Fundamental Analysis of Adani Enterprises: Some time ago Gautam Adani made news by surpassing Bernard Arnault & family to become the third richest person in the world. His net worth stood at an astonishing $137.4 billion.

Have you ever wondered how this college dropout went on to become the 3rd richest in the world? And how his rise is closely tied to Adani Enterprises Ltd.? We will try to understand that today by doing a fundamental analysis of Adani Enterprises.

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In this article, we will conduct a fundamental analysis of Adani Enterprises. We will read about its origins, its structure and the future plans of the flagship company of the Adani Group. This is going to be a very interesting read. So without further ado, let us jump in.

Fundamental Analysis of Adani Enterprises

History & Overview

Gautam Shantilal Adani, Founder and Chairman of the Adani Group

Adani Enterprises Ltd. (AEL) is the flagship company of the Adani Group. It was started as a commodity trading company in 1988 by Gautam Adani, a first-generation billionaire and founder. It got listed in 1994. Since then Adani Enterprises has evolved into an incubator and holding company with diverse business interests.

AEL is one of the largest Indian conglomerates with operations across multiple industries: airports, data centres, defence & aerospace, edible oil & foods, agro, integrated resources management, mining services, road, metro & rail, solar manufacturing and water. 

It has grown organically and inorganically over the years. It has acquired majority stakes in various businesses as part of its strategy. The group has a history of purchasing struggling entities and turning them around in record time. This has enabled them to grow much faster than average industry growth rates.

Furthermore, most of the businesses of the Adani Group are well-integrated: either within themselves or with other Adani Group companies. This gives the Adani Group added advantages through higher margins and availability of resources resulting in better operations and value creation for its shareholders.

We got a quick overview of Adani Enterprises. Let us move ahead to understand how the company is structured and in what industries it operates.

How is Adani Enterprises structured?

Source: Adani Enterprises Investor Presentation

An understanding of the organisational structure of the Adani Group will help us to know how Adani Enterprises is structured.

The figure above depicts all the Adani Group companies. Adani Green Energy Ltd. (AGEL), Adani Transmission Ltd. (ATL), Adani Total Gas Ltd. (ATGL), Adani Power Ltd. (APL), Adani Ports and Special Economic Zone Ltd. (APSEZ), Adani Wilmar Ltd. (AWL), ACC Limited (ACC) and Ambuja Cements (AMBUJACEM) are the other eight listed companies of the Adani Group along with the parent company Adani Enterprises Ltd. (AEL). 

Out of these, only Adani Wilmar comes under Adani Enterprises as it is a joint venture between the Adani Group and the Wilmar Group. The other companies were demerged and listed as they matured and got bigger. 

Adani New Industries Ltd. (ANIL), Adani Digital Ltd. (ADL), AdaniConnex Pvt. Ltd. (JV with EdgeConnex), Adani Airport Holdings Ltd. (AAHL), Adani Roads Transport Ltd. (ARTL), Adani Aero Defence Systems & Technologies Ltd. (AADSTL) are some ventures being directly incubated under the Adani Enterprises. 

The table below lists the names of various Adani Enterprises companies.

Company NameListed/UnlistedIndustry
Adani Agri Fresh Ltd.UnlistedAgro
Adani Water Ltd.UnlistedWater Treatment
Adani New Industries Ltd.UnlistedGreen Hydrogen
AdaniConnex Pvt. Ltd.UnlistedData Centres
Adani Airport Holdings Ltd.UnlistedAirports
Adani Roads Transport Ltd.UnlistedConstruction
Adani Digital Ltd.UnlistedMedia & Entertainment
Adani Wilmar Ltd.ListedFMCG
Adani Aero Defence Systems & Technologies Ltd.UnlistedDefence

Fundamental Analysis of Adani Enterprises – Financials

Net Profit and Revenue Growth

We can note that on a consolidated basis, the revenues of Adani Enterprises have steadily increased over the last five years. As for the growth in net profits, it has been volatile coupled with low margins. 

The reason behind this is the fact that even though some companies of the group have become profitable, various units (and recent acquisitions) are still in the development/turnaround stage with little or no profits. The combined effect is visible in the consolidated net profit margin, which was as low as 1.14% in FY22.

