Commentary
Adani Enterprises’ Q3 Numbers Are Solid. Will It Help Regain Investor Confidence?
- The Adani Group acquires assets or grows a business organically inside the Adani Enterprises umbrella. Once the business is mature enough to survive on its own, it is demerged into a separate listed entity. The group has done it successfully without any of its major businesses failing.
- Currently, the incubated businesses include road construction, data centres, and airports.
Australia Mine
Adani Enterprises, the Adani Group’s flagship company, released its third quarter and nine months results on Tuesday (February 14).
The numbers look impressive, with revenue rising from Rs 18,758 during the third quarter of the financial year 2022 (Q3 FY22) to Rs 26,612 crores for Q3 FY23.
The increase in revenues has come from multiple areas, including the group’s integrated resource management business which saw revenue growth of 38 per cent.
The mining business saw revenue growth of nearly 400 per cent over the previous year. Similarly, the company’s new energy vertical posted a 100 per cent increase in revenues to Rs 1,427 crores, while the airports business saw a similar percentage growth, with revenues growing to Rs 1733 crores.
The group highlighted integrated resource management, airports, and new energy businesses as the drivers of income for the current quarter.
One of the highlights of the performance remains the businesses that the company is “incubating”. The Adani Group acquires assets or grows a business organically inside the Adani Enterprises umbrella. Once the business is mature enough to survive on its own, it is demerged into a separate listed entity. Hence, the existing business’ cash flows, along with borrowings, are used to fund new projects.
The Adani Group has followed the same model over the last two decades for entering new areas in the infrastructure space. So far, the group has done it successfully without any of its major businesses failing. Currently, the incubated businesses include road construction, data centres, and airports.
For the first nine months of FY23, the new incubating businesses have nearly quadrupled in revenues, with earnings before interest, taxes, depreciation and amortization (EBITDA) quadrupling as well. However, these businesses have reported a loss of Rs 428 crores for the nine months. Nevertheless, the businesses appear to have turned around in the third quarter and have posted Rs 169 crores in profit after tax.
The incubated businesses’ earnings are important because it is against these cash flows that the Adani Group has to repay the debt it has taken for expansion. If the new businesses do not work out in an ideal manner, servicing debt can turn difficult, but so far, the group has managed to meet interest and debt payments on time.
The established business saw revenue grow from Rs 42,608 for 9MFY22 crores to Rs 96,600 crores for 9MFY23. The EBITDA and profit after tax grew by around 42 per cent for the established businesses.
On the operational side
The airports business saw a 40 per cent rise in passenger movement since last year had subdued demand due to Covid.
The road construction business has seen anywhere between 19 per cent to 39 per cent completion of projects.
The data centre business has seen 41 per cent completion in Chennai, while Mumbai’s data centre is still starting with 9 per cent completion.
The Carmichael mine saw production growth of 32 per cent between the second and third quarters of FY23.
The numbers released by the Adani group could help the Adani group gain back investor confidence. After the short-seller Hindenburg’s reports on the Adani Group were publicly released, Adani Enterprises, the flagship company saw its stock price halved. So far, the group’s clarifications haven’t significantly improved investor sentiment if the short-term stock price is seen as an indicator. At the same time, the group appears to be taking steps to fight back against Hindenburg by hiring lawyers and engaging Grant Thornton to audit its accounts independently. Perhaps, strong results by the group companies could help swing investor sentiment back in its favour.
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