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The economic case for Adani to lead India’s domestic energy strategy

November 10, 2020
Tim Buckley and Simon Nicholas
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Key Findings

The Adani Group has transformed dramatically over the last five years, with total assets of the now six listed entities collectively exceeding US$50bn.

The composition of the Adani Group has also transformed, with the most valuable stake being in Adani Green Energy.

There is an opportunity for the Adani Group to align and continue to lead India’s energy strategy of domestic self-reliance by committing to an orderly coal power phaseout.

Executive Summary

The Adani Group has transformed dramatically over the last five years, with total assets of the now six listed entities collectively exceeding US$50bn. The Adani family equity stakes have a combined equity value of US$26bn at current prices, a trebling relative to the US$8.7bn estimated value back in May 2015 after the deconsolidation of Adani Enterprises Ltd (AEL) was complete.

After a decade of losses, Adani Power is much diminished at just 5% of the total.

The composition of the Adani Group has also transformed, with the most valuable stake being in Adani Green Energy (44% of the Adani family equity value total), almost double Adani Ports (23%), whilst Adani Transmission (10%) has likewise had a stellar performance. After a decade of losses, Adani Power (12.4 gigawatts [GW] of coal-fired power generation) is much diminished at just 5% of the total.

Adani Green, Adani Ports and Adani Transmission all have significant access and standing in global financial markets (both debt and equity), leveraging an unparalleled financial strength in India the Adani Group is using to full advantage. However, with this comes a significantly higher profile. With environmental, social and governance (ESG) risk evaluation never more prominent in global financial markets, the Adani Group has much to leverage, but also much to lose.

The Adani Group has much to leverage, but also much to lose.

With the Adani Group unable to attract independent debt or equity investors into the Carmichael thermal coal mine and rail proposal in the Galilee Basin, in Queensland, Australia, Adani Ports has just become directly involved in financing and operating the rail haulage works for the globally controversial Carmichael.

IEEFA sees an opportunity for the Adani Group to align and continue to lead India’s energy strategy of domestic self-reliance by committing to an orderly coal power phaseout. This would in reality be a commitment to closing coal plants when power purchase agreements (PPAs) expire, knowing the massive ongoing renewables deflation means these coal plants will be unviable and obsolete. Gautam Adani penned a May 2020 op-ed forecasting exactly this outcome, marking a strategic pivot in his thinking, and in November announced a new green hydrogen focus.

As an Indian first, such a commitment would enhance the Adani Group’s ESG standings, lower the cost and raise the access to international capital and allow the group to continue to prudently fund its aggressive growth plans. It would also be entirely aligned with – and lead – India’s energy strategy, and put Prime Minister Narendra Modi’s decarbonisation vision firmly on the global stage.

Tim Buckley

Former Director Energy Finance Studies, Australasia, Tim Buckley has 25 years of financial markets experience, specializing in equity valuation, including as a top-rated analyst and as co-founder and managing director of Arkx Investment Management.

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Simon Nicholas

Simon Nicholas is IEEFA’s Lead Energy Finance Analyst for Bangladesh, Pakistan and the global steel sector as well as Asian seaborne thermal and coking coal markets.

Simon’s focus is on the energy transition, the long-term outlooks for coal and steel as well as the need for emerging nations to establish financially sustainable power systems to support their development.

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