The Adani Group collectively carries about three times as much debt as it should, confirming that the group is over levered, according to valuation guru and Professor of Finance at the Stern School of Business at New York University, Aswath Damodaran. This, however, is not an indication of any con game, as alleged by Hindenburg Research.
“The Adani Group collectively carries about three times as much debt as it should, confirming that the group is over-levered as well, but note that this is a bad business practice, not a con. There is little, if any, benefit in terms of value added to Adani from using debt and significant downside risk, unless the debt is being subsidised by someone (the government, sloppy bankers, green bondholders),” Damodaran said in a new blog post.
“In my assessment, Adani Enterprises carries too much debt, with an actual debt of ₹413,443 million, more than double its optimal debt of ₹185,309 million, and reducing its debt load will not just lower its risk of failure but also lower its cost of capital. This company is part of a family group, where higher debt at one of the Adani companies may be offset by less debt at another,” he added.
In an earlier blog, Damodaran had said that “a con game to me has no substance at its core, and its only objective is to fool other people and part them from their money. Adani, notwithstanding all of its flaws, is a competent player in a business (infrastructure) that , especially in India, is filled with frauds and incompetents. 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 and that there are lessons for the nation as a whole as it looks towards what it hopes will be its decade of growth as well, but note that this is bad business practice, not a con.”