Madhabi Puri Buch (SEBI Chief), Adani and Hindenburg
The intent of this blog is not to muddy the political waters as my interest is on clearing the minds when it comes to Madhabi Puri Buch (SEBI Chief), who get easily convinced by the political narrative. At least, we should have the facts before us before we jump into a conclusion.
EBI Chief, Madhabi Puri Buch and the recent Controversy
Regarding SEBI Chief Madhabi Puri Buch, targeted by Hindenburg some time back and recently by politicians like Pawan Khera over her past compensation from ICICI, it's crucial to examine her career.
Based on her extensive background detailed in public sources, she began at ICICI Bank in 1989 and later served in various roles, including a lecturer in England and senior positions in multiple companies, including CEO of ICICI Securities from 2009 to 2011. Buch also held executive and director roles at Zensar Technologies, InnoVen Capital, Max Healthcare, and consulted for the New Development Bank (BRICS bank).
Given her qualifications and career achievements, ICICI's clarification that her payments were related to ESOP vesting rather than salary seems plausible, unless contradicting evidence, such as specific income tax records, surfaces. However, SEBI's involvement in the recent de-listing proposal of ICICI Securities, which was controversial and arguably detrimental to minority shareholders, raises valid concerns about Buch's decisions and potential conflicts of interest. We will find out more on this soon.
However, let's understand that both she and her husband have had an illustrious career before she became the SEBI Chairman. So, if the allegation is of siphoning, it doesn't stand. If it is about quid pro quo, further investigation will be needed. But, politicians are not saying that. They simply want to spark controversy and keep public engaged by creating mistrust on the organization and the system at large.
As we know, earlier Hindenburg came out with another research claiming inadequate investigation on Adani by SEBI. To understand that, we should get into some details on Adani.
Adani Enterprises: Stock Price Journey and Controversies
Adani Enterprises' stock price surged from ₹150 to an all-time high of ₹4,000 in 2022. On January 24, 2023, US-based short seller Hindenburg Research published a report alleging malfeasance by the Adani Group. That included cooking books of accounts, over-invoicing of import costs and round-tripping of own money to push up share prices. The stock tanked to 1300 following this report. There was a hint that the price is manipulated and it is a bubble. The stock price has now recovered to ₹3,000 (All rounded approximate figures). This event triggered confirmation bias, where any mention of Hindenburg now brings Adani and Modi into the conversation. This explains the Congress press conference highlighting SEBI chief’s past compensation from ICICI and the clarification from ICICI. These should be seen as related events.
The politicians very well know that the public, often disinterested in the full story, might conclude, "Something must have happened." They leverage the widespread financial illiteracy, making issues out of minor facts, such as LIC’s <2% allocation in Adani stocks, while ignoring their broader stock portfolio. They rarely follow up, similar to events in the past.
Let's now look into Adani business performance vis a vis stock price.
Adani Business and Valuations
I am not an investor in Adani Enterprises, but for those observing from the sidelines, here are some insights into Adani's business and valuations. Adani group has several stocks. But, for simplicity focusing on Adani Enterprises only.
Enterprises boasts a 10% return on capital employed (ROCE) with a capital base of ₹1.1 lakh crore, excluding current liabilities. This means the company is generating an ope
rating profit of ₹12,000 crore on this capital, with sales of ₹1 lakh crore as of FY24. To put this in perspective, sales were ₹40,000 crore in FY20 with an operating profit margin of 6%. Essentially, sales have grown 2.5 times since FY20, the year the stock started its upward trajectory post-COVID. Whether this growth was anticipated by the market or influenced by manipulation, the stock is currently valued at 4 times its sales, compared to <1 times sales in 2020.
Given the sales growth over the past four years, the market might be projecting similar growth rates ahead. If the business doesn't perform,the price will go South. A company with a 10% ROCE valued at 4 times sales is not necessarily in bubble territory, especially when compared to other companies valued much higher. Current valuation could at best be seen as expensive, calling it outright fraud or manipulation is an exaggeration. If the claim is that the books are cooked, it's for auditors to respond. Not sure if SEBI has any role here. They can investigate the stock price manipulation at best.
The fact that all Adani stocks have high promoter holding, makes it illiquid and easy to manipulate. But then, this happens with 1000 other stocks. Didn't we see a PSU stocks rally last year? Most of them have low float and open to manipulation.
Conclusion: Yes, there are suspicions of government support aiding the rise in sales and assets of Adani, and such claims should be thoroughly investigated. Will targeting SEBI chief personally help here? It's a political battle and should be fought at political level. Maligning the markets and institutions is unnecessary!!
