Infra-focussed growth

The Adani Group, a renowned name in Infrastructure and related area, is an Indian business conglomerate with a worldwide presence in areas like Power, Infrastructure, Logistics, Global Trading, Port & Special Economic Zone, Energy, Oil and Gas, Mining, FMCG products, Agribusiness, Bunkering, Real Estate Development, and others. Its flagship company is Adani Enterprises, which has had a long journey since its listing in 1994, when it entered into agriculture business in 2001 and mining in 2006.

Previously called as Adani Exports Ltd., the corporation registered revenue of Rs. 260 billion in the last financial year. Towards early 2010, the company changed its focus from Trading to Infrastructure. Now consider the high growth businesses it operates in:

• Ports (Adani Ports & SEZ, formerly Mundra)

o   Providers of port based end-to-end logistics services for diversified Cargos and vessels, including dry, liquid, bulk and container cargo.

o   Developers of port based SEZ by providing infrastructure for industrial commercial and residential purposes

• Power (Adani Power) - Involved in power generation, trading, transmission. In July ’11, the company became the largest pvt thermal power producer  in India, with the commissioning of the second supercritical unit of 660 megawatt (Mw) at its Mundra (Kutch) plant.

• Mining (Coal, Iron ore being the major ones) - The Company is currently operating one coal mine in Indonesia and two others in India will start production from FY11 and FY12 respectively

• Residential properties in major cities like Mumbai, Ahemdabad, Mundra etc.

• Active players in the Oil & Gas exploration both onshore and offshore in India and abroad.

The first 2 businesses are in the form of listed companies where it has a significant stake (70% in Adani Power and 55% in Adani Ports & SEZ). It has recently stated its intention to exit from the residential properties business.

In the middle of last year, around July ‘11, Karnataka’s Lokayukta, Santosh Hegde, indicted Adani Enterprises by stating that they shipped out iron ore beyond permitted limits, as much as 7.7 MT of illegal export of iron ore. It was one of the four port service providers to whom the government had leased out certain areas at Belekeri‘s fair weather port in the South of Karwar in Dakshin Kannada district. The Lokayukta charged the company for forging permits to transport illegal iron ore. That day the stock tumbled more than 20% from nearly 740 to 586. Even today, it is yet to recover from that pasting and is down nearly 44%, in early 400s. This seems unwarranted as the company’s business/revenue model remains unscathed. Some of the factors that lead to this belief are:

Ø  A predicted high growth rate of the Indian economy in the coming years, in turn leading to a higher demand for coal, will have a substantial positive impact on company’s presence in this segment.

Ø  AEL also bought the Australia-based Linc Energy's coal assets for about Rs 12,600 crore in

a cash and royalty deal. This ensures a stable supply of coal for its future power generation

plans.

Ø  Adani Power’s future plans for getting more power on stream in the coming years, which seems to be on track

Ø  APSEZ last year acquired Abbot Point Coal Terminal in Australia for a 99-year lease, thus securing handling of coal cargos from Adani's own mines as well as from other parties. This will create ample opportunity for business going forward.

Ø  Government’s recent initiatives to ensure infrastructure boost thru various mechanisms directly and indirectly.

As per an article in ET on 24-Feb-12, Adani group manages assets worth $7 billion in annual revenues. The scrappy entrepreneurial group from Gujarat, has a history of run-ins with the regulators, law-enforcement authorities and environmentalists, but has hired Wolff Olins, a marquee international brand consultancy firm, that has helped burnish the image of staid industrial stalwarts such as the Tatas and the Munjals, for an image make-over. How it changes the public perception of Adanis, only time will tell.

All in all, Adani Enterprises looks all set to generate returns from the assets it has acquired over the last few years, and become a diversified Infrastructure conglomerate in times to come. It has recently indicated its intention to bid for BG Group Plc's 65% stake in Gujarat Gas for gas distribution.

In 2010, the company gave a bonus of 1:1, followed by a rights issue in 2011. In spite of all this, its share capital is just around 50 crores. The more than 40% plunge in Adani Enterprises (AEL) stock over the lst few months seems unwarranted. With a 52 wk H/L for the company @261/766, at the beaten down current price of 385, it surely has a long way to go.