Business Homophones 🧐

A lot has already been said about the Adani Group, so this blog is going to be the last one on this topic. Adani's business runs on three things: debt, India's growth, and political connections.

Considering his moves, it seems that he wants India to remain completely dependent on the Adani Group for all the major projects that India will undertake in the future. According to me, he is trying to create a company that would look like the byproduct of L&T, Shipping Corporation of India, Ultra Tech, the Airport Authority of India, the Ministry of Ports, SBIN, the Ministry of Power, Coal India, and Vedanta put together. Just thinking about the size gives me an adrenaline rush.

Adani ports handle 1/3 of India's cargo. He has 14 ports, out of which 12 are domestic and 2 are international, one each in Sri Lanka and Israel. Monopoly is great from a businessman's perspective, but when such a large amount of control lies in the hands of a monopoly, it's not good for the customers. He can basically ask for as much money as he wants. Fare trade is important. Most of Mumbai gets its electricity from Adani Power. Today we have the option to switch our distributor, but what if we don't have that option tomorrow? In the early days of Microsoft, they enjoyed such a monopoly. Later, many allegations were raised, which resulted in Congress taking legal action against Microsoft. They were forced to decentralize some of their operations. 

What kind of liberalization is this? One of the biggest loopholes that Adani practices is tax savings. Even though all the Adani Group companies are subsidiaries of Adani Enterprise, they function individually. Literally, they function individually. Hindenburg has held Adani guilty of doing related-party transactions on a large scale. Related party transactions are legal, but the scale at which this guy has been executing RPTs makes it look suspicious. Let me give you an example. Adani ports can buy Fortune oil from Adani Wilmar at a 50% discount. Since AWL has offered a discount, it would affect their P&L. Decreased profits mean a decrease in tax. That's what he has been doing, states Hindenburg. Taking money from profitable companies and investing it in a loss-making company simply to avoid paying taxes. 

Too many RPTs have been recorded. Hindenburg has reported that Adani has a basket full of shell companies. Shell companies don't have a business model. They are simply formed to rotate the money and save taxes. Adani has been accused of having multiple shell companies in the UAE. When an Indian company pays a foreign company, expenses are claimed. Less profits to show means less taxes. Money received by a company in the UAE has to pay less taxes as compared to developing countries like India. These funds are later transferred as a loan to companies in Mauritius (tax havens). Companies registered in Mauritius use these funds as a form of foreign direct investment and invest that money directly into individual companies like Adani. This is how the round-tripping of money is undertaken. Funds from Mauritius come in the form of P-notes, or promissory notes. As an investor, I don't have to reveal my name if I am using P-notes as an investment tool. That's the advantage. Take a look at the amount of money that has come from Mauritius in the form of "FDI," and you will know what I am talking about. The RBI is well-versed in this concept, yet no one bans the use of the P-note as an investment tool.

Disclaimer: During the 2020 pandemic, Mauritius was the most active country from which India received $5 billion in FDI.

I don't give a damn about the fact that you either follow the ideologies of the left wing or the right wing. The ultimate goal, I believe, is India's progress.

There is a loophole in India's accounting standards that companies like Adani exploit. Forget Adani; this "related party transactions" loophole has been exploited by many known Indian businesses. Why do you think 79% of Indian companies are family-run?

For an economy to thrive, vicious monopolies should be decentralised so as to have a bunch of satisfied customers. That's like the basic economic rule. Competition leads to increased productivity, creative destruction, and superior products, and the value for money remains intact.

Adani has been alleged to have relations with Ketan Parikh. I have already covered who Ketan Parekh is in the following blog post: -https://economicsunbiased.blogspot.com/2022/12/ultimate-shishya.html

SEBI has banned Ketan from the capital markets for 10 years, which means until 2017. Why hasn't SEBI banned crooks like Ketan for life?

Someone please explain to me how Adani got control over seven airports in India after just three years of experience. Congress has been pretty grumpy about this, to which the BJP responded by saying, 'Anil Ambani had no experience in the telecom industry, yet his IPO was authorized." The way Adani snatched the Mumbai airport from GMR Group is a story in itself. He literally used the CBI in his favor. This is some next-level mafia game.

Three pillars on which the Adani Group has been doing business are debt, India's growth, and political connections. These 3 pillars better be strong so as to deal with an earthquake. One weak pillar, and it would all vanish like the wealth tax in India. A pillar that I believe is dynamic are the political connections. One quality of these politicians that I admire is selfishness. There is this song that suits their nature, and it goes like "apna kam banta, bhad mai jai janta". If the Adani saga is successful in getting politicians involved, it won't be good for him. We have experienced this phenomenon during the Harshad Mehta boom as well. Harshad believed that these politicians would support him, only to later realize that they were the ones who choked him to death. I would rather believe that elephants are afraid of mice than believe politicians.

All in all, what I am trying to say is that overdependence on one group can choke India's growth. Let's keep his execution skills aside for a moment. Even if he is the oracle of the infrastructure industry, throwing yourselves behind one single organization won't pay off in the long run. Look at what happened to the Rothchilds and Carnegies in the US. As stated earlier, Adani Ports controls 25% of India's trade, operates 7 major airports, is the largest importer of coal and pet coke in India, is the second largest cement producer, has India's largest edible oil company, and runs India's largest power generation and transmission company. Even though his debt levels are relatively lower than the assets he owns, it still raises a lot of questions. Why won't Adani decentralize his operations? Why has his order book increased surprisingly after 2014? How would he justify his related party transactions? How would India's infrastructure sector look without the Adani group? How would Mr. Adani justify his companies average PE of more than 100? (PE is a valuation metric. It tells us how much we have to pay for the company to earn Rs 1. A PE of 100 means that we have to pay Rs 100 to earn Rs 1.)

And lastly, if what he is doing is ethical, how can a 400-page report from a company run by six people deteriorate $150 billion in market cap in just 30 days? When you post a video stating that everything is OK, trust me, it isn't. 

HAPPY INVESTING.