Adani Enterprises can surprise

Adani Enterprises (AEL) is one company I would back to stage the surprise of the year. The ‘mother’ of the Adani Group companies — comprising many businesses — has been valued at only Rs 16,600 crore.

There are two reasons for this extensive discount: One, the company has extended loans to Adani Power, which is in a temporary bother with regard to the pricing of coal and corresponding remuneration from the state electricity board; two, the status of loans extended to the Carmichael coal mine implementation in Australia. The market has taken a conservative perspective; it has assumed the repayment of debt may be delayed or even needing to be written off, which could considerably impair the AEL balance sheet.

Now consider the positive side. AEL comes with an unusual — even perhaps unique — positioning. The company is a unique incubator of Indian infrastructure start-ups, its competence lying in a distinctive capability in growing companies through challenging gestation to robust independence. Each time the company has given birth, it has added to the shareholder’s listed bouquet. Over the past few years, AEL has spawned the following: APSEZ (market capitalisation Rs 81,000 crore), Adani Power (Rs 13,500 crore) and Adani Transmission (Rs 21,000 crore). 

Rs 1 lakh invested in AEL in 2003 would have 26-folded by 2017, among the highest returns generated by any company in India’s infrastructure sector. 

What makes AEL different? 
  • One, the capacity to conceive, execute and demerge. 
  • Two, its portfolio companies feed off each other’s leadership and management capabilities.
  • Three, at any given time, AEL incubates a number of companies, creating a robust divestment pipeline.
  • Four, these constituent companies have been primed for scale (top three of their sectoral spaces) in the shortest time.
  • Five, the knowledge unleashed by one business is generally utilised in creating new businesses (for instance, coal trading created a deep insight into customer realities, which, in turn, translated into the logistics management business).
  • Six, AEL’s businesses are integrated forward: Coal trading to logistics to power generation (including renewable) to power transmission; the logistics competence was spun off into the agri-business; the B2B to B2C evolution translated into the city-wide gas distribution, agri and the realty businesses.
So, what convinces me that AEL is attractively valued?

One, AEL’s m-cap of Rs 16,600 crore comprises Adani Green Energy, possibly the largest renewable energy company in India, which given its 2 Gw capacity and related profitability, is likely to be valued at around Rs 10,000 crore (my calculation).

Two, if this be true then the remaining AEL basket is being valued at less than Rs 7,000 crore, which would be around six per cent of the aggregate Rs 1,25,000-crore value created by the company across the last decade.

That then is my argument: The country is pricing the entrepreneurial genius of Gautam Adani and his capacity to grow existing businesses (gas retail, coal trading and mining, agri, logistics and real estate) and create new ones for less than the value of a Symphony (no disrespect).

Just think.

The author is a stock market writer, tracking corporate earnings and investor psychology to gauge where markets are not headed

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