The Source of Adani's Billions. Take a Look...

The Adani Group has been forging ahead, cinching over 35 deals in the past few years.

Taking the organic and inorganic route to grow, the bellwether group has been investing in an array of new sectors.

From new-age sectors such as data centres and green hydrogen to the more conventional infrastructure and cement, the group has more than ten types of businesses as of today.

Run by a first-generation entrepreneur with a net worth of more than US$107 bn today, Gautam Adani is the brain behind this rapid diversification of the group.

After spending over two decades building an empire centered around coal, Gautam Adani has been branching out, now pivoting to become the world's largest producer of green energy.

According to Bloomberg's Billionaires Index, the busiest dealmaker snagged the title of the richest person in Asia this year. However, it didn't last long as it's been a tough fight between him and Mukesh Ambani.

With the constant change in the value of Ambani's crown jewel, Reliance Industries Ltd., the title has been changing hands every few days.

While both Adani and Ambani share a few things in common, there is a difference in how they have amassed this wealth. Unlike Ambani, Adani has had a meteoric rise in a short span.

Just two years ago, Adani's total wealth stood at a mere US$ 10 bn, one-tenth of what it is today. This begs the question, what has propelled Gautam Adani's swift accession to the wealthiest person in Asia?

While it is tough to identify the primary driver behind the success of Gautam Adani, one can analyse the valuations of his group companies to derive a fair idea.

With this in mind, we look at the seven listed Adani stocks that command a market-cap of over US$ 170 bn today.

#1 Adani Green (renewable energy):

The company generates power through renewable sources such as solar and wind energy. It also builds, develops and maintains utility-scale grid-connected solar and wind farm projects.

As of March 2022, the company has a current project portfolio of over 20 gigawatts(GW).

Adani Green Energy Financial Snapshot (2021-2022)

	2022
Revenue (Rs m)	51,330
Net Profit (Rs m)	4,890
Debt-to-Equity	20.2
Return on Equity (%)	24.9%
Market-cap (Rs bn)	2,783
Price-to-Earnings (P/E)	569
Industry PE	10.4

Source: BSE

While the company's revenues are up 10 times in the past 5 years, the total loss of Rs 462 m has been turned into a profit of Rs 4.8 bn over the same period of time.

#2 Adani Total Gas (Oil and Gas):

The company operates the largest city gas distribution business in India.

It is developing an extensive network of City Gas Distribution (CGD) to supply the Piped Natural Gas (PNG) to the industrial, commercial, domestic and Compressed Natural Gas (CNG) to the transport sector.

Adani Total Gas Financial Snapshot (2021-2022)

	2022
Revenue (Rs m)	30,380
Net Profit (Rs m)	5,050
Debt-to-Equity	0.43
Return on Equity (%)	23.1%
Market-cap (Rs bn)	2,535
Price-to-Earnings (P/E)	522
Industry PE	8.8

Source: BSE

The total revenue of the company has grown at a 5-Yr CAGR of 24.5%, while the net profit has jumped up 5 times in the same period.

#3 Adani Enterprises (Conglomerate):

The flagship company of the group is India's biggest coal trader, the biggest coal mining contractor as well the biggest private airport operator, with eight airports under its umbrella.

Adani Enterprises Financial Snapshot (2021-2022)

	2022
Revenue (Rs m)	694,201
Net Profit (Rs m)	7,765
Debt-to-Equity	1.87
Return on Equity (%)	3.9%
Market-cap (Rs bn)	2,512
Price-to-Earnings (P/E)	324

Source: BSE

The holding company has reported a 5-Yr CAGR of 13.3%.

The net profit has not grown due to the acquisition spree by the promoter mainly as most of the new businesses are still expanding, yet to turn a profit.

#4 Adani Transmission (Power Distribution):

The company is the largest private-sector electric power transmission and distribution company in India.

Competing with the Government-owned Power Grid of India, the company enjoys a widespread presence across the western, northern and central regions of India.

Adani Transmission Financial Snapshot (2021-2022)

	2022
Revenue (Rs m)	112,575
Net Profit (Rs m)	12,046
Debt-to-Equity	3.2
Return on Equity (%)	15.6
Market-cap (Rs bn)	2,291
Price-to-Book (P/BV)	23.3
Industry P/BV	16.1

Source: BSE

The power distribution arm business has registered a 5-Yr CAGR of 31.4% and a profitability 5-Yr CAGR of 23.6%.

