NYU’s ‘Dean of Valuation’ says Adani Group exploited ‘weakest links’ in Indian institutions

The Adani Group didn’t play a “con game” but has exploited the “weakest links” in India’s institutions to its advantage, according to NYU’s “Dean of Valuation” Aswath Damodaran.

The finance professor at the Stern school of business said fundamentals “never come into play” for Indian markets.

“Nobody wants to talk fundamentals, nobody wants to be bearish about a company and say that stock looks overpriced. It’s not healthy for a market,” Damodaran, told CNBC’s “Streets Sign Asia” on Thursday.

“That’s why I said Adani is not about the company … this is about the weakest links in the India story. And from my perspective, this is not a con game. This is just a company that’s played those weaknesses.”

Damodaran’s remarks are an extension of his recent blog post, where he shared his views on the ongoing Adani affair.

Art school teacher Sagar Kambli gives final touches to a painting of Indian businessman Gautam Adani (L) highlighting the ongoing crisis of the Adani group in Mumbai on February 3, 2023.
Indranil Mukherjee | Afp | Getty Images

On Jan. 24, U.S. based short-seller firm Hindenburg released a report accusing Indian billionaire Gautam Adani of pulling the “largest con in corporate history,” and alleged the conglomerate has engaged in stock manipulation and fraud.

The Adani Group firmly denied the accusations, calling it a “calculated attack on India” and its institutions.

Valuation issues

Even though the Adani conglomerate spans ports, airports, mining, cement, power companies, Damodaran said he believed the Group’s core business is in infrastructure.

“What I see is an infrastructure company … if we just value the company as an infrastructure company, then the numbers just don’t make sense from pricing perspective. How does the stock quadruple in market cap over a two or three year period?” he pointed out.

Even without the Hindenburg report, the professor noted he was “hard pressed” to explain why the company’s share is so overpriced.

Adani Group’s total gross debt reached 2.2 trillion Indian rupees ($26.8 billion) as of end-March 2022, according to calculations by Refinitiv Eikon.

“I am willing to believe that Adani Group has played fast and loose with exchange listing rules, that it has used intra-party transactions to make itself look more credit-worthy than it truly is,” Damodaran said in the blog post.

He added: “Even if it has not manipulated its stock price directly, it has used the surge in its market capitalization to its advantage, especially when raising fresh capital.”

Damodaran also said the Adani affair provides an opportunity for Indian institutions to learn lessons and try to fix the problems.

“As for the institutions involved, which include banks, regulatory authorities and [Life Insurance Corporation], I have learned not to attribute to venality or corruption that which can be attributed to inertia and indifference,” the economist said on his blog.

“A more nuanced version of the Adani story is that the family group has exploited the seams and weakest links in the India story, to its advantage,” he said on the blog, adding that “there are lessons for the nation as a whole, as it looks towards what it hopes will be its decade of growth.”

Exposure to Indian banks

The fallout from the Adani scandal has raised concerns about the group’s exposure to Indian banks.

State Bank of India, the country’s largest lender, told CNBC the loans they have extended to the Adani group are well covered and there should be no immediate risks.

“The total exposure to this entity was just about 0.88% of the total bank’s loan book,” Chairman Dinesh Kumar Khara told CNBC’s Tanvir Gill an interview.

“There is no reason for anybody to have any concerns or doubts relating to our inability.”

Khara added the Adani Group’s cash flow situation looks pretty stable and SBI hasn’t been approached for more funding by the conglomerate.

Over the weekend, the Security and Exchange Board of India tried to defend Indian markets, saying the country’s two main indexes – the Bombay Stock Exchange and the National Stock Exchange of India — have demonstrated “ongoing stability” and are “continuing to function in a transparent, fair and efficient manner.”

— CNBC’s Jihye Lee contributed to this report.

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