Mar 19 2024, 07:49
Falling Adani Group stocks keep MFs away. Will Sandeep Tandon's contra bet work?:
Sandeep Tandon of Quant Mutual Fund was the biggest buyer of Adani Green Energy in February. The mutual fund bought over 1 million shares of the stock. Across group companies too, Quant MF has acquired 3 million shares, taking its total holding in Adani Group companies to nearly 50 million. Will Quant MF's contrarian stance be proven right?
It's "déjà vu all over again" for the Adani Group stocks. The company is in a spot, and this time it's US regulators who want to investigate it for an alleged fraud.
The move comes as a major blow at a time when the group's debt had stabilised, and its cash flow had improved. While the Adani Group had been successful in attracting GQG Partners, a foreign institutional investor, to put in USD2.2 billion into the company, most domestic mutual funds are staying away, except one.
On March 15, the Adani Group was again in limelight for the wrong reason, just as most group stocks were nearing the pre-Hindenburg highs. According to a Bloomberg news report, the company is being investigated by the US Attorney's Office for the Eastern District of New York and the Justice Department's Fraud Unit in Washington.
The probe focuses on the conduct of Adani Green founder, Gautam Adani, and investigates whether the company or Adani may have engaged in bribery. It alleges Adani Group paying officials in India for favourable treatment on an energy project. There is no further clarity or official confirmation from the US regulator on the same.
Meanwhile, Adani Group over the weekend announced its plans to invest USD14 billion in capex for FY25, 40% higher than its estimated investment of USD10 billion. Of this, 70% will be dedicated for building green energy capacity, with the remaining going to airports and ports. But it is still unclear how the company will raise this massive amount.
The listed Adani companies (with Adani in prefix) generated cashflow from operating activities of INR50,000 crore in FY23 and around INR31,000 crore in the first half of FY24. The total debt of these companies was INR2.18 lakh crore at September end as opposed to INR2.2 lakh crore in FY23.
Since the release of the Hindenburg report, the fundraising activity in Adani Group has been lull. The company did raise US Dollar bond earlier this month for refinancing its debt, which is nearing maturity. Post the cancellation of the follow-on public offer of Adani Enterprises in January last year, fundraising through equity has been limited too.
One of the reasons for the company not tapping into equity market could be the lack of interest among investors.
Between December 2022 and December 2023, retail investors (share capital up to INR1 lakh) have raised their stake by 4 percentage points in Adani Total Gas and by 2 percentage points in Adani Energy Solutions. Across the rest of the group companies, these investors have raised their stake by just 1 percentage point.
The MF play:
The mutual funds' stake across group companies has remained flat during the same period, except for Adani Power where the stake has risen by 1 percentage point and Adani Ports and SEZ where they have cut stake by 1 percentage point.
In general, mutual funds besides the likes of Quant, which follow a long-term investing strategy, are not investing into the Adani Group. These stocks are high beta (with 1-year beta being 1.4 to 2). While they have rewarded investors with astronomical returns in the past few years, they have also resulted in monumental loses. Post Hindenburg, the group's market capchad more than halved from INR19 lakh crore.
With the US probe hinting at lack of corporate governance compliance, investing in Adani
Group companies may turn riskier than rewarding in the coming few days.
In which case, how will the company raise funds to build assets that generate long-term
returns?
Perhaps, this is why long-term investors like domestic mutual funds are still not willing to take a bet on Adani Group companies.
source: et
Mar 19 2024, 09:55
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