BT500: Adani Group Firms Scale New Heights

Billionaire Gautam Adani-led Adani Group has created enormous wealth for investors amid the ongoing rally in the domestic equity market. Since the last (2020) edition of the BT500, the cumulative 12-month average market capitalisation (mcap) of the group has soared to over Rs 6.11 lakh crore as of September 30, 2021, from Rs 1.93 lakh crore on the same day in 2020. Out of the six listed entities, five have more than doubled investors’ wealth during the same period.

Except for a brief period in July when there was confusion about the concentrated ‘overseas investor’ shareholding, which seemed to have been blocked by the National Securities Depository Limited (NSDL) for some time, nothing seems to have gone wrong for the group.

Market veteran Ambareesh Baliga told Business Today that the group seems to be unstoppable now. “In recent years, they have been able to get into any sector they have set their sights on, be it airports, city gas distribution, power transmission and distribution, defence or aerospace. It didn’t matter whether the group had prior experience or not. Today, they have built a business empire that puts them in the category of ‘too big to fail’.”

Improved rankings

With the outperformance, the port-to-energy group has witnessed significant improvement in its rankings in terms of mcap. The shares of Adani Total Gas, for instance, surged 650 per cent to Rs 1,419.20 on September 30, 2021, from Rs 189.20 on September 30, 2020. The massive rally helped improve the rank of the company by 110 places in terms of mcap to the 47th position in the BT500 list. The 12-month average mcap of Adani Total Gas spiked to Rs 88,087 crore from Rs 16,118 crore. It posted 17.67 per cent year-on-year growth in net profit at Rs 158.12 crore for the quarter ended September 30. Total income increased by 56 per cent y-o-y to Rs 701.83 crore.

While sharing his views on the quarterly performance, Suresh P. Manglani, CEO, Adani Total Gas, said that despite significant volatility in international gas prices and Covid-19-related challenges in rolling out infrastructure development, the company yet again delivered an all-round excellent performance for Q2 FY22, albeit lesser than previous quarters. It has also delivered the highest ever Ebitda of Rs 246 crore in Q2, Manglani said in a regulatory filing.

Next on the list is Adani Transmission. Shares of the company soared 541 per cent to Rs 1,552.35 during the same period. The average market value of the company jumped to Rs 95,680 crore from Rs 28,250 crore. The rally took the company higher by 58 spots to the 41st position.

In a recent development, the company raised $700 million (around Rs 5,243 crore) for its under-construction transmission asset portfolio through definitive agreements signed with leading international banks. The revolving facility will finance Adani Transmission’s four transmission projects in Gujarat and Maharashtra.

Commenting on the Adani group of companies, Rajesh Agarwal, head of research, AUM Capital, pins the stock rally down to robust liquidity in the market, low floating stock, aggressive organic and inorganic growth plans, sound project execution capabilities, and the ability to raise funds. And, “not to forget the presence across infrastructure and energy sectors that have been the fancy of the market in recent times”.

Among other companies, Adani Enterprises, Adani Power, Adani Ports and Special Economic Zone (APSEZ) and Adani Green Energy saw their share prices surge 395 per cent to Rs 1,467; 164 per cent to Rs 97; 116 per cent to Rs 737; and 55 per cent to Rs 1,147, respectively, in the same period.

APSEZ is India’s largest commercial port operator with a 25 per cent share of the country’s port cargo movement. The company has evolved from a single port dealing in a single commodity to an integrated logistics platform. Around 70 per cent of APSEZ’s revenues are contributed by its port operations, the rest comes from harbour (11 per cent), logistics (7 per cent) and other activities.

In a late-October report, ICICI Securities said that APSEZ, with its strong free cash flow generating assets, diversified cargo mix and overall leadership in Indian ports, continues to build its strength in other verticals such as rail logistics and warehousing, thereby building a complete integrated logistics solution for Exim and domestic customers. “We remain positive on the long-term growth prospects of the stock and maintained ‘Buy’ recommendation,” ICICI Securities said.

Adani Enterprises stood at the 33rd position in terms of mcap in this year’s BT500 compared with the 120th position last year. Likewise, Adani Green Energy and APSEZ were at the 23rd and 29th positions as against last year’s 68th and 39th positions, respectively. Adani Power also jumped eight slots to the 136th position.

The 12-month average mcap of Adani Enterprises jumped to Rs 1.07 lakh crore from Rs 21,270 crore during the past one year. Similarly, the market valuation of Adani Green Energy also jumped to Rs 1.64 lakh crore from Rs 39,529 crore.

On October 27, Adani Enterprises posted a 55.3 per cent fall in consolidated profit at Rs 194.54 crore for the quarter ended September, marred by higher expenses. Gautam Adani, Chairman, Adani Group, in a regulatory filing said, “Adani Enterprises’ existing businesses are stronger than they have ever been—and, this year, we have launched several new businesses critical to a strong Atmanirbhar Bharat. These include a digital consumer aggregation platform, networked airport ecosystems, green data centres, and advanced road, metro and water infrastructure. I see an exciting journey ahead.”

However, Agarwal of AUM Capital says: “Even with the presence of the group across varied sectors and the growth opportunity being immense, one needs to be cautious at the moment before committing fresh investments on two major counts—overstretched valuations and high debt.” He further added that there might be some upside in Adani Enterprises in the short run on the back of the forthcoming Rs 4,500-crore Adani Wilmar IPO, which is a strong player in the edible oil market with its popular brand Fortune.

Shareholding dynamics

Interestingly, actively managed mutual funds seem underweight on Adani Group companies. The latest shareholding data showed that they had 1.64 per cent stake in Adani Enterprises, while their holdings in Adani Transmission, Adani Total Gas and Adani Green Energy stood between just 0.02 per cent and 0.13 per cent. Their stake in Adani Power was almost nil as of September 30. However, their stake in Adani Ports was 4.97 per cent.

Some of the mutual funds with their exposure in APSEZ hold the company’s shares in index funds, where they have to replicate an index without any managerial discretion. Promoters held between 60 per cent and 75 per cent stake in Adani group companies. Baliga, who advised investors to avoid Adani group stocks after the recent run-up, says, “The group has built huge assets, which meant large capex, and the group’s growth strategy would ensure that it continues to be a cash guzzler in the foreseeable future. I believe free cash flows will take a long time.”

@iamrahuloberoi