LESSONS FROM THE ADANI SAGA

The Adani saga contains many lessons for India’s industrialists and its fast-growing set of next-generation entrepreneurs.

- T.V. Mohandas Pai & Nisha Holla

Many startup entrepreneurs view listing their company on the public market and running a publicly listed company as natural extensions for their nascent enterprises. And the ongoing saga underscores the importance of robust governance, convening a high-quality board, setting realistic valuation growth expectations, and leveraging debt suitably.

In a nutshell, a predatory short seller from overseas identified an opportunity, created a massive short position and released a research report which made claims about bad governance against Adani. This led to a steep decline in the stock, destroying a massive part of the market capitalisation that Adani had amassed earlier.

Of course, the Adani Enterprises market cap itself had shot up tremendously over the last 24 months for reasons that are very difficult to fathom at this point. But this story demonstrates that as and when a company achieves scale and higher value, the standard of corporate governance must improve dramatically, enhanced transparency must be maintained, and information flows have to be different than earlier.

Caught Short The simple reason is that higher valuations attract the constant attention of both the public eye and stock analysts. As the stock price ascends, the company attracts more capital and becomes the target of increased scrutiny. When this happened to Adani, the company was caught short on standards of governance. It also showed signs of believing too much in its own valuation without considering extraneous market forces.