Adani Group in better financial position than during Hindenburg episode: Bernstein

The ports-to-energy conglomerate Adani Group is in a better financial position now than it was during the short-seller Hindenburg Research episode in January 2023, according to US-based research firm Bernstein. The report highlighted a dramatic drop in shares pledged by promoters, lower leverage, and improved valuations as key indicators of the group's strengthened financial health.

In January 2023, Hindenburg accused Adani Group of accounting and financial fraud, triggering an exodus of investors and a freefall in the shares of the group's entities. Just when the Adani companies seemed to have largely recovered from the setback, the US Department of Justice and the Securities and Exchange Commission (SEC) last month filed charges of securities fraud, wire fraud, and anti-corruption violations against founder Gautam Adani and key associates related to Adani Green Energy Ltd.

Bernstein in a report said it is presenting a top-down view on how the groups leverage, share-pledges, debt-repayment and relative valuations have evolved in the last two years to assess whether the risks are lower than earlier.

"If we look at the evolution of share pledges for the group, there has been a dramatic drop across companies -- this is one area where the group has taken significant action over the last 1.5 year," Bernstein said.

Promoter pledges in Adani Power have dropped from 25% to 1%, while Adani Ports now has no pledged shares, down from 17%.

The group's overall debt has also declined marginally, from ₹2.41 lakh crore in March 2023 to ₹2.38 lakh crore in September 2023. Although the debt has risen slightly since then, the improved profitability has reduced the leverage ratio from 3.8 times before the Hindenburg report to under 2.5 times now.

On funding, the Adani Group has diversified its sources, cutting reliance on domestic banks. Bank loans, which accounted for 86% of its funding in FY16, now represent just 15%, while bonds have increased to 31% of the funding mix in FY24.

"The share of banks has reduced from 86 per cent in FY16 to just 15 per cent in FY24 and the share of bonds has increased from 14 per cent in FY16 to 31 per cent in FY24.

Since March 2023, we have seen the share of USD bonds decrease and that of NBFCs increase in the source of funds - which we expect was due to favourable rates in Indian markets vs USD bonds (+hedging and withholding tax)," it said.

The group’s cash reserves have surged by 75% over the last 18 months, from ₹22,300 crore in March 2023 to ₹39,000 crore in September 2024. These reserves provide a buffer for debt repayments, including ₹9,600 crore due in the second half of FY25.