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Gautam Adani sets out a plan to raise the group’s valuation to $1 trillion

  • Given the size and breadth of its portfolio, Adani Group aims for a valuation of the group of 1,000 billion dollars.
  • The Adani Group will play to its strengths and focus on its core verticals – mining, infrastructure and utilities. Companies that fit well into the overall superstructure of the group will become adjacent businesses like cement, copper and aluminum.
  • Adani Enterprises will continue to be the group’s incubator which is currently home to new businesses. The Group is looking to divest some of these new businesses such as new energies, airports and roads over the next 2 to 4 years.

Adani Group’s market capitalization has been the subject of much discussion lately, as the returns have surprised many and propelled Gautam Adani in third place on the list of the richest people in the world. The value of the group’s listed entities has risen from $16 billion in 2015 to $240 billion in 2022, but billionaire Gautam Adani’s ambition is to increase the value of his group to $1 trillion. All elements of this strategy were put in place in 2015.

On October 10, the group’s chief financial officer, Jugeshinder ‘Robbie’ Singh, recounted an incident describing the group’s scheme to a room full of wealthy individuals in New Delhi. He said: “Whatever you see today might seem like it has happened in the last two years, but in reality what we did – both GSA (Gautam Shantilal Adani) and myself – we discussed this in 2015. When the discussion took place, the market capitalization of the group was around 16 billion dollars in 2015. Considering what we had as a set of companies, we thought that if we had assets and businesses like this, we really should be a trillion dollar group. So we followed the steps we needed to take to get to the point.

Jugeshinder ‘Robbie’ Singh, Chief Financial Officer, Adani GroupBI India

Since then, the Adani Group has set out to develop its infrastructure and logistics portfolio so as to become the top five in the world and not just the biggest Indian player. To achieve this goal, Singh said they have taken steps to transform the very operation of the group at all levels. “We came to the conclusion that many steps could be executed. When we concluded that we could (execute) these steps, we both knew at the step that if we couldn’t do it, at least two people – Gautam Adani and I – would know that we failed,” he added.

Build it brick by brick

While market pundits have sometimes questioned the Group’s foray into cement, the Group is clear that it will play to its strengths and focus on its core business – mining, infrastructure and public services. And businesses that fit well into the overall group superstructure will become adjacent businesses.

Since energy and logistics are the most important components of any metals and materials business, the group saw fit to venture into copper, aluminum and cement businesses. Energy continues to be at the heart of the Group’s future growth plans. And to that end, Adani Green is redefining the future of renewable energy. In 2020, Adani Green has become the largest solar company in the world. Adani New Industries, currently part of Adani Enterprises, will focus on the Group’s foray into the new energy sector.

Singh went on to explain to investors that for the first time in India’s history, a portfolio of a group has emerged that is the global top five across the sector. He said, “If you take Adani Group’s infrastructure portfolio, then the core is in the top 5 in the world. If you take Adani Green, Adani Ports, Adani Total, Adani Transmission and Adani Power are in total among the top five infrastructure portfolios in the world. It is the fastest growing portfolio. Our primary vertical materials, metals and mining industry again sits alongside our core infrastructure portfolio. »

It is therefore not surprising that Adani Ports and Special Economic Zones (APSEZ) was the first company to undergo a major transformation from a simple port operator to an integrated player in port services and logistics. According to Gautam Adani in his speech at the AGM, “Fiscal 2021 was a year of transformation. No company runs a port business of such scale and scope. The company added LNG and LPG portfolio In total, Adani’s port activities represent 100 billion dollars of trade each year.

Why does entering the materials business make sense for Adani?

Adani Group emerged as a surprise bidder for Holcim’s cement business in India earlier this year. While many believe this was a foray into an unrelated company, the Group has compelling reasons behind it. Whether it’s construction materials like paints and cement or metals, 74% of the cost of these companies comprises three elements: transport and logistics, electricity and extraction. Singh thinks the cement industry is like any materials industry, where infrastructure and energy are essential components.

