Is Adani the New Reliance? Decoding the Rise of Adani Enterprises

Adani Enterprises started as a commodity trading business in 1988, specializing in agricultural goods and textiles. By the early 1990s, the company broadened its scope to include the import and export of both raw materials and finished products.

Then in the late 1990s, the company embarked on diversifying across various sectors, such as infrastructure, logistics and energy. A pivotal milestone was the establishment of Mundra Port in 1998, marking India's inaugural private port venture.

Subsequently, the group extended its reach to encompass airport development, road infrastructure, and power generation.

Since 2000, the group emerged as a prominent figure in India's renewable energy landscape, with a strategic emphasis on solar and wind energy initiatives.

Adani Enterprises Portfolio - 2023

But off late, it has nurtured a far more diverse portfolio, strategically investing in sectors poised for explosive growth in the coming decade. Be it green hydrogen in an era where the world is pursuing cleaner energy sources or data centres as rapid digital transformation looms large on the horizon.

Moreover, this blend of the traditional and new isn't merely following trends. It has been strategically venturing into a complementary set of businesses that seamlessly integrate into Adani's overall business landscape.

A Conglomerate that Delivers - A Proven Track Record

The company has a proven track record of not only fostering new business interests but also nurturing them into significant and self-sustaining entities. The enterprise has successfully spun them off into independently listed and expandable units.

So far it has successfully incubated and listed six highly successful companies, including Adani Ports and Special Economic Zone Limited, Adani Power Limited, Adani Transmission Limited, Adani Green Energy Limited, Adani Total Gas Limited and Adani Wilmar Limited.

Presently, the new-age businesses continue to show promise, with sectors like green hydrogen, airports, data centres, and roads poised for rapid expansion in the future.

Recently, the company announced plans for five IPOs. Adani Group's Chief Financial Officer, Jugeshinder Singh, disclosed that five of its subsidiaries are scheduled to debut in the market between 2026 and 2028.

These include Adani New Industries, Adani Airport Holdings, AdaniConneX, Adani Group's Metal and Mining units and Adani Road Transport.

Read on to know more about these companies.

#1 Adani New Industries - Green hydrogen

There is a growing consensus that green hydrogen could be the fuel of the future. It has emerged as one of the strongest candidates for helping decarbonize sectors less dependent on electricity, taking us a step closer to carbon neutrality.

India is planning a massive expansion in the green hydrogen space, aiming to eventually become a large exporter and is already in talks with the governments of other countries to export green hydrogen.

The demand for green hydrogen for applications such as refineries, fertilizers, and city gas is to extend up to 2 million (m) metric tonnes per annum by 2030. This is in line with the nation's green hydrogen mission.

While green hydrogen is still in the nascent stages, but it is quickly turning into an investing megatrend, offering a fantastic opportunity for several existing businesses to capitalize on the growth.

Adani Enterprises is one of the latest entrants in the green hydrogen space but is making strong headway.

With its subsidiary, Adani New Industries plans to invest US$ 70 billion (bn) (Rs 5.8 trillion (tn)) across the entire green energy value chain, from electrolyser manufacturing to AI-based utility and industrial cloud platforms, building the world's largest green hydrogen ecosystem in India.

This massive investment will help Adani become a green hydrogen giant, putting India on the map as the cheapest producer of hydrogen.

#2 Airports - Adani Airport Holdings

India is projected to become the world's third-largest air passenger market by 2030, surpassing China and the United States, as per the International Air Transport Association (IATA).

The aviation market, estimated at US$ 13.54 bn in 2024, is projected to reach US$ 23.24 bn by 2029, implying a compounded annual growth rate (CAGR) of 11.41% during 2024-2029.

The bulk of the growth of Indian aviation has been among homegrown airlines, which have clocked a 36% increase in passengers since 2022.

Foreign tourist arrivals have been rebounding since the pandemic but is still relatively scarce, barely topping 10 million in a good year (about the same as Romania). So low-cost carriers are adding new countries to their destinations to accommodate India's demand for foreign tourism.

No nation in the world is buying as many aeroplanes as India, with its largest airlines having ordered nearly 1,000 jets this year, committing tens of billions of dollars to a spending spree that is unparalleled in aviation.

The growth in passenger traffic has led to the enhanced requirement for large service-driven airports, transforming them from mere connectivity hubs to urban development (metropolis) nodes.

Adani Enterprises has an integrated airport network comprising seven operational brownfields and one under-construction greenfield airport. With a portfolio of eight airports, Adani Airports oversees 23%+ passenger traffic in India.

In fiscal 2023, the company achieved pre-Covid level performance. Passenger movement reached 74.8 m during the year across seven operational airports. The construction of its greenfield airport in Navi Mumbai remained ahead of schedule.

Looking ahead, Adani Airport Holdings looks to serve 300+ m consumers through airport infrastructure.

So far in the first nine months of the fiscal 2024, the company has handled 65 m passengers (up 23% YoY), added 19 new routes 9 new airlines 5 new flights Navi Mumbai project is on schedule.

#3 Data Centres - AdaniConneX

Data centres house the technological infrastructure that stores, processes and manages colossal amounts of data. As technological innovation continues to unravel, the demand for data centres will follow suit.

A report published in June 2023 by Colliers, a commercial real estate company, pegs India's data centre inventory to double to 20 million square feet by 2025 from the current 10.3 million square feet, led by increased adoption of smart devices, e-commerce and cloud services.

