Armed With A Strong Bottom Line, The Adani Group May Not Sink Following US Indictment

The bribery charges involving Adani Group exposed widespread corruption in the government deals in India once again. It is no exaggeration to say that a large chunk of the government funds allocated to various projects and procurements are going towards bribes. Private companies and individuals take this into consideration while bidding for government works and supplies. But the big question is how to curb these blatant corrupt practices which cost the Indian public dearly

Gautam Shantilal Adani, the founder and Chairman of apples-to-airports conglomerate Adani Group, is the most-loved and at the same time, the most-hated industrialist in the country these days. He is adored by BJP supporters thanks to his proximity to Prime Minister Narendra Modi.

For the same reason, Congress supporters hate him to the core. Of course, they also have another reason for developing hatred against the billionaire industrialist. Congress leader Rahul Gandhi has been attacking the group for over a decade levelling severe allegations that the Ahmedabad-based group has been receiving undue benefits from the central government led by Modi. The latest episode in which a US court indicted Gautam Adani and six others with bribery charges, also evoked similar contrasting reactions from both the political camps in the country.

What is this US indictment? The Department of Justice in the United States leveled corruption charges against Gautam Adani, his relative Sagar R. Adani and six others. They allegedly offered $265 million (about Rs. 2240 crore) in bribes to officials and those in power for securing solar power supply deals in Tamil Nadu, Andhra Pradesh, Jammu & Kashmir, Chhattisgarh and Odisha in 2021 and 2022.

According to the indictment charges, Adani Green Energy, a part of Adani Group, which secured these solar power supply deals, raised billions of dollars from banks and financial institutions in the US for its green energy projects by concealing its corrupt practices back home. That is a crime under the Foreign Corrupt Practices Act (FCPA) of the US. Following these charges, the Eastern District of New York indicted the group founder and others on five counts. But the court has not issued any arrest warrant against the accused, though these charges might lead to such a development in future if they fail to defend themselves.

This apart, US market regulator US Security Exchange Commission (SEC) also charged Gautam Adani and his nephew in the same issue.

Interestingly, the indictment petition was filed in the New York court on October 24, but the issue came to light nearly a month later on November 21. As expected, the indictment news led to a free fall in stock prices of Adani Group companies on Indian bourses. The diversified group lost Rs. 2.45 lakh crore in market capitalisation on November 21 (Thursday). This bloodbath was expected to continue for a few more days, but most of the group companies recovered the next day itself.

This fast recovery shows how fundamentally strong Adani Group companies are. For instance, it saw the cumulative net profits of its listed companies jump up by a staggering 55 per cent to Rs. 30,767 crore in FY24 (April 2023 to March 2024) from Rs. 19,833 crore a year ago. Its EBITDA (earnings before interest, taxes, depreciation, and amortization) was at Rs. 66,244 crore, an upswing of 40 per cent year-on-year. The group could achieve these juicy margins despite a six per cent decline in the group’s revenues in the last financial year.

This strong bottom line also saved the group from nemesis that it stared at when US-based investment research firm Hindenburg levelled serious allegations of fraud and stock manipulation against its promoters in January 2023. The group had lost $100 billion (Rs. 8.44 lakh crore) in market capitalisation post those allegations. But it bounced back gradually. The group also pared down its overall debt levels during the Hindenburg crisis. That helped the group post better profits for the last fiscal. The group has consistently been clocking an average upswing (CAGR) of 54 per cent in its net profits for the past five years.

Given such a strong bottom line, it is very unlikely that the indictment in the US will have a major impact on the diversified group. Further, Gautam Adani, given his financial and political muscle, may easily come out of the allegations levelled against him and others in the US. Moreover, he has enough funds at his disposal even to repay funds raised from the US, which led to the investigations, in the first place. Political opposition in the country is also not impacting the group in any way.

However, the group’s ambitious expansion plans will be under stress now as the group may find it difficult to raise funds in the overseas markets. Earlier this year, the Ahmedabad-based group announced plans to spend a staggering $90 billion in capex over the next 10 years. Now, it is not easy to pursue such a large-scale expansion.

However, the latest bribery charges in the US once again exposed widespread corruption in government deals in India. This will also take a heavy toll on the country’s image globally as an attractive investment destination. That’s for sure.

Further, it is no exaggeration to say that a large chunk of the government funds allocated to various projects and procurements are going towards bribes. Private companies and individuals take this into consideration while bidding for government works and supplies. Further, the government machinery also escalates costs and estimates to accommodate the kickbacks they receive. But the big question is how to curb these blatant corrupt practices, which cost the Indian public dearly. Let’s hope there will be a right answer to it soon.