Singh explains, “We never looked at cement as a manufacturing business. We think the Indian cement industry is horribly inefficient. And we can provide it with efficient logistics and power. Whoever predicted ACC and Ambuja’s EBITDA will be wrong by a factor over the next 9-12 months. The same is true for copper and aluminum.

Gautam Adani sets out a plan to raise the group's valuation to $1 trillion
Jugeshinder ‘Robbie’ Singh on the Adani Group’s entry into the cement businessBI India

Since the Adani Group has all the authorizations, it can deliver key raw materials at a better price. The group is already the biggest mining services player in the country and that is why it estimates that the cost of developing its copper smelter would be a third of the cost of any other developer in the country and aluminum would be the same. “So when you hear that we’re buying XYZ, I’d like you to see in this chart that globally 100% of our investments are sub-core or adjacent areas. We don’t do anything outside of that,” Singh told investors .

urplus Cash & Credit Rating Higher Than Sovereign: the group generates cash faster than it can deploy

Most Adani Group companies enjoy best-in-class margins. The port business has recorded operating margins of 70%, while its closest competitor’s margins are 56%. Adani Total Gas reported margins of 41%, while Adani Transmission’s operating margin is 92%. The operations are profitable and efficient and generate high levels of free cash flow.

The growth, says Singh, is even greater than that of some tech companies. The group currently generates earnings before interest, taxes, depreciation and amortization of $8 billion. Of that $8 billion, about $3.6 billion is spent on debt service (interest and principal). Of the remaining $4.4 billion, the group spends $700 million on taxes. Companies are spending $1.8 billion on capex, while the rest of the group is unable to deploy it.

While in absolute terms, the Group’s debt has increased, but so has its EBITDA, explains Singh. Over the past nine years, the Group’s EBITDA has increased by 23% CAGR, while debt has increased by 12%. Nearly 41% of Adani’s portfolio has the same credit rating as the Indian government. “We are rated higher than the banks, so if we keep the money there, that’s a problem for us,” Singh adds. According to the group’s chief financial officer, Robbie Singh, the group will soon have a company in its portfolio, with all its activities in India, which will be rated higher than the Indian government.

Global connections and capital drive growth

The Group’s portfolio has attracted the interest of global partners such as TotalEnergies and global funds such as International Holding Company. TotalEnergies has extended its investment to the entire portfolio of companies. Total Energies has invested $4 billion in Adani Group Companies and this is the largest minority position of French society in the world. IHC has also invested $2 billion in group companies.

The Adani Group has close relationships with most Indian banks, but since they have group exposure limits, the Adani Group cannot grow if it depends solely on Indian banks. Virtually the entire European banking system has relationships with the Adani Group as well as major investment banks in the United States and Japan. The group has not only raised $16 billion in capital over the past three years to fuel growth, but has also managed one of the largest equity capital programs, which is almost the same size as Reliance. Jo.

Adani Enterprises will act as the group’s incubator

Adani Enterprises is positioned as the group’s incubator. The group is currently developing several new businesses under the AEL umbrella until they become independent and can fund their own investment plans. The Group considers that it should not be valued on the basis of a P/E multiple because its activity is the incubation of new activities.

For example, Adani New Industries is the green hydrogen activity under AEL for which the Group has committed investments of 50 billion dollars over the next 10 years. In addition to the new energy business, the data centres, airports and road businesses will remain within AEL until they can be independent and support their own growth ambitions. The Group plans to divest some of these new businesses over the next 2 to 4 years.

To be outside of Adani Enterprises, companies must meet two conditions: 1) They can support their growth on their own and do not need shareholders’ money. 2) There can be no cross financial participations. When a company can stand, it will be separated from AEL, says Singh. In the next 2-3 years, the hydrogen, airports and transmission companies can be split off when they can be independent. But at first glance, the transformation of the Adani Group is a story of 25 years of growth and ambition.

Gautam Adani sets out a plan to raise the group's valuation to $1 trillion
Adani: a portfolio of world-class infrastructure and public servicesBI India


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