So far, 2023 has witnessed landmark investments and pre-commitments from global hyper-scalers. Indian business houses, including the Adani Group, are also making substantial strides in the sector. Presently, Adani Enterprises operates a single data centre, with a total of 17MW in capacity. Flipkart has already decided to set up its third data centre at Adani's Chennai facility.

The company has 5 more under construction and aims to establish a total of 1GW data centre platforms within the next decade.

#4 Roads - Adani Road Transport

India boasts the world's second-largest road network, covering 6.3 m kilometres. This extensive network handles 64.5% of the nation's goods transportation and serves as the primary mode for 90% of passenger traffic.

The government has upgraded over 35,000 kilometres of highways to four lanes or more since 2023 and has allocated Rs 116 tn under the National Infrastructure Pipeline for fiscal 2025.

The roads sector alone is likely to account for 18% of capital expenditure over fiscal 2025. Private investments in the highway sector would also rise from around Rs 200 bn a year now to nearly Rs. 1 tn in the next 6-7 years.

New construction in tandem with regular maintenance and repairs is vital for ensuring the long-term durability of India's road infrastructure. This offers companies a great opportunity and Adani Group, recognizing the significance of this sector, strives to be at the forefront.

The company provides transport and utility infrastructure construction services. It mainly focuses on large-scale infrastructure development.

It is currently building national highways, expressways, tunnels, metro-rail, and railways.

Adani's road construction portfolio grew by 273% sequentially but fell 6% in the nine months ending fiscal 2024. The company successfully completed multiple projects and secured the 464 km Ganga Expressway Project in Uttar Pradesh.

The scale of this project validates Adani Road Transport's ability to win large contracts. The project win graduates it to the high table within the sector and should translate into attractive returns given related economies.

#5 Adani Group's Metal and Mining units

As a significant contributor to India's economic growth, the Adani Group is aggressively expanding its presence in the minerals and metals sector. It has already entered the copper market through its Kutch Copper unit, generating 4-5% of the group's revenue.

With plans to invest Rs 575.8 bn in Odisha for an alumina refinery, the group aims to further strengthen its position. It aims to finance ventures in aluminium, copper, and mining services, facilitated by its metals and mining units.

Additionally, the group intends to establish an iron ore project with a capacity of 30 m tons per annum (MTPA) as part of its iron ore value addition initiative.Bottom of Form

Decoding the Growth & Debt Equation

The company reports its revenues and operating profit under two primary segments - new and incubating.

The incubating business comprises the energy & utility and the transport and logistics sectors such as data centres, renewable energy (including green hydrogen), roads and airports. The established business comprises primary industries such as the IRM, Commercial Mining, and mining services.

Adani Enterprises - Financial Snapshot ((9M FY2023-24)

	9MFY24	9MFY23	YoY%
Revenue (Rs m)	7,77,300	10,64,590	-27.00%
Established business	6,06,630	9,75,860	-37.80%
% of total revenues	78.00%	91.70%
Incubating business	1,70,670	88,730	92.30%
% of total revenues	22.00%	8.30%

Source: Investor Presentation

Adani Enterprises - Financial Snapshot (9M FY2023-24)

	9MFY24	9MFY23	YoY%
Operating Profit (Rs m)	11,46,530	6,95,360	58.10%
Established business	9,75,860	6,06,630	33.00%
% of total revenues	85.10%	87.20%
Incubating business	1,70,670	88,730	104.80%
% of total revenues	14.90%	12.80%

Source: Investor Presentation

While the total revenues are down by 27%, the operating profit is up 58%.

Notably, in the nine months ending fiscal 2024, the incubating business growth surpassed that of the established businesses. A large part of the growth in the incubating businesses came from the renewable energy, data centre, airports & roads business.

Whereas, the established business suffered on the back low volume & correction in coal prices, explaining the drop in sales.

While the calendar year 2023 brought forth a narrative of volatility, uncertainty, and resilience with Adani group stocks, led by the Hindenburg report, it seems like all that is behind it now.

The green signal from the Supreme Court, exonerating Adani of any manipulation, boosted investor confidence and enabled the company to access funding from private banks and sovereign funds.

And now, according to market reports, the company plans to raise funds externally to fund its expansion as Adani's leveraged balance sheet could be the only roadblock to its ambitious plans.

Over the years, the conglomerate's constant expansion has led to increased borrowings. As on first half of fiscal 2024, the debt-to-equity ratio stood at 0.62x. The interest coverage ratio and net debt to Earnings Before Interest, Taxes, Depreciation, and Amortization (EBIDTA) was also relatively low at 2.95x and 2.7x.

According to the fund raising plan, the conglomerate plans to fund a fifth of the US$70 bn investment will come from internal accruals and balance from a prudent mix of foreign direct investments, loans and bonds.

The company aims to raise funds through a public offering, preferential allotment, including a qualified institutions placement (QIP), or other eligible securities issuance, with reports suggesting a share offering valued at least $1.8 billion.

In conclusion

Adani Enterprises paints a compelling picture of a diversified conglomerate strategically positioned for future growth.

Its foray into green hydrogen, airports, data centres, and roads aligns with India's booming infrastructure and digital transformation needs. While financial health remains a concern, the company's proven track record and recent exoneration from legal hurdles inspire confidence.

However, investors must carefully assess the debt burden and potential risks before making investment decisions.

Adani's ambitious expansion plans hinge on successful execution and navigating a competitive landscape. Nonetheless, the company's strategic direction positions it to capitalize on megatrends and potentially become a key player in shaping India's future infrastructure and digital landscape.

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