Aswath Damodaran, a valuation expert, claimed that the Life Insurance Corporation of India (LIC) made even poorer investments than those in the Adani group companies. In an interview with India Today TV, Damodaran claimed that if one compares the cost of the shares at which LIC invested in the Adani group companies to their current worth, they were one of LIC’s better investments during the previous 20 years.
A brief about One of LIC’s better investments in the past 20 years has been investing in Adani Group companies
According to Damodaran, LIC has been the last-resort investor for as long as it has existed. He stated that “Adani firms are not one of those companies,” adding that “the government has compelled India’s largest insurer to invest in any bad company that needs money.”
Damodaran is a corporate finance and valuation professor at New York University’s Stern School of Business.
The professor declared that he would be curious to know why LIC made its investment in the Adani Group.
The Adani group was one of the greatest in terms of market capitalization, and by itself, it is India’s largest institutional investor, he added.
Because they frequently operate as quasi-utilities, infrastructure corporations take on a lot of debt and are always subject to regulation, according to Damodaran. Damodaran immediately used an airline as an example. He claimed that a private airline is never granted full authority to raise costs because, if they were, the operator would undoubtedly increase fares by three times. Even in their best years, he claimed, the Adani group’s businesses have low profit margins and require a lot of money.
He claimed that infrastructure businesses think they would figure out a means to pay interest once they have established their business. “Simply put, Adanis is not to fault for it. Banks like to lend on large physical assets rather than on the strength of their earnings or cash flows “said he.
Damodaran used real estate as an example, claiming that if cash flow were so crucial, no lender should be involved in the Mumbai real estate market because a costly piece of property would not generate enough rental income there. But, he added, bankers do enjoy lending against substantial tangible assets.
“Infrastructure companies benefit from that. I don’t believe you can criminalise that. This is a risky situation, as you can counter. When your operational income is only 1.4 times your interest costs, you shouldn’t be borrowing as much money. Not much buffer is present, “said said.
All of the information in Hindenburg Research’s research, according to Damodaran, was previously covered by the Indian press. Nothing in there, according to Damodaran, was something he had never heard before.
According to him, Mauritius has 6,300 firms and a meagre $11.5 billion in GDP overall. While it may be debatable if doing business here with Indian companies is morally or ethically wrong, Damodaran claimed that the Indian government is aware of this and has been attempting to take action.
Even though the Adani Group has 38 shell businesses, according to Damodaran, he does not trust the claims of stock manipulation because Adani Companies are not small in size, despite having low float. He pointed out that the market capitalization of the Adani group companies increased by more than $100 billion and that this required a significant amount of trade.