The table below presents the consolidated revenues and net profits of Adani Enterprises for the last five years.

YearRevenue (Rs. Cr.)Net Profit (Rs. Cr.)

Debt and Interest Coverage Ratio

YearDebt/EquityInterest Coverage

During the previous five years, AEL has heavily invested in many new growth sectors: airports, cement, copper refining, green hydrogen, petrochemical refining, roads and solar cell manufacturing. As a result, it has acquired huge debt. 

The table above presents the debt-equity ratio and interest coverage ratio for Adani Enterprises for the last five years. We can note that they have remained concerningly low, with the debt-equity ratio spiking sharply in FY22.

Recent Developments and Future Plans

What do you think, has Adani Enterprises reached its heights and there is no room for more growth? Or is there more than meets the eye for AEL? Let us try to understand that.

Future Plans

  1. In 2019, the company forayed into the airports’ infrastructure business by emerging as the highest bidder for six airports across the country. It will operate these and the additional airport it purchased from the GVK Group through its subsidiary Adani Airports Holding Limited (AAHL).
  2. The company won auctions for coal blocks recently. It has those facilities under development. In addition to this, the recent amendment to the Mines and Minerals Act will allow the auction of more such 500 mineral deposit blocks. Adani Enterprises is in a good position to participate in the bidding processes by taking advantage of its mining and integrated coal management capabilities.
  3. Presently, AEL with its subsidiary Adani Road Transport Ltd. (ARTL) has an order book of more than 14 road projects worth Rs. 41,000 crores across 10 Indian states.
  4. Eyeing a massive opportunity in the water treatment sector, AEL is implementing various sewage and water treatment plants across the country.
  5. Along with the above-mentioned industries, AEL will also be establishing capabilities in the defence sector. It has an order book of approx. Rs 8,000 crore.
  6. Last but not least, Adani Group entered into a joint venture with EdgeConneX (the world’s largest private data centre operator) to build data centre facilities of 1GW over the next ten years.
  7. The group has plans to invest a massive $ 50 billion over the next ten years in green hydrogen and allied sectors as part of its hydrogen energy plans. Much of this investment will be done by AEL itself as it houses the hydrogen energy business of the group.

Recent Developments

  1. Recently, Adani Media Networks, a subsidiary of AEL raised its stake to 64.71% in NDTV after acquiring a 27.26% stake from Rannoy Roy and Radhika Roy. This marks the entry of the Adani Group in the entertainment space with NDTV’s 3 national channels and a digital platform.
  2. The Adani Group recently completed the development and construction of coal mining sites in Queensland, Australia. Going forward, the large site will be another key source of revenue for it. 
  3. AEL recently picked a majority stake in PLR systems, India’s first small arms manufacturing facility. Moving ahead, AEL has decided to build South Asia’s largest ammunition manufacturing facility in the UP Defence Corridor with an investment of Rs 1,500 crore. 

Key Metrics

Let us have a bird’s eye view of Adani Enterprises’ fundamentals through the table below:

CMP (Rs)2,399.15Market Cap (Rs Cr)2,72,198
Stock P/E110.07Face Value (Rs)1.0
RoCE10.72%Book Value (Rs)277
RoE8.08 %Price to Book Value10.7
Debt to Equity1.9Promoter Holding69.23%
Net Profit Margin1.13%Operating Profit Margin5.35%
Interest Coverage Ratio1.87Dividend Yield0.03%

In Conclusion

From November 1994 to June 2022, Adani Enterprises’ stock has grown at an eye-popping CAGR of 36% yearly. This is in sharp contrast to the BSE Sensex which appreciated by 10% annually. What we can conclude is that AEL has a history of reinventing itself. Time and again it has incubated and grown various businesses. It is on track for data centres, water, infrastructure, coal and others now.

However, this expansion has been fueled by debt. Its debt to equity stands high at 1.9 with an interest coverage ratio of barely 1.87 times earnings. Thus, more than ever in its history, Adani Enterprises has a huge responsibility on its shoulders to generate enough earnings so that it can keep servicing its debt.

Will Adani Enterprises’ stock generate a 36% CAGR in the coming years as well? How about you let us know your perspective in the comments below?

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