ADANI’S GROWTH STORY – A FALLACY OR AN INSPIRATION FOR THE COMMON MAN?
Is Adani the next in line to the Tata’s, Birla’s, and their likes?
The pandemic might have been a curse for many, but the Adani Group seems to have reached its new all time high with a $100 billion market capitalization for its 6 listed companies, also taking its founder, Mr. Gautam Adani, to become the 2nd richest man in India. But the prevalence of a relationship between the group’s agenda of nation-building and meager politics has always been in the dark hole.
Gautam Adani was never born with a silver spoon. His parents were migrants in the city if Ahmedabad (the headquarters of the Adani Group today) and had to cater to 8 children. After finishing with school, he started studying for a Bachelor’s in Commerce degree but soon dropped out to pursue his passion and put his business acumen to use. After shifting to Mumbai alone and working as a diamond sorter at Mahindra Brothers to gain business experience, he eventually started his own diamond brokerage firm.
Envisioning the bigger picture seems to be one of Gautam Adani’s superior qualities. In 1981, upon a request from his elder brother to return to Ahmedabad and manage operations of his plastic unit, Gautam Adani took up the opportunity which eventually became his gateway to import-export not only polyvinyl chloride (an essential raw material) but also other commodities such as power, chemicals, and agriculture. This led to the culmination of Adani Enterprises Ltd. in 1988.
The national policies have been a tailwind to Adani’s growth ever since. The 1991 LPG (Liberalization, Privatization and Globalization) policies where the perfect match to his import-export business. Further, in 1995, the Mundra Port’s (today India’s largest private port) managerial operations contract was awarded by the Government of Gujarat to Adani. This port was eventually transferred to Adani Ports and SEZ Ltd. which got listed in 2007. This vertical integration into the ports management industry was an outcome of the congestion faced by Adani Enterprises ships back then.
Next, he saw an opportunity in the power sector and purchased coal mines. In 1996, Adani Power Ltd, the largest private thermal power producer of the country, came into existence. But as Gautam Adani’s aspirations grew and in 2009, he tried to suffice India’s thermal power production by importing coal from mines in Australia. This was met with the #stopadani protest and became a big issue considering the previous failures of compliance and correcting environmental damage in India (Adani coal ship sink off the coast of Mumbai). This issue is still in a hold up due to protests from local communities and international organizations and has a definite impact on the company.
Gautam Adani has found himself in such dreadful situations otherwise as well. He was kidnapped for ransom in 1998 and was in the Taj Hotel during the 2008 Mumbai terror attacks. He has been known for his patience and selfless attitude in these situations. But he is not a person who stuck by impediments that came his way. His BPO as well as Adani Retail businesses did not work out and the Group had to move out of it.
He went ahead to form Adani Gas Ltd, Adani Transmission Ltd and Adani Green Energy Ltd. The Adani group business is diversified into Energy, Ports & Logistics, Mining & Resources, Gas, Defence & Aerospace and Airports. This seems like a great diversification strategy which though built on piles of debt, still has the potential to grow considering the ‘alignment of the Adani Group to nation-building’. Their recent entrance in the airport sector, real estate and township creation and now moving to the data centre creation (Flipkart will be building a data centre at Adaniconnex), the Adani Group has a strong correlation to national policies.
An observation can be made of Gautam Adani’s plans getting a boost from Prime Minister Narendra Modi. All industries outlined for meeting India’s economic goal as under Adani’s leadership – infrastructure, mining, ports, power plants, airports and now with new policies, data mining and defense. The way he won 7 airport contracts in less than 2 years, without having industry experience is a red flag. His jabs with the defense industry are ones too look out for after Modi has called businesses to cut reliance on expensive imports.
Yet, Adani is on a capital raising spree to support these nation-building activities while he has the support. On its profitability levels, the Adani Group is not very impressive, but its Debt levels are astounding. Their outstanding debt is over $30 billion. In a 2015 report, Credit Suisse had warned that the Adani Group was one of 10 conglomerates under "severe stress" that accounted for 12 per cent of banking sector loans. Yet the Adani Group has been able to keep raising funds, in part by borrowing from overseas lenders and pivoting to green energy.
Considering the national and international pressure to cut coal usage and difficulty in raising funds for coal miners, he has yet again picked up the governments ‘Make in India’ and pro solar energy campaigns and won the world's largest solar bid by the Solar Energy Corporation of India (SECI) worth $6 billion for Adani Green – a company with a debt to equity of more than 5.
The way the Group can today take up any business, turn down any negative publicity, raise huge loads from banks while already being in huge debt and bag big contracts from the government – all while not having the best financials – explains the powerfulness, political connections and the astute of using that power that Gautam Adani has. But coming back to where Gautam Adani started from – a lower middle class, not a graduate, young man finding his way to the 2nd richest man in India. There still is much inspiration there to go from a commoner to the richest.
Let us know what do you think about this story and where it is headed and are Adani stocks in your portfolio picks?