scorecardUnderstanding Gautam Adani’s rise: a story on how to generate wealth via hope, equity and of course debt
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Understanding Gautam Adani’s rise: a story on how to generate wealth via hope, equity and of course debt

Understanding Gautam Adani’s rise: a story on how to generate wealth via hope, equity and of course debt
LifeThelife7 min read
  • Gautam Adani, the richest person in India, went from being a college dropout to building a nearly $200 billion empire.
  • The Adani Group’s business consists of dirty energy like coal mining and natural gas distribution, to the hope of the future, renewable energy.
  • In between these, the group also dabbles in ports, food and now cement and media businesses.
  • But what is propelling the Adani Group to the top of the echelon of business houses in India? We try to understand this phenomenon.
Gautam Adani’s meteoric rise to the top has been nothing but surreal. Two years ago, his total wealth stood at a meagre $10 billion – in comparison to today as he is now worth nearly $105 billion.

From being just another billionaire to pipping Mukesh Ambani to the top in under two years must be a record of some sort. At his recent peak, the gap between Adani and Ambani stood at $27 billion. As of May 26, this has narrowed to nearly $10 billion.

Chasing dreams over education

Like Mukesh Ambani, Gautam Adani too is a college dropout – he was in his second year of graduation when he decided to chase his entrepreneurial dreams.

His first stab was at the lucrative diamond industry in Mumbai, but he soon moved back to his home state of Gujarat to help his brother in his plastics business.

He finally set up his own company – Adani Enterprises – in 1988. It would go on to become the flagship group company with its fingers in various sectors, from cement to media.


Did you know: Gautam Adani was kidnapped in 1997 for a $1.5 million ransom. He was also at the iconic Taj hotel in Mumbai when terrorists attacked it on the night of November 26, 2008.

Hope – and aligning with the government’s vision – the driver behind Adani’s meteoric rise

It’s hard to pinpoint the primary driver behind the success of Gautam Adani until you look at the valuations of his group companies.

Company

Share price

Market capitalisation (in crore)

Revenue (in crore)

Profit (in crore)

PE Ratio

Adani Green

₹2,164

₹3,42,784

₹5,133

₹422

702.43

Adani Total Gas

₹2,391

₹2,63,003

₹3,037

₹504

521.15

Adani Enterprises

₹2,046

₹2,33,289

₹69,420

₹475

502.53

Adani Transmission

₹2,148

₹2,39,618

₹11,214

₹1,235

198.92

Adani Wilmar

₹698

₹90,724

₹52,361

₹807

117.16

Adani Ports

₹701

₹1,48,182

₹15,934

₹4,602

31.34

Adani Power

₹314

₹1,21,223

₹27,711

₹4,911

24.68

Total


₹14,38,823

₹1,84,810

₹12,956



Source: NSE, as on May 26, 2022

PE ratio explains how much money investors are willing to pay for every ₹1 that the company earns per share. For instance, a PE Ratio of 10 means that investors are willing to pay ₹10 for every ₹1 earned per share.

Consider the PE ratios of Adani Green and Adani Total Gas, for instance. While Adani Green’s PE ratio stands at 702, the sector it operates in, which is power, has an average PE ratio of 12.79.

Adani Total Gas’ PE ratio of 521 compares similarly with its sector PE ratio of 23.48. Likewise, other Adani Group companies are also overvalued compared to their respective sectors – the only difference is the degree of overvaluation.

So why are investors ready to pay such exorbitant prices for companies like Adani Green?

Hope and FOMO.

“The market is having FOMO syndrome when it comes to Adani stocks. Its businesses are aligned to the current central-government vision. Therefore, the road ahead is smooth for this conglomerate for at least five to six years,” IIFL Securities’ Sanjiv Bhasin told The Quint two years ago.

Beyond FOMO, Adani is also selling hope. Adani Green, for instance, focuses on renewable energy and has an ambitious target to add 25 gigawatt of renewable energy in its portfolio by 2025.

The company currently claims to have 20.3 gigawatt in its portfolio, but on scratching the surface, nearly 15 gigawatt of it is still under construction.

Leveraged rapid diversification of business could hamper future growth

Gautam Adani has been on a rapid diversification spree over the past few months. From bagging ACC and Ambuja Cement from Holcim for $10.5 billion (approx. ₹80,800 crore) to a foray into the media business with AMG Media Networks, Gautam Adani has been busy.

Much of these diversification endeavours have been financed by debt. Here’s a snapshot of the Adani Group’s key financial metrics.

Particulars

Amount (in crore)

Revenue

₹1,84,810

Profit

₹12,956

Debt

₹2,18,271


Note: As of March, 2022

With the Indian central bank finally hiking interest rates, financing this mammoth debt could become an issue in the future if the Adani Group companies don’t improve their profitability.

SEE ALSO:

Gautam Adani crashes out of the $100 billion club, but still is 10x richer than he was 2 years back

HUL, Britannia and ITC can now breathe easy say analysts – from inflation and even stagflation worries

Adani Wilmar revenue rockets fuelled by boiling edible oil prices

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