Adani Stock Resurgence Brings Focus On $100-Billion Investment Plan

The group’s market capitalisation has recovered from the post-Hindenburg report low of Rs 6.8 lakh crore to around Rs 14 lakh crore. While it is below the peak of Rs 19.8 lakh crore, backing of marquee investors, favourable regulatory orders and growth in the core infrastructure business removed apprehensions whatsoever. 

What has further bolstered confidence is Adani Group’s investment plan for a green energy transition led by five of its key portfolio companies—Adani Green Energy Ltd., Adani Energy Solutions Ltd., Adani Ports & Special Economic Zone Ltd., ACC Ltd. and Ambuja Cements Ltd.  

These companies plan to invest a combined $100 billion over the next decade on the group's shift towards clean energy and becoming net zero by 2050. This spending will also help create last-mile green hydrogen solutions, made feasible by the largescale renewables and fully integrated manufacturing with end-to-end EPC capability—all in one single location—uniquely positioned to drive cost efficiency.   

The group has now a strong asset base of $54 billion and has improved its gross assets-to-net debt ratio to 2.48 times from 2.26 times at the end of end of FY23. Its current cash balances of $5.53 billion can now cover long-term debt repayments for next 18 months, ensuring that there is no material refinancing risk and near-term liquidity requirement. 

The Adani portfolio companies' operating income or earnings before interest, tax, depreciation and amortisation also surged by a record 47% in the first half of FY24 to over Rs 43,000 crore. And about 86% of that was contributed by utility and infrastructure businesses, providing consistent cash flow.

So much so that Adani portfolio’s share in Nifty 50 Ebitda has doubled from 3% in FY19 to nearly 6% as of September 2023. In fact, Adani utility Ebitda growth has outpaced U.S. and European utility companies, leading to rerating of its multiples.  

Backing by institutional investors including GQG Partners also lifted the sentiment. GQG's bet is already paying off with portfolio returns of over 84%.  

That further increased global investor interest in Adani utility portfolio with its high growth, low leverage and an underlying consumer base expanding at a faster rate than developed peers.   

The biggest boost is the reopening of the global finance market after the U.S. government-backed International Development Finance Corp. announced a $553-million investment in Adani Ports' deep-water container terminal project in Colombo. This funding is seen by the financial markets as stamp of approval by the U.S. government, which concluded that Hindenburg Research's allegations of corporate fraud were not relevant for Adani Ports. The group has repeatedly denied allegations, calling them "malicious".   

Separately, Adani Green Energy raised $1.36 billion in funding through a construction facility from international banks in one of the largest project finance deals in Asia. The funding was part of the company's plans to raise $3 billion. The senior debt facility is a green loan offered by a consortium of eight international banks.   

There were also two domestic triggers. The absence of any adverse findings by the Supreme Court-appointed committee and SEBI investigations has provided a clean chit against all allegations raised by Hindenburg. The top court also questioned the claims doubting SEBI's probe. 

And the recent election results quietened the protests by the opposition as the BJP retained Madhya Pradesh and wrested control from the Congress in Rajasthan and Chhattisgarh. 

With many projects under construction and expected to be operationalised in the next few years, Adani Group could see the fastest growth in its Ebitda and cash flow, ensuring that its aggressive $100-billion investment is well funded and capitalised.