This video was brought to you by MooMoo MooMoo is a commission free brokerage that provides the most comprehensive set of fundamental and technical analysis tools of any brokerage I've tried so far. They recently launched an earnings calendar feature so you never miss another earnings report. This tool helps you prepare ahead of time to take advantage of price swings when companies report earnings. If you're more long-term oriented, their fundamental data and stock screening feature is second to none.

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Since then, there have been further developments and was shaping up to be perhaps one of the most interesting short selling battles in recent memory. Hindenburg released its short report on January 24th, which immediately caused Donnie Enterprises stock to lose 20 percent of its value. This was a big problem because Adani Enterprises was just about to kick off a share offering where it planned to raise 200 billion rupees or about two and a half billion dollars in New Capital. Over the following days, the share price continued falling like a rock as of the time of recording, this video is lost more than half of its value since the short report was released.

Given the seriousness of the allegations, investors seem to have lost appetite for Adani's stock and the company had to cancel their previously planned share issuance on January 29th. Just five days after the short report was released, Adani published a 413 page document responding to Hindenburg's allegations. Adani categorically denied any wrongdoing and accused Hindenburg of Market manipulation. They even went so far as the state of the short report was an attack not only on Adani, but on the entire country of India.

Not to be outdone. That same day, Hindenburg released a response to Adani's response. They doubled down on their original allegations, saying that Adani's response ignores every key element that they raised. We've linked all the mentioned documents in the description below.

If you want to read them for yourself between the original Short report, Adani's response in Hindenburg's counter response, it adds up to about one Harry Potter book worth of reading. If you don't have time for all that, we'll go over all the important revelations in the remainder of this video. As a quick note, nobody on the Wall Street Millennial team has any position in any of the Adani companies, either long or short. In respect to the seriousness of Hindenburg's allegations, we've taken great pains to be as objective as possible in this video so you can decide for yourself which side to believe.

If you're not familiar with Hindenburg's short report, you can watch this video that we made about it a few days ago. Link is in the description below. There are two main points to the allegations. Firstly, there were a huge number of Shell companies set up by Gotta Madani's brother V-node as well as a few other of their Close Associates.

These Shell companies spent billions of dollars to pump up Adani's share price, as well as engaging in strange transactions that appear to improperly put money into and take money out of the Adani listed companies. Secondly, Adani family members and the Adani Group itself have been implicated in multiple frauds, including a 2014 case where they allegedly inflated the cost of Cool Imports and passed these inflated costs onto consumers in the form of higher electricity tariffs. There were also separate investigations into other alleged scandals. Adani responded by saying that all the criminal proceedings against them have been resolved in the company's favor, which is true.

Gotta Madani has long been a vocal supporter of Indian Prime Minister Narendra Modi and his ruling BJP Party In Fact: When Modi was first elected Prime Minister in 2014, he flew to the capital city Delhi on an Adani private jet. For years, Media Outlets within India have commented on the seemingly close relationship between Modi's government and the Adani group. all the way back in 2018, Opposition members of Congress have accused the Modi government of covering up for Adani scams after the authorities dropped charges against the conglomerate related to an alleged over-invoicing scheme. The insinuation is that Adani's support of Modi's BJP party has won him friends in high places, which allows his companies to act with impunity.

We don't pretend to be experts on Indian politics, and we have no way of independently verifying whether or not there have been any inappropriate dealings between Adani and the Modi Administration. However, even if we accept that all the prior Court proceedings were above board, there are other parts of Adani Group's response that raise more questions than answers. The other allegation in the Hindenburg report was that a large number of apparent shell companies registered in Meridios spend billions pumping up the price of Adani stock, and these shell companies appear to be controlled at least indirectly by insiders Gotham's brother Vino Dadani also controlled a large number of Shell companies registered in offshore tax Havens which had suspicious dealings with Adani Group subsidiaries. These shell companies raised two serious questions: Firstly, why did V-node have so many dealings with his brother's conglomerate and secondly, how did Vino get the billions of dollars necessary to fund these shell companies? Adani's response was that Vino Dadani is not a related party and they therefore have no obligation to look into the source of funding for the suspicious shell companies.

However, according to the Indian Ministry of Corporate, Affairs, a person's brother is considered to be a related party Vino to Dani is the brother of founder and chairman Gautam Adani. This is a fact that Adani has not disputed. A key part of Hindenburg's short report was about the unusual increase in the price of Adani's stock, which pushed it up to seemingly absurd valuations when compared to similar companies, at least on a price to earnings basis. A significant portion of trading volume in Adani's stock was done by suspicious Shell companies which owned many billions of dollars worth of Adani stock.

Adani's response was basically to say that they know nothing about these Shell companies and they have no obligation to look into them. So in a lot of ways investors are left with more questions than answers. A lot of corporate frauds are obvious once they are revealed. Hindenburg First came to prominence in 2020 when it exposed that the Nicola one truck couldn't drive itself and was just rolling down a hill being filmed with a tilted camera.

There's not really any way to argue against it. Either the truck can drive or it can't if the truck can't even drive, the company is fundamentally fraudulent and its Shares are probably not worth the paper they're written on. Another example of a clear-cut fraud is looking coffee. They fabricated about one-third of their sales out of thin air, making the company look far larger than it actually was.

The case of Adani is far more complicated. It is a real company with tens of thousands of employees. It is one of the largest companies in India with many billions of dollars of fixed assets including ports, airports, and coal mines. Hindenburg Isn't saying that it's assets or revenues are fake, They're instead pointing to suspicious transactions which appear to have pumped up the share price and potentially benefited insiders at the expense of minority investors.

Given the complicated nature of the allegations, we as Outsiders may never know exactly what is happening beneath the surface of the Adani Empire but from an investor perspective, this may be irrelevant. Adani Enterprises has exhibited strong Revenue growth over the past two years, which may have piqued the interest of some investors. However, its net profit margins remain extremely low at about one percent. They were able to fuel their growth in part by taking on billions of dollars worth of debt to build and acquire new infrastructure assets.

This is great for Revenue growth, but the growing interest expense reduces profitability and if coal prices decreased to more normal levels, which most analysts expect to happen over the next year, revenue and profitability will probably decrease at its peak. Adani Enterprises traded at a trailing price to earnings ratio in excess of 500, and even after the share price cratered following the Hindenburg short report, the price, their earnings ratio is still well above 100 times. Just by doing some fundamental analysis, any value investor could tell you that this is a stock you probably want to avoid as evaluation seems almost impossible to justify and it looks like most investors in India came to a similar conclusion. if you look at the list of Adani Enterprises shareholders, surprisingly, few people actually own the stock.

About 75 percent of shares are owned by insiders. This includes the Adani family A Further, 16 of shares are held by Foreign financial institutions, many of which consist of the suspicious shell companies we discussed earlier in the video. Domestic retail investors, which are referred to here as the general public only own about two percent of the shares outstanding. So, despite the company losing tens of billions of dollars worth of market cap, domestic investors have not suffered serious losses, at least not directly.

The Life Insurance Company of India as well as a State Bank of India which were both owned by the government. Where large investors and multiple Adani listed stocks, they are estimated to have lost the equivalent of over 9 billion dollars. The fact that two state-owned Enterprises invested billions of dollars into Adani, while its shares were mostly shown by other domestic investors raises questions about Adani's relationship with the Modi government. However, these questions we may never have the answers to.

Alright guys, that wraps it up for this video. what do you think about the Adani situation? Let us know in the comments section below. As always, thank you so much for watching and we'll see you in the next one! Wall Street Millennial Signing out.