Founded in 1996 by leading entrepreneur Gautam Adani, Ahmedabad-based Adani Power is one of the fastest-growing companies, with its strong average four-year sales growth at 54.8 per cent and a market cap of Rs 13,584 crore in FY14-15. Currently, the power company has an installed capacity of 10.5 GW and it targets a production of 20 GW by 2020F.
Adani Power not only knows how to benefit from the decreasing price of raw materials, but also knows the art of utilising financial institutions. Despite a very high debt-equity ratio of about 10:1 compared with rivals like Tata Power and Reliance Power (1.1:1 and 1.9:1, respectively), Adani power continues to use the banks’ money for expansion and profit for stakeholders.
Dual DealsThe company struck two major deals in FY15. It bought Gautam Thapar-led Avantha Group’s 600 MW Korba West unit for more than Rs 4,200 crore and the 1,200 MW coal-fired Udupi plant from the debt-laden Lanco Infra for Rs 6,000 crore. “This is the time for consolidation in the power sector, and Adani Power has taken the lead in acquiring power assets, which are a strategic fit to group businesses, potentially at the lowest end of the cost curve,” said Adani Group chairman Gautam Adani. “The Korba acquisition expands our footprint particularly in the coal mining belt and we are bullish about expanding our presence further. We are committed to achieving our target of 20,000 MW by 2020,” he said.
The company has some of the largest power plants in the country. A 4,620 MW plant in Mundra, Gujarat is the largest operational in India. Other big plants the company owns are a 3,300 MW plant in Tiroda, Maharashtra and a 1,320 MW plant in Kawai, Rajasthan.
Though the company posted a negative profit after tax (PAT) of Rs 68.6 crore for the FY15 and the board of directors decided not to recommend any dividend on equity shares, Adani Power remains a company to bet on. Industry analysts predicted that the major acquisitions would pay significant returns — and they were right.
“Adani Power’s acquisition strategy seems to be playing out well,” said a power analyst. “Though its balance sheet is stretched, the Street believes the company has acquired assets that will help improve its return on equity, as these plants are not rate-constrained.”
Losses NotwithstandingAfter posting subsequent losses in its quarterly results for the past two years, recent quarterly results (third quarter FY16) shocked as the company posted a profit of Rs 101 crore.
Deloitte Haskins & Sells, the statutory auditors for the company, said in the FY14-15 annual report, “Adani Power continues to pioneer usage of innovative and modern IT solutions to drive operations in an efficient and effective manner. The company deploys best-in-class applications and systems, which streamline business processes to improve performance and reduce costs. These systems provide seamless integration across modules and functions resulting in strong MIS platform and informed decision-making by the management,” the report says.
Suspicions AboundAdani Power’s super-fast growth has linked it with many controversies. Voices in the industry feel Gautam Adani’s close proximity with Prime Minister Narendra Modi, who was also the chief minister of Gujarat, helped the company to strike gold in the state and subsequently in the country. From the allotment of land by the state government to winning bids, Adani Power continues to remain one of the most talked-about companies in the country.
Gautam Adani is very keen to achieve a power generation capacity of 20,000 MW by 2020 to bridge the power deficit in the country, expand operation to internationally and promote clean energy.
arshad@businessworld.in
BW Reporters
The author is Senior Correspondent with BW Businessworld