#5 Adani Ports & Special Economic Zone (Infrastructure):

The company is the largest private port in India. It owns and operates seven ports and terminals.

Unlike other major ports, the Adani port enjoys the flexibility of deciding its tariff structure.

Moreover, its proximity to the national capital region (Delhi, Gurgaon and Noida), a deeper draft that allows it to accommodate large ships and natural protection in bad weather condition gives it a competitive advantage.

Adani Ports & Special Economic Zone Financial Snapshot (2021-2022)

	2022
Revenue (Rs m)	159,340
Net Profit (Rs m)	47,280
Debt-to-Equity	1.24
Return on Equity (%)	14.7%
Market-cap (Rs bn)	1,534
Price-to-Earnings (P/E)	30.2
Industry PE	77.7

Source: BSE

The total revenue of the company has grown at a 5-Yr CAGR of 13.5% while the net profit has grown at 3.7% CAGR over the same period.

#6 Adani Power (Power):

The company is the largest private thermal power producer in India with a total power generation capacity of 12GW.

This comprises of thermal power plants in Gujarat, Maharashtra, Karnataka, Rajasthan, and Chhattisgarh and a 40 MW solar power project in Gujarat.

Adani Power Financial Snapshot (2021-2022)

	2022
Revenue (Rs m)	277,110
Net Profit (Rs m)	49,120
Debt-to-Equity	2.6
Return on Equity (%)	24.9%
Market-cap (Rs bn)	1,079.4
Price-to-Book (P/BV)	5.8
Industry P/BV	2.6

Source: BSE

It is perhaps the only company that has not registered a double digit 5-Yr CAGR (4.2%).

However, the profits make up for any lack of growth going from a loss of Rs 61 bn to a profit of Rs 49 bn in the past 5 years.

# 7 Adani Wilmar (Fast Moving Consumer Goods FMCG):

The company houses the country's biggest edible oil brand Fortune. Apart from this the company also deals in wheat flour, rice, pulses and sugar.

Adani Wilmar Financial Snapshot (2021-2022)

	2022
Revenue (Rs m)	5,23,610
Net Profit (Rs m)	8,079
Debt-to-Equity	0.4
Return on Equity (%)	15.40%
Market-cap (Rs bn)	808
Price-to-Earnings (P/E)	100
Industry PE	35.5

Source: BSE

The billionaire's FMCG arm has doubled its revenues and quadrupled its profits in the last 5 years.

Despite the level of disparity in the businesses, Gautam Adani's companies share a few things in common. Not only are they leaders in their respective fields, but they also enjoy exorbitant valuations.

Most of them are trading at valuations far higher than the industry average, indicating they are highly overpriced.

The PE ratios of the companies that command a large share of his wealth are Adani Green and Adani Total Gas.

While Adani Green is trading at a PE of 569, the power sector is at a PE ratio of 10.4.

Similarly, Adani Total Gas is trading at a PE of 522 while its industry average is 8.8.

But does it add up? And what sets them apart from other companies?

Honestly, nothing.

Even if you factor in their phenomenal growth, the leadership status or the fact that the businesses are aligned with the government's vision, these absurdly high valuations don't make sense. Especially from a value investment point of view.

As Warren Buffet would say -

• For the investor, a too-high purchase price for the stock of an excellent company can undo the effects of a subsequent decade of favorable business developments.

So, it is safe to assume that the markets are in a frenzy over the Adani stocks. Some refer to it as FOMO (fear of missing out), while others probably think he is too big to fail now. Forgetting the chequered past of companies that were also highly overvalued and touted as too big to fail.

In conclusion

The market valuation of all these businesses together makes Gautam Adani one of the richest men in Asia.

But the exorbitant valuation these companies are enjoying poses a serious threat to Gautam Adani's title.

Moreover, not only has his business empire earned him a name in the top business houses of the world but also as one of the most indebted companies.

This is not surprising as most of Mr Adani's growth comes on the back of tremendous borrowing.

Most of his companies have funded their growth with a lot of debt.

And now, with the rising interest rates financing this mammoth debt (of over Rs 2,000bn from his listed entities) can become a concern, putting a lot of pressure on the group companies to improve their profitability.

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