Gautam Adani puts in place plan to take Group valuation to $1 trillion

  • Given the size and scale of its portfolio, Adani Group aims for a group valuation of $1 trillion.
  • Adani Group will leverage its strengths and focus on its core verticals – mining, infrastructure and utilities. Companies that fit well into the group’s overarching superstructure become adjacent companies such as cement, copper and aluminum.
  • Adani Enterprises remains the incubator of the group that currently houses new companies. The Group plans to divest some of these new businesses, such as new energy, airports and roads, over the next 2-4 years.

The Adani Group’s market capitalization has been the subject of much debate lately, as its returns have taken many by surprise and the Gautam Adani to third place on the list of the world’s richest people. The value of the group’s listed entities has risen from $16 billion in 2015 to $240 billion in 2022, but billionaire Gautam Adani’s ambition is to bring the value of his group to $1 trillion. All elements of this strategy were implemented in 2015.

On October 10, Jugeshinder ‘Robbie’ Singh, the group’s chief financial officer, told a room full of wealthy individuals in New Delhi about an incident that outlined the group’s plan. He said: “Whatever you see today, it may seem like it’s happened in the last one or two years, but in reality what we’ve done – both GSA (Gautam Shantilal Adani) and myself – we discussed this in 2015. When the discussion took place, the group’s market cap in 2015 was approximately $16 billion. Given what we had as a set of companies, we felt that if we had assets and companies of that type, we would really be a $1 trillion group. So we went through the steps we had to take to get to the point.”

Jugeshinder ‘Robbie’ Singh, Chief Financial Officer, Adani GroupBI India

Since then, the Adani Group has started building its infrastructure and logistics portfolio in a way that it could grow into the top five in the world and not just India’s biggest player. To achieve this goal, Singh said they have taken steps to transform the way the group functioned at every level. “We came to the conclusion that many of the steps could be performed. When we came to the conclusion that we could (perform) these steps, we both knew at the stage that if we failed to achieve this, at least two people – Gautam Adani and I would know we have failed,” he added.

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Building brick by brick

While market experts have sometimes questioned the Group’s quest for cement, it is clear that the Group will leverage its strengths and focus on its core businesses: mining, infrastructure and utilities. And companies that fit well into the group’s overarching superstructure become adjacent companies.

As energy and logistics are the largest components of all metals and materials activities, the group has considered it appropriate to enter the copper, aluminum and cement activities. Strength remains at the heart of the Group’s future growth plans. And to this end, Adani Green is redefining the future of renewable energy. In 2020, Adani Green became the largest solar energy company in the world. Adani New Industries, currently part of Adani Enterprises, will focus on the Group’s foray into the new energy business.

Singh went on to explain to investors that for the first time in India’s history, a portfolio of a group that ranks among the top five in the world has emerged from a group of industry-wide. He said: “If you take the infrastructure portfolio of the Adani Group, the core is in the top 5 in the world. If you take Adani Green, Adani Ports, Adani Total, Adani Transmission and Adani Power are among the top five infrastructure portfolios in the world in total. It is the fastest growing portfolio. Our primary industry vertical materials, metals and mining is again next to our core infrastructure portfolio.”

It is therefore not surprising that Adani Ports and Special Economic Zones (APSEZ) was the first company to undergo a major transformation from a mere port operator to an integrated player in port services and logistics. According to Gautam Adani in his AGM speech, “Fiscal year 2021 was a year of transformation. No company has a port company with such size and reach.” The company added LNG and LPG activities to its portfolio. In total, Adani’s port company moves $100 billion in trade each year.

Why does it make sense for Adani to enter the materials business?

The Adani Group emerged earlier this year as a surprise bidder for Holcim’s cement business in India. While many think it was a foray into an unrelated company, the Group has compelling reasons. Whether it’s building materials such as paint and cement or metals, 74% of costs in these businesses are made up of three things: transportation and logistics, energy and extraction. Singh believes that the cement industry is like any other materials industry, where infrastructure and energy are core components.

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Singh explains: “We have never thought of cement as a manufacturing company. We believe that the Indian cement industry is terribly inefficient. And we can add efficient logistics and power to it. Anyone who has forecast the EBITDA of ACC and Ambuja has it in the next 9-12 months by a factor, the same goes for copper and aluminum.”

Gautam Adani Drafts Plan to Bring Group Valuation to $1 Trillion
Jugeshinder ‘Robbie’ Singh on Adani Group entering the cement industryBI India

Since Adani Group has all the permissions, it can supply the key raw materials at a better price. third the cost of any other developer in the country and aluminum would be the same. “So when you hear that we’re buying XYZ, I want you to see in this chart that, in general, 100% of our investments are in core infrastructure or adjacent areas. We don’t do anything outside of that,” Singh told investors.

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Most of the Adani Group companies have the best margins in their class. The port operations have reported an operating margin of 70%, while the closest competitor’s margins are 56%. Adani Total Gas reported margins of 41%, while Adani Tranmission’s operating margin is 92%. The companies are profitable and efficient and generate high levels of free cash flows.

The growth, Singh explains, is even higher than that of some tech companies. The group currently generates earnings before interest, taxes, depreciation and amortization of $8 billion. Of this $8 billion, approximately $3.6 billion is spent on paying off debt (interest and principal). Of the remaining $4.4 billion, the group spends $700 million on taxes. Companies spend $1.8 billion on capex, while the rest cannot be deployed.

While in absolute terms, the Group’s debt has increased, but so has EBITDA, Singh explains. Over the past nine years, Group EBITDA has grown CAGR by 23%, while debt has grown by 12%. Nearly 41% of Adani’s portfolio has the same credit rating as that of the Government of India. “We have a higher rating than the banks, so if we keep the money there, it’s a problem for us,” Singh added. According to the Group’s CFO, Robbie Singh, the group will soon have a portfolio company, with all its operations in India, which will be rated higher than the Indian government.

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Global relationships and capital drive growth

The Group’s portfolio has attracted interest from global partners such as TotalEnergies and even global funds such as International Holding Company. TotalEnergies has expanded its investment across its portfolio of companies. Total Energies has invested a total of $4 billion Adani Group Companies and it is the largest minority position of the French company in the world. IHC has also invested $2 billion in group companies.

The Adani Group has deep relationships with most of the Indian banks, but as they have group exposure limits, Group Adani cannot grow if it depends solely on Indian banks. Almost the entire European banking system has relationships with Adani Group, along with leading investment banks from the US and Japan. In addition to raising $16 billion in capital to drive growth over the past three years, the group has also led one of the largest equity programs in the world, nearly the same size as Reliance Jio’s.

Adani Enterprises acts as the group’s incubator

Adani Enterprises is positioned as the group’s incubator. The group is currently nurturing several new companies under the auspices of AEL until they become independent and can fund their own investment plans. The Group believes that it should not be valued on a multiple P/E basis as its activities are the incubation of new activities.

For example, Adani New Industries is the green hydrogen company under AEL for which the Group has committed a $50 billion capital investment over the next 10 years. Aside from the new energy venture, data centers, airports and the road companies will sit within AEL until they can be independent and support their own growth ambitions. The Group plans to divest a number of these new businesses in the next 2-4 years.

To be outside of Adani Enterprises, companies must meet two conditions: 1) They can support their growth on their own and do not need shareholder money. 2) There can be no financial cross-shareholdings. If a company can survive, it will be spun off from AEL, Singh explains. Hydrogen, airport and transportation companies could be spun off in the next 2-3 years when they can be independent. But it looks like Adani Group’s transformation is a 25-year story of growth and ambition.

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