Did The Adani Group Get Its Mojo Back?

The Adani Group, which was hit by a short seller report in January, appears to be recovering from the attack. Ambuja Cement which is owned by the Adani Group recently acquired Sanghi Industries, a Gujarat-based cement manufacturer.

The Adani Group, which had been acquiring assets and growing capacities before the Hindenburg report, had temporarily puts its expansion plans on the back-burner. However, the Rs 5,000 crore acquisitions indicates that the group might be recovering from the setback.

Expansion Plans Appear To Be Back On Track Again

The short-seller report, which was released a few days before the Adani Group’s follow-on public offering (FPO) of Rs 20,000 crore had caused shares of the company to tank.

While the group managed to successfully raise funds during the FPO, it said that it had decided to return funds since going ahead with the fundraise after the fiasco would be unfair to investors. 

In the following period, there were several reports of the Adani Group putting its expansion plans on hold. For instance, in March, the group said that it would keep construction activities on the Mundhra green PVC plant on hold for six months until it financial closure by financial institutions.

Even during a call with analysts, the group said that it was keeping the PVC project on hold. In addition, during the same call, the group said that it would moderate capital expenditure on new projects. The entire capex on the PVC plant was expected to be in the range of Rs 35,000 crore.

However, by June, media reports suggested that the company had secured a part of the project financing and the project was being revived. 

Fundraising Ambitions Make a Comeback

The company also appears to have revived its fundraising plans with a recovery in stock prices. Adani Enterprises, the group’s flagship entity, has seen its stock price nearly double from the lows it hit after the short-seller fiasco.

The group’s fundraising aspirations appear have to returned as well. Three group entities, Adani Green, Adani Energy Solutions (earlier Adani Transmission), and Adani Enterprises are expected to raise around $ 4.1 billion through the qualified institutional placement (QIP) route.

While the company would benefit from a capital raise to fund its expansion plans, a successful placement would also indicate that the company has found acceptance among institutional shareholders.

In the past, media outlets and analysts have questioned the lack of institutional shareholding in a company of Adani’s size.

Its on-boarding of GQG Partners as an investors could also help in calming such doubts.   

Why Did the Group Acquire Sanghi Industries?

The large Rs 5,000 crore acquisition of Sanghi cement by Ambuja has come at a time when the cement sector is undergoing a lull period. The southern market has taken a worse hit on pricing as capacity has come up quickly, while demand has slowed down.

At the same time, input costs have risen significantly, but companies are unable to pass on these costs to their customers. Sanghi Industries is loss making and has been facing financial troubles for a while.

According to a credit rating report, the company had completed an expansion in February 2021, but was hit by slow demand and production issues leading to difficulty in paying debts. However, despite the negatives, the Adani Group might see benefits from the deal.

For one, the company has a captive jetty at Sanghipuram and its 6.1 million tonne of cement capacity would ensure that it could even export to other countries.

The Adani Group has already announced plans of improving port capacity and accommodating larger vessels, while production capacity would be more than doubled over the next two years. Sanghi Industries also has access to 1 billion tonne of limestone reserves.

The availability of input materials, proximity to ports and major markets, and the possible synergies between existing cement businesses appear to have catalysed the acquisition. 

On a smaller scale, the Adani Group seems to be continuing with it longer term plans of launching a super-app by recently acquiring “Trainman”, a ticket booking platform.

Though Adani Labs is relatively small currently, the company’s vast consumer outreach through its consumer-oriented businesses like electricity and gas distribution could aid it in growing its digital footprint.

On the face of it, it looks like the group has managed to have moved on from the Hindenburg report trouble.

Nevertheless, stock prices have still not recovered to their peak levels, indicating that investors might still be cautious about investing in the group.