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5 Growth Sectors the Adani Group is Investing in

Jun 3, 2022

5 Growth Sectors the Adani Group is Investing in

The Adani Group has been forging ahead, cinching around 8-10 deals in the past year. Growing organically and inorganically, the group has been investing in a array of new sectors.

Run by a first-generation entrepreneur whose net worth is more than US$ 107 bn, Gautam Adani has rapidly diversified into new areas like data centres, digital services, defence, and healthcare.

But what's interesting is that most of these sectors are well-placed to grow briskly.

The government's renewed focus on self-sufficiency in certain areas, combined with the dire need for the adoption of cleaner environmental practices, can propel growth in these sectors.

So with that in mind, we track some of the key sectors the Adani Group is tapping into and analyse their growth prospects.

#1 Renewable Energy

First on the list is the renewable energy sector.

76% of the total power generated in India comes from the use of coal i.e. thermal-based energy. But coal-based energy is dirty energy.

It releases high levels of carbon dioxide and generates the second-largest share of greenhouse gas emissions.

The government plans to ramp up the production of clean energy generation via renewable sources such as solar energy, hydro, wind energy, wind, waste heat recovery, etc.

Therefore, capacity addition from clean energy sources is likely to outstrip conventional sources.

Clean energy capacity has grown steeply from 76.4 GW in March 2014 to 151.4 GW in December 2021. The government has ambitious plans to expand it further to 500 GW by 2030.

Bearing this in mind, companies with coal-based power plants have pivoted their businesses to focus on generating power via cleaner energy sources. And so, Adani has also ventured into power generation via renewable (cleaner) sources.

Via its subsidiary, Adani Green Energy ltd, the Adani group has created the largest renewable company in India, with a current project portfolio of 20 GW.

With a portfolio of 54 operational projects and 12 projects under construction, the company is present across 12 Indian states.

There is no doubt that the power demand is likely to grow sustainably. Driven by rapid urbanisation and infrastructure development, a growing economy like India will always have an high demand for power.

#2 Defence

Next on our list is the defence sector.

India is the third-largest military spender after USA and China, with defence expenditure constituting 2.9% of the country's GDP.

India has been a net importer of defence equipment. However, it has renewed its focus on reducing its dependency on defence imports.

With earnest initiatives like 'Make in India' and 'Atmanirbhar Bharat', the Government not only wants to become self-reliant but also export with the help of Public-Private Partnerships (PPP).

The aim is to achieve a turnover of US$ 25 bn in defence manufacturing and services by developing a robust defence ecosystem with the help of accommodative policies.

The Defence Production & Export Promotion Policy (DPEPP) 2020, broadly defines some key goals:

  • Developing a competitive defence segment catering to different countries.
  • Encouraging and promoting in-house design and development firms.
  • Boosting and supporting research and development and IP ownership programs.

This transition is driven by incessant concerns over the country's national security. Moreover, there is a steep rise in military spending world-over in the past decade. These aspects have compelled the Government of India to undertake these steps, implying the sector is well-poised to grow briskly.

The flagship company Adani Enterprises leads Adani Group's foray into the defence sector.

To enhance India's defence and industrial capabilities, it works with global OEMs and Indian MSMEs to manufacture fighter jets, unmanned aerial systems or drones, helicopters, submarines, air defence guns, missiles, and small arms.

Recently, the company entered the booming drone sector, via a strategic investment in the drone startup General Aeronautics.

This foray can become a powerful driver for the exploding Indian drone market as there are only a handful of listed companies in the drone business.

#3 Green Hydrogen

Third, on our list is green hydrogen.

Green hydrogen, a clean and highly effective substitute for fossil fuels, will dramatically reduce emissions from industries such as steelmaking, refining, and chemical production.

A vital component in India's quantum leap to meet its carbon emission targets, green hydrogen will help decarbonise the industrial sector. Renewable energy and electrification of vehicles will work on decarbonising the power and the mobility sector, respectively.

