US brokerage firm Cantor Fitzgerald has clarified that the Financial Times (FT) article published on May 22 this year, that alleged Adani Group of importing low quality coal and sold them priced as high-grade coal was just noise with little truth in it.
The top financial services firm said Adani noted that this specific purchase order (PO) 89 of TANGEDCO was a fixed price contract, which the company won through an open, competitive, and global bidding process. Adani was contractually obliged to supply coal to TANGEDCO at a predetermined price. TANGEDCO did this so that it could insulate itself from the volatility of coal prices. The supplier under this tender (Adani) could supply coal that had a gross calorific value (GCV) between 5,800 and 6,700. If the supplier supplied coal with a lesser GCV, it would face a penalty taken out from the pre-determined payment amount. The quality of the coal is tested not by the supplier (Adani), but by the receiving plant (TANGEDCO). The payment is then based on these findings. Thus, the assertion that Adani could buy lower GCV coal and sell it as higher GCV coal appears to not be plausible given testing is done by the buyer and payment is based on testing.
Adani reportedly noted that the coal it delivered was within 100 GCV points, and therefore, considered permissible for full payment. Ultimately, both the upside and downside risk when it came to sourcing coal was borne by the supplier (Adani), given it was a fixed-price contract.
Cantor Fitzgerald said, “The FT is also basing their reporting on customs and Directorate of Revenue Intelligence (DRI) reports. It is worth noting that, during the alleged time period (2012-2014), DRI and customs accused all coal importers of mis-declaring the quality of coal to be lower than it actually was. As a result, they wanted additional customs duties. So the fact that this report argues against what DRI/customs was saying back then also raises a red flag, in our view. We note, the market appeared to shrug off this report (shares ended up 0.7% vs. India’s NIFTY_50 up 0.3%), as we believe the market is inferring that this is an immaterial story, as do we.”
It further said, “India is one of the fastest-growing economies and is heavily investing across a range of end-markets to support continued economic growth, which we believe bodes well for Adani Enterprises, as it touches nearly every aspect of life in India. From a bottoms-up point of view, we believe Adani’s valuation does not fully reflect what we believe the value of its current portfolio of established and incubating businesses to be. As these businesses continue to grow and mature, and as the demerging of businesses within Adani approaches, we believe this will result in shares more accurately reflecting what Adani’s sum-of-the-parts valuation is.”
Also Read: EC Censures Congress, BJP For Campaigning On Caste, Religious Lines
