On 24th of January 2023 the hindenburg report launched direct in the Indian capital markets and like is so this has such an same impact of any stocks that 7 companies lost more than 100 billion market and ever since is report has come out the entire Indian public has been segregated into two extreme categories one side people believe the report blindly and start on the other side people dismiss the hindenburg report as a direct on the Indian so we decide to read both the documents as carefully use possible to help you on this time both the as well as the Adani group responded to reports. all the arguments in front of you it’s completely up to you to decide whose right and who is wrong.Thing that’s good about this drama is that it helps us capture it attention to teach you the most remarkable concepts in business
Company Standup ,Report & Response
Why hindenburg troll Adani so much and what do they gain from this information war well as it turns out hindenburg is of financial resource company that looks to find self created or man made issues and uses a method called short selling to make profit by the fall of a company stock prices so if you are family with her concept of short selling please give to this time stand but if you not here so very very simple example to understand this concept
Let’s say things solar is one of the listed companies in the Indian stock market with the stock price trading and 10000 share and Aayush is a super sharp investor who things that the price of things so what are you should do is he would war of 1 lakh shares of things for 30 days you should do is he would war of 1 lakh shares of things you love for 30 days from Parish who is parsh he is one of the shareholders of things and the condition of this transaction is that after the loan 10 year Ayush has to return 1 lakh shares back to pass and in return for this landing commission of 0.1% and this commission is based on a lot of factors like stock indicators etc and this transaction would be mediated by a stock broker who would again receive a carry on this trade so now Ayush has one 1lakh shares stock of things worth 10000 rupees each and now what you do is start ceiling things solar shares at 9000 rupees so in total you would sell shares worth 90 crore rupees and many sells one like shares at such a Steve discount the entire marked will feel as if the something terribly wrong about things so let’s talk tell me a panic in the market where buy even other investors who bought things what things are selling it in large numbers and when this snow bowling of panic happens think solar stock price will come crashing down and will eventually touch 8000 rupees just a few weeks of you weeks but now are you should cleverly buyback these had just 8000 rupees so when Ayush buys one lakh shares at 8000 rupees it would cost to only 80 crore rupees so you see well are you sold things for 90 crore he got the back I just 80 crore 10 crore and then he would return the shares to pass are you should make money through short selling by shorting things solar stock and just like that even in this case hindenburg would have for out these stock broker while Adani stock price extremely high and they would have sold it in the market and after that when the keyboard with the report when the stock prices came crashing down now or a few weeks eventually they would make a profit should regardless allegations are true or not if the fear moongring causes the stock to crash which it hindenburg did profit .
Now is this illegal well not really is this right or wrong I don’t know but just because they are short selling you cannot just ignore the hindenburg report without actually understanding it if this is very very creative let’s try to understand the hindenburg allegations in adani’s responses to the same abhi all know that Adani who had a network of ruffle 120 billion dollars he had gotten most of his wealth in the last 3 years at the end of 2019 is net worth was around 20 billion dollars but the rest billion got accumulated in the past 3 years and this according to Hindenburg is largely through the appreciation of a stock prices in his groups see in the last 3 years itself enterprises stock price and shot up by 1398% gas as auto by 2121% and green as shouted by 980% so the question is how on earth so much well and what is a growth .
What is a secret to their growth cutting and execution one very very critical factor for the growth has been there is one the most important things at the hindenburg report points don’t use an overseas analogy to help you understand the Adani test strategy have a listed company call thing enterprises with the market cap of 10000 crores a revenue of 2500 crores and net profit of 500 crore and under this company we are three more companies called think power think infra and think green are not studied what they have a huge potential to scale in the next 10 years now you see if think and the prices bags at tender to build for that would cost 7500 crores thing enterprises will have to rejected why because we do not have the profits to pay please 7500 crores and the same time the banks would he to give us a loan of 7500 crores with such which such low profits of just 500 crores and the last way by which we could race money would be wear pledging our shares as an if my taking the company is 700 doors outlets 10% of my shares in the company worth 750 crores and then the bank could do a risk and analysis and give me a loan was 350 crores but in this case today 7500 crores I can’t play 80 and raise these loans right that would be ridiculous but this is very consultant designs in Enrique symbol to help me give these projects effortlessly firstly we would decide to list all are daughter companies in the stock market and because of the brand value of think enterprises all the three companies would have a tailor I view so in the next 5 years think green has a market cap of 100000 crores think power it’s 10000 crores and think infra standard 5000 crores and nowaur share holdings amount to 75000 crores 7000 crores and 3000 finder grows respectively and now if think and frog wants to the 7500 crores here’s all they would do it firstly it would raised by projecting its profits so if you are complete editing 500 crores of profit the banks would not mind landing you 2000 crores because they know that you can easily just your profits of the next 4 years
Just your profits of the next four years so this way 2000 crores has been raised and now we need another 5000 crores this is where we have method number 2 in this method what thing would do is since think green stock prices very very high it would pledge 10% of its own shares to get up in this case so in this case 12% Tak 12000 crores is pledge to the bank to get a loan of 6000 CR and was they get this loan 5000 crores to think enterprises and use rest 1000 crores for its expansion should now we have 7000 total and now we just need 500 crores extra for this we will just issue bond of 500 crores and raise the money directly from the people that’s it 7500 crores of capital has been raised and now we could take a giant project and make headlines in the market this is all my taking a loan through pledging the shares of the daughter company and then passing it on to another 10 passing it on to another group come think can help itself crab giant projects. Initially Adani enterprises was the only company listed in the stock market but from 2008 onwards they started listing the companies and now they have listing the companies and now they have 7 listed companies which are the Wilma Adani enterprises Adani ports in SCG other power Adani transmission Adani green energy and Adani Gas and many of these companies also have their own subsidies and then as for the requirements of the company they orkestrated in cricket framework of cash flow just like the one that we learnt right now so if you see the statements you will see that see that other transmission India is a subsidiary of Adani transmission and its financial statements for 2014-15 show that it border 2007 94.24 crores by pledging all immovable and movable acts of two transmission lines and almost half of this money that’s it borrowed that is about 122.97 crores when does the loan to another company and that is Adani enterprises .