To become energy self-sufficient, Prime Minister Modi announced India's National Hydrogen Mission as part of his Independence Day speech on 15 Aug 2021.

And within six months, the government took its first steps by launching India's Green Hydrogen Policy. This ambitious plan puts India on the fast track to achieving 450 GW of renewables by 2030.

The government will establish a single portal for all statutory clearances required for the manufacture, transport, storage & distribution of green hydrogen.

Apart from this, they have also announced various time-bound incentives.

With accommodative and earnest policies from the government, combined with the possibility the sector can replace India's fossil fuel use, this sector is all set to grow fast.

Along with industry giants such as NTPC, L&T, and Reliance, the Adani Group is also lured by the exploding green hydrogen ecosystem.

To intensify India's emission reduction goal, the Adani Group set up Adani Green Energy. Given the group's capabilities in large-scale renewables infrastructure, it is well-positioned to become one of the largest producers of green hydrogen globally.

#4 Diagnostics

Fourth on the list is the diagnostics sector.

The total healthcare expenditure in India accounts for a meagre 3.6% of gross domestic products (GDP), much lower compared to developed and developing nations like the US (16.9%), Germany (11.25%), China (5%), and Russia (5.3%).

The level of disparity highlights the scope of growth the healthcare sector carries. Also, the Covid-19 crisis has accelerated investor interest in the healthcare sector from a long-term perspective.

With business houses like Tata Digital and Reliance investing in tech healthcare startups, Adani is not far behind.

Adani Enterprises has created a new company, Adani Health Ventures (AHVL) for its foray into healthcare services via acquisitions of hospitals, diagnostic chains, and pharmacies.

However, unlike its peers, the company is betting on diagnostic centres.

The domestic diagnostic industry is estimated at US$ 9 bn in 2021. While the industry should grow at a 5-Yr CAGR of about 10%, the listed players in the space should grow by 15%.

This growth will largely be propelled by an increase in healthcare spending by an aging population, rising income levels, higher awareness for preventive testing, advancing healthcare diagnostic offerings, and various policy initiatives by the government.

Despite its small size, the Indian diagnostic market is among the fastest-growing segments in the healthcare market.

The low penetration of quality healthcare and diagnostic centres along with a high share of unorganised players can pave the way for exponential growth for existing organised players and new entrants like Adani.

#5 Data Centres

Last on the list is data centres.

As India's internet economy continues to grow rampantly, there is an increasing need to build data centres to ensure seamless data consumption and storage.

The Indian data centre market is currently valued at US$ 4.4 bn and is expected to cross US$ 10.1 bn by 2027, growing at a CAGR of 15.1% during the same period.

This spurt in growth is expected to be driven by the government's 'Digital India' initiative. By attracting investments in the technology sector, this initiative will propel the transition toward digitalisation while also increasing cloud adoption.

It will also stimulate new technologies such as 5G and IoT, making the data centre market a top contender for the fastest growing industries in the country.

Some of the major investors in the market include big players like Bharti Airtel, AWS, Colt Data Centre Services, ST Telemedia Global Data Centres India, and Yotta Infrastructure, among others.

But the latest entrant is the Adani Group.

In February 2022, the group announced their new venture, AdaniConnex Private Ltd. A joint venture of Adani Enterprises with EdgeConnex Europe BV.

The new subsidiary will develop, operate, maintain, data centres, information technology, and cloud providing services.

Riding the digital wave, it will focus on building an extensive network of hyper-scale data centres, starting with major cities in the country.

In conclusion

We don't know whether the Adani Group will be able to thrive or benefit from chasing these new growth sectors. But we are confident there is a new wave of investment on the cards.

Business houses across the globe are un-tethering from conventional sectors, gearing their investment towards non-conventional ones like data centres, green hydrogen, renewable energy etc.

With the increased government focus and regulatory reforms, these sectors exhibit immense growth potential and deserve a place in your investment portfolio.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...

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