Adani Enterprises FPO: Detailed Analysis, GMP and Review?

In this week’s Stock Insights, we explain why Adani is preparing to raise 20,000 crores from the general public via an FPO on January 27, 2023.

But before we begin our coverage, let’s try to understand what an FPO is!

An FPO, or Follow-On Public Offer, is similar to an IPO. Still, the main difference is that the former is an offer for public participation in companies that are already publicly traded. 

Companies can use this option to meet their capital needs while also attracting increased public participation or investment in the company, giving them access to more funds at a lower cost.

Zeitgeist: Adani Group’s Business Evolution

Adani Enterprises is one of India’s largest publicly traded incubators, having conceived, grown, matured, and demerged many thriving businesses, 

Listed Companies of Adani Group

Each company listed has emerged as a market leader in their respective fields.

Adani enterprises limited is currently incubating a mix of new and old-world businesses, including existing companies

Airport operations 

Managing eight airports in India (seven operational and one under construction), with a weighted average life of 70 years, providing good long-term cash flow visibility.

Road construction  

376 lane kilometers of the highway are operational, while 1,694 lane kilometers are under construction. A total of 3,676 lane kilometers of concession agreements have been signed.

FMCG  

A joint venture between Adani Enterprises limited and Wilmar Group that provides essential kitchen commodities such as edible oil, rice, flour, pulses, etc. The company recently acquired the Kohinoor basmati rice brand.

Commercial mining, MDO, and IRM  

It operates one commercial mine in Australia (Carmichael mine) and has four commercial mines under development in India. In addition, the segment provides end-to-end logistics for coal consumers (IRM business) and turnkey services to coal and iron ore mine owners (MDO business).

Other businesses include defense (manufacturing small arms, UAVs, drones, and aircraft parts), water, and digital.

Future businesses 

Green Hydrogen  

Adani New Industries Ltd. has proposed a USD 50 billion capital expenditure plan to build a 2.5 MMTPA green H2 manufacturing capacity over the next ten years. The first phase of 1.0 MMTPA green H2 capacity is scheduled to be operational by 2030.

Data centers  

A joint venture between Adani enterprises limited and EdgeConneX should begin operations with 8 MW in FY23 and expand to 323 MW by FY30.

Other potential future businesses include copper (which will begin production in FY25 with an initial capacity of 0.5 MMTPA) and PVC (to commence production of green PVC from FY25)

Profit metrics are in their infancy, with most business verticals in the investment stage, and do not reflect steady-state run rates.

What is Adani Enterprises FPO all about?

Companies in the Indian markets have seen very few FPOs because they prefer to raise funds through QIPs or IPOs. It is a more efficient and painless process that does not necessitate additional regulations. For example, Adani Group has chosen the FPO route to meet its capital requirements while responding to multiple criticisms in a single move.

The meteoric rise of Adani Group stocks is legendary, but this rise is frequently overshadowed by critics pointing out the massive increase in Adani Group debt levels.

Adani Enterprises will be able to reduce the excessive leverage that has accumulated due to its multiple acquisitions in various sectors through this FPO. In addition, raising equity capital will also increase retail investor participation, addressing another concern that Adani Group Companies have minimum retail investor participation. 

Adani Group recently raised Rs. 7500 crores in equity through a UAE-based company and is now looking to generate funds by targeting pension funds and sovereign wealth funds in Canada and the UAE. Adani Group intends to raise approximately US$10 billion over the next few years to meet its capital requirements. The current FPO by Adani enterprises is a component of the same strategy.                         

What is the objective of Adani enterprises FPO?

Adani Enterprises FPO objective is to fund future expansion and diversification plans, i.e.:- 

Capital Expenditure: 

The company intends to invest Rs 10,869 crore in capital expenditure from the total funds raised through the FPO for green hydrogen systems, airports, and the construction of a greenfield motorway. Last year, Adani announced that his company would invest more than $70 billion in the energy transition.

Debt repayment: 

The company, led by Gautam Adani, plans to use another Rs 4,165 crore to repay loans obtained by its subsidiaries, Adani Airport Holdings Ltd, Adani Road Transport Ltd, and Mundra Solar Ltd.

The funds from the Adani Enterprises FPO will be distributed to various groups of companies as per their financial plans for the next three to five years. It is also stated that each of these companies generates free cash flows and that the current FPO will meet roughly 80% to 90% of their capital requirements during this period.

What are the FPO’s price band and minimum bid lot?

The company has set the FPO floor price at Rs 3,112 per equity share. The issue’s price band has been set at Rs 3,112-3,276 per share. The minimum bid lot in FPO is four shares, and subsequent lots are in multiples of four shares, according to the company’s exchange filing.

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Conclusion 

According to our StockEdge research team, the timely project implementation, the ability to commission projects faster than the sectorial curve, the competence to do so at a lower cost than the industry average, the foresight to not merely service the market but to grow it, the establishment of decisive sustainable leadership, and the evolution of the company’s position into a generic name within the sector of its presence is a crucial advantage for the Adani Group.

All of these characteristics will help Adani Group build strong businesses in all of its recent ventures.

However, as with any other company, certain risks can affect the Company’s performance.

They are listed below. Due to the mining business’s low ESG score, global funds/strategic partners may be hesitant to invest in the company’s other businesses, as they are now required to invest only in strict ESG-compliant companies.

Because not all costs are passed through in the infrastructure business, commodity price increases always impact margins. The last thing that comes to mind is the massive debt required for CAPEX over the next 3-4 years, which means that net debt is expected to rise significantly.

So, we will have to wait and see how Adani Enterprises develops from here on out.

Until then, keep an eye out for the next blog and our midweek and weekend editions of “Trending Stocks and Stock Insights.” Also, please share it with your friends and family.

Happy Investing!