Gautam Adani, the Chairperson of Adani Group, delivers a speech at the Vibrant Gujarat Global Summit in Gandhinagar, Gujarat, India on January 10, 2024. (Source: REUTERS)
Adani’s Continued Blessings: Gautam Adani is set to make a significant impact on India’s stock market once again. His proven strategy involves leveraging his flagship company to nurture and expand new ventures. Despite facing challenges, including a crisis sparked by a short attack, Adani Enterprises (ADEL.NS), valued at $44 billion, is demonstrating robust performance and warrants close attention.
Recent earnings reports indicate a remarkable surge in net profit for the company, more than doubling compared to the same period last year. Under the leadership of Asia’s wealthiest individual, Adani Enterprises has established a commendable track record as a platform for launching new businesses. Over the past 16 years, it has successfully incubated six ventures in the power and infrastructure sectors, all of which are now independently listed entities.
Collectively, these spinoffs now hold a combined market value of $125 billion. Remarkably, all of them, except for edible-oils maker Adani Wilmar (ADAW.NS), have outpaced the MSCI India Index (.dMIIN00000PUS) since their individual listings. One standout performer is Adani Green Energy (ADNA.NS), a company engaged in owning and operating utility-scale wind and solar projects. Its total returns have surged by over 5800%, in stark contrast to the broader benchmark’s 121% growth.
It’s a strategic approach. Revenue generated from Adani Enterprises’ “core industries” in environmentally impactful sectors like coal trading, mining, and related services, is being reinvested into crucial sectors such as green hydrogen, airports, roads, and data centers.
Investors are showing a willingness to assign higher valuation multiples to these latter sectors. Adani Enterprises currently trades at a forward price-to-earnings multiple of 50 times over a 12-month period, in contrast to Coal India’s (COAL.NS) multiple of 10, according to LSEG data. This strategy also enables the company to expand without resorting to excessive borrowing. As of the trailing 12 months ending in September, the net debt remains conservative at 2 times EBITDA.
The pace of transformation is accelerating. In the nine months leading up to December, newer ventures like airports, roads, and green energy accounted for 45% of consolidated EBITDA, up from 35% the previous year. These businesses also boast a margin of 25% on their earnings, compared to around 9% for established ventures.
As a result, Adani Enterprises is rapidly approaching the point where it will launch its next wave of significant initial public offerings (IPOs). According to Adani Group Chief Financial Officer Jugeshinder Singh, all upcoming ventures are expected to be prepared for flotation between 2026 and 2029. This anticipation of future growth has facilitated a near-complete recovery in stock price since Hindenburg Research’s short attack on the broader group one year ago, which wiped out approximately $150 billion of market value.
According to Cantor Fitzgerald’s sum-of-the-parts analysis, the combined equity value of Adani Enterprises’ roads, airports, data center, and solar manufacturing units exceeds $70 billion. This estimation excludes the emerging green hydrogen venture. Such a valuation represents a 60% premium over the company’s current market capitalization, suggesting a significant conglomerate discount and substantial potential for value realization.
This strategy mirrors the approach taken by tycoon Mukesh Ambani, whose $240 billion Reliance Industries (RELI.NS) leverages its core oil-to-chemicals business to propel the growth of its retail and telecom units. These segments accounted for 44% of Reliance’s consolidated EBITDA in the financial year ending March 2023, a notable increase from approximately one quarter in 2019. Ambani has committed to listing these consumer-facing businesses, although the total count of publicly listed entities will remain significantly fewer than Adani’s current nine.
In the past year, Adani has refrained from public stock offerings and instead opted to sell equity in his group companies to institutional investors such as Florida-based GQG Partners and Abu Dhabi conglomerate International Holding Company (IHC.AD). However, he is expected to engage small investors in the future, thereby shaping India’s $4 trillion equity capital market for years to come.
News in Context
On February 1st, Adani Enterprises, an Indian company, announced a significant increase in its third-quarter net profit, more than doubling from the previous year. This surge was attributed to robust performances in its coal trading and new energy divisions.
For the quarter ending in December, the company reported a consolidated net profit of 18.9 billion rupees ($227 million), compared to 8.2 billion rupees in the same period last year. Additionally, revenue from operations saw a growth of 6.5%, reaching 283 billion rupees.
It’s a strategic approach. Revenue generated from Adani Enterprises’ “core industries” in environmentally impactful sectors like coal trading, mining, and related services, is being reinvested into crucial sectors such as green hydrogen, airports, roads, and data centers.
Investors are showing a willingness to assign higher valuation multiples to these latter sectors. Adani Enterprises currently trades at a forward price-to-earnings multiple of 50 times over a 12-month period, in contrast to Coal India’s (COAL.NS) multiple of 10, according to LSEG data. This strategy also enables the company to expand without resorting to excessive borrowing. As of the trailing 12 months ending in September, the net debt remains conservative at 2 times EBITDA.
The pace of transformation is accelerating. In the nine months leading up to December, newer ventures like airports, roads, and green energy accounted for 45% of consolidated EBITDA, up from 35% the previous year. These businesses also boast a margin of 25% on their earnings, compared to around 9% for established ventures.
As a result, Adani Enterprises is rapidly approaching the point where it will launch its next wave of significant initial public offerings (IPOs). According to Adani Group Chief Financial Officer Jugeshinder Singh, all upcoming ventures are expected to be prepared for flotation between 2026 and 2029. This anticipation of future growth has facilitated a near-complete recovery in stock price since Hindenburg Research’s short attack on the broader group one year ago, which wiped out approximately $150 billion of market value.
According to Cantor Fitzgerald’s sum-of-the-parts analysis, the combined equity value of Adani Enterprises’ roads, airports, data center, and solar manufacturing units exceeds $70 billion. This estimation excludes the emerging green hydrogen venture. Such a valuation represents a 60% premium over the company’s current market capitalization, suggesting a significant conglomerate discount and substantial potential for value realization.
This strategy mirrors the approach taken by tycoon Mukesh Ambani, whose $240 billion Reliance Industries (RELI.NS) leverages its core oil-to-chemicals business to propel the growth of its retail and telecom units. These segments accounted for 44% of Reliance’s consolidated EBITDA in the financial year ending March 2023, a notable increase from approximately one quarter in 2019. Ambani has committed to listing these consumer-facing businesses, although the total count of publicly listed entities will remain significantly fewer than Adani’s current nine.
In the past year, Adani has refrained from public stock offerings and instead opted to sell equity in his group companies to institutional investors such as Florida-based GQG Partners and Abu Dhabi conglomerate International Holding Company (IHC.AD). However, he is expected to engage small investors in the future, thereby shaping India’s $4 trillion equity capital market for years to come.
News in Context
On February 1st, Adani Enterprises, an Indian company, announced a significant increase in its third-quarter net profit, more than doubling from the previous year. This surge was attributed to robust performances in its coal trading and new energy divisions.
For the quarter ending in December, the company reported a consolidated net profit of 18.9 billion rupees ($227 million), compared to 8.2 billion rupees in the same period last year. Additionally, revenue from operations saw a growth of 6.5%, reaching 283 billion rupees.