And the Hindenburg also niece is married into a relation of the Monty Rosa company suggesting the connection between both these transactions and the relation basically suggesting that their creating a series of shell companies that are buying stock so that they able to control more than 70% of the entire stock which is against SEBI rules and they call it stock manipulation response to this is very very simple they said each of the entities referenced in the queries about our public shareholders in the listed companies in the Adani portfolio and they are not related parties of the promoters at all and secondly a public listed entity anyways does not have any control over sales hold their shares or how much volume is trade or the source of these we cannot comment on the trading pattern or behaviour of public share holders
Regarding the people in the group for this hindenburg says Gautam adani’s younger brother Rajesh dhani he was accused for a diamond trading schemen 2004 and 5 and that he was arrested twice or allocations of customs taxation forging import documentation and illegal coal imports. Cool imports brother in law he was accused by the dri of being a ring leader of a diamond trading scam but even then the questions how was he promoted to the executive director of the critical agony Australia division this is the question put for by the hindenburg report and just like this there’s a detailed list of allegations on the people in organic group straight forward response saying that each of the above matters are closed and dismisd in our favour for the these matters have been disclosed by us in the public domain and all are stay holders are aware of the same these points have been cited soli in an attempt to for the narrative of Life plus the other team has also given sources and page numbers that you can actually referred to find the closes so basically the arguments acquisition is not equal to conviction and without conviction these baseless what about proceedings of happened when they have already been reveal to the shareholders there is nothing to be valid about if this is very very clear to you let’s come to the third category which are the red flags in the management of the company he was why the point out that 5 Adani careful resign the company induced Etios for this the group responded by saying first of all many of the farmers are still a part of the organisation in various including taking on larger or key rules in the company secondly this said that the organisation allows in encourages development of individuals including them taking on significantly larger rules from time to time for example Mr Singh the current CF of Adani enterprises limited he was appointed aso in May 2019 but has been with the organisations since May 2012 itself very played the role as the advisor in strategic finance in the report has left to purse to individual ambition including the journey as entrepreneurs for example Mr Amit Desai designed as CF of Adani enterprises limited to begin is journey as an entrepreneur similarly Mr B Ravi Adani ports for similar entrepreneurial ventures and lastly the Adani group points out that the hindenburg report conveniently fails to mention that none of these resignations have ever been made percuite to any alligator concerns against any of the underline companies and and each of the cited designations and changes in fear force has been during this closed from time to time as per the regulated recruitments for the public basically the arguments says that when most of this year for the still with the company when none of them have reached any red flags themselves when the resigned when two of them have gone to become entrepreneurs what exactly the problem and more importantly when all these changes have been disclosed to the shareholders what is wrong.
If this is very very clear to you let’s come to the four catering applications which is regarding their auditing form
hindenburg that the independent audit for Adani enterprises and Adani total gas is actually a very very tiny form the reported having only four partners and 11 employees this companies name goes by the name shard and Arya and of the partners featured on its archived in page they found that three of these partners were in there 20 with hardly the level of experience or seniority that is needed to screw tonight search big and powerful companies for this for this is adani group responded by saying all these orders have been deuli certified and qualified by the relevance actually bodies who are responsible to determine these benchmarks secondly all auditors have been appointed in compliance with the applicable law and the companies public documents clearly disclosed child to all regulators and stay holders
Adani group points out that the hindenburg report had done at terrible thing but this regarding the personal privacy and safety of these people because they literally published private and personal information including the pictures of government IDS without any consent or the attempt to safeguard the identities of the people in question so it’s not an attack on the company but on the individuals and their families and tattoo with no prevent wrong doings this is a story of the allegation by handball the concepts and numbers behind them organic groups response the concepts numbers and proves behind the Rebel and now its completed to you to decide whose right and who is wrong and my only opinion in this matter is that we should wait for a reputed body like SEBI all the quotes of India to actually come to our conclusion as the weather something really went wrong or not .