Valuation guru Aswath Damodaran believes that Hindenburg’s description of Adani as the “biggest thief” in history is an “exaggeration”. Damodaran, who teaches corporate finance and valuation at New York University’s Stern School of Business, said there is no substance at the core of a con game, and its sole purpose is to fool other people.
Damodaran said that despite all the flaws, Adani is a capable player in the infra business. This is especially true in India, he said, which is riddled with fraud and inefficiencies.
“A more nuanced version of the Adani story is that the family conglomerate has exploited the seams and weakest links in India’s story to its advantage, and that there are lessons for the country as a whole, as it hopes to change what it Will be its decade of growth,” Damodaran said in his blog ‘Musings on Markets’.
Damodaran said that Hindenburg should be congratulated for his work, but that his criticism of the Adani group is based on a mixture of serious controversies, circumstantial evidence and dubious claims.
Damodaran spoke on the issue of Mauritius-based shell entities set up by Hindenburg and their links with Adani group companies. Further, he tried to decode the allegations of stock price manipulation against Adani.
“To be able to manipulate and move the market capitalization of a company into the hundreds of billions, roughly increasing the value in 2022, would expect to see a large number of shares traded by these entities. I don’t see it ,” He added.
Damodaran said there were dubious claims about earnings manipulation because if Adani was manipulating earnings, it “wasn’t doing a very good job, reporting low margins and returns”.
Damodaran said he was surprised that Hindenburg’s short thesis spent as much time as it did trying to explain that the company was overleveraged.
Damodaran said that even if one believed Hindenburg’s argument that a lower current ratio equated to higher default risk, being over-leveraged was not a hoax. He said it was a risk but in many investments equity investors did it to maximize their returns.
“In fact, the infrastructure business is full of companies that borrow heavily with little or no earnings buffer, and I’m not sure many of them will face the Hindenburg test for over-leveraging,” he said.
Damodaran said he was ready to believe that the Adani group had played fast and loose with exchange listing rules, that it had used intra-party transactions to make itself appear more credit-worthy than it actually was And even if he didn’t manipulate his account. straight share price, it had used the growth in its market capitalization to its advantage, particularly when raising new capital.
Damodaran said Indian stock markets were still dominated by momentum traders, and while this was not unusual, there was a bias towards bullish momentum over its bearish counterparts.
“In short, when traders, without any good fundamental reasoning, drive up stock prices, they are lauded as heroes and winners, but when they sell stocks even with good reason, they are treated as untouchables.” The restrictions on naked short selling, contained in this Addendum of SEBI, capture that perspective, and imply that when companies or traders push up stock prices for good or bad reasons, the pushback is insufficient,” They said.
Damodaran said that stock market regulators in India were motivated by good intentions, but “everything they do” seems to be focused on “protecting retail investors”.