Renewables and transmission businesses power Adani group's growth story

The Adani group’s two relatively small listed entities — Adani Green Energy and Adani Transmission — may be the perfect coming-off age story in the power sector. 

As thermal power loses its sheen, transmission and renewables segment promise more stability.  Adani Transmission has taken over Adani Power in market capitalisation and Adani Green is catching up.

With Tuesday’s market close, Adani Power had a market capitalisation of Rs 125.9 billion. In comparision, Rs 186.9 billion was the market capitalisation of Adani Transmission and Rs 89.50 billion the figure for Adani Green Energy. “Adani Transmission is a steady cash-flow business, while Adani Power faces issues like fuel risks, low plant load factor and low tariff. Both transmission and Green are in a better place in terms of business outlook and balance sheet strength,” said an analyst from a domestic brokerage firm.

An email sent to the Adani group requesting a comment on the higher market capitalisation and on the company's strategy for the three businesses remained unanswered. 

 
Adani Transmission was listed on the exchanges in July 2015. “The decision to create a new company for the transmission assets were for regulatory reasons, while the listing decision was to unlock value,” said another analyst who tracks the company but did not wish to be identified.

Adani Green is a relatively newer kid on the block, listed as late as June this year. According to annual reports for the three listed entities, Adani Transmission reported an Ebitda margin of 71.64 per cent, while for Adani Green it was at 81.15 per cent and Adani Power at 29.27 per cent for 2017-18.

“The margin trend for the transmission unit should continue as it is a more stable business. It is difficult to say so for the renewable business, as the new capacity addition due to excessive competition may see some margin pressure,” said the first analyst quoted in the story.

Adani Transmission also has a definitive binding agreement signed for 100 per cent stake purchase of R-Infra’s Mumbai Power business in a deal valued at Rs 121 billion and regulatory assets approved so far of Rs 11.50 billion. This, most analysts agree, will prove to be a cash cow for Adani Transmission.

Though the transmission business looks promising, not everyone is convinced about the growth rate. “The multiples for Adani Transmission are several times over from that of Power Grid Corporation of India, which is a larger company and is seeing a healthy growth. There is a market cap for Adani Transmission, but I do not think the multiples are justified,” said a third analyst tracking the power sector who did not wish to be identified.

For the April-June 2018 quarter, Adani Power reported a net loss of Rs 8.25 billion, while Adani Transmission saw a profit after tax of Rs 1.69 billion and Adani Green reported a loss of Rs 742.6 million.

“Had the transmission assets been left with Adani Power and Adani Green’s assets transferred to Adani Power, it would have definitely worked as a cushion of the stress Adani Power faces due to Mundra and other assets. The group has, however, taken the call to unlock value,” one of the analyst added.