, the most valued stock on BSE.
Singh said infra portfolio consists of 90 per cent of the group’s business. He stated that accounting for infrastructure is different than manufacturing. Capital against this growth is already in the balance sheet, while Ebitda comes later, he noted.
Leverage, Singh said, is high because of accounting practice of booking capital when consumed, while booking of revenue happens later.
“Rate of return looks low. PAT will be low as long as there are high growth and high capex. Due to a combination of high capex and high depreciation, P/E will look high due to low earnings during the growth phase,” Kotak said citing the key takeaways from Singh’s speech.
Singh said the group’s gross debt stands at $30 billion at the gross level and $26 billion at the net level. Only $750 million of it is availed for general corporate terms; borrowing is only for assets, he said.
As an example, he stated that every debt in Adani Transmission is specific to the assets. Borrowing is against the assets; Adani Transmission does not have to pay anything, he said.
He said the group leverage has been on a declining trend, with net debt/Ebitda declining from 4.1 times in FY2019 to 3.1 times in FY2022. Even after acquiring Holcim in FY2023, net debt/Ebitda remains at 3.1 times, he said.
Singh said the company is constantly deleveraging and will bring it to 2.2 times over time.
At the promoter level, there is $1.79 billion loan against shares and about $100 million of general debt on loan against shares. Against that, a normal long-term credit facility has been created and the entire loan against share is covered by the facility, he said.
Singh said in FY2024, $1.6 billion debt is due. He mentioned that hurdle test for getting sovereign rating equivalent: next 12 month+1 day maturity have to be held in cash; cannot run the risk of payment for 12 months.
He noted that 55 per cent of the group debt is foreign debt, 20 per cent debt from foreign banks and 25 per cent from domestic banks.
He believes that promoter-level deleveraging to happen constantly, mitigating future risk.
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