As Adani Shares Drop, How Will It Impact Group’s Green Plans

Shares of the Adani Group have been ambushed over the past week, dropping upto 40% in some cases. The report on the group by US based short seller Hindenberg research, a firm specialising in short selling shares with detailed public reports on their thesis, has done serious damage, coming as it did just before a massive Rs 20,000 crore FPO (Fixed Price Offer) from group flagship, Adani Enterprises Limited. While the drop in valuation no doubt hurts, how much damage could it do to the group’s green energy plans? Keep in mind that the Adani group has announced plans to invest over $70 billion in India’s energy transition, with investments planned across the supply chain.

Consider Adani Green Energy Limited (AGEL), the group’s listed green energy developer arm. AGEL, in presentations to analysts as recently as November 2022, had confirmed that a total pipeline of 20.4 GW is fully funded and confirmed. This includes almost 7 GW of operational assets that are generating strong cash flows. With projections of reaching 8.5 GW of operational assets by March this year, the firm is well placed to ride out the drop in stock price, considering it has successfully raised funding in FY23, notably from Abu Dhabi based International Holding Company PJSC (IHC) which invested ~ USD 500 mn as primary capital towards acquisition of 1.26% equity stake in AGEL. Pressure, if likely is going to come when it comes to inorganic acquisitions, where AGEL has been an active player thus far, as it may not want to stretch its balance sheet until March 2024, when it hopes to have operational assets of over 12 GW to back its growth ambitions.

With debt as sustainable levels, AGEL has the leeway to grow and meet its target numbers, as long as it stays away from large acquisitions. Watch out for the Q3 results on February 7 to get some indicators on the immediate impact, if any.

Adani Power, the other group firm in the power sector is almost completely focused on thermal energy, so the impact there is unlikely to impact the group’s green energy plans. With the firm also marking a strong turnaround in profitability since FY22, even this one is likely to be shrug off the stock market blows reasonably well.

Which brings us to ANIL, or Adani New Industries Limited, the wholly owned subsidiary of Adani Enterprises Limited the firm in the eye of the storm. Being completely in investment mode, ANIL is the group’s chosen vehicle to expand its presence in the solar supply chain beyond Adani Solar Limited, which is a strong player in the cell and module manufacturing business. Plans like Ingot manufacturing, Green Hydrogen, Electrolysers and are all housed within ANIL, and it is those plans that seem most at risk of delays. As a firm completely into investment mode currently, cost of funds and ready access were crucial to the kind of quick execution the group is known for, and that, we feel, is the most at risk in the short to medium term. Aggressive acquisitions to complete a full offering for the solar portfolio might also have to be pushed back.

Will this setback open up opportunities for other key players, be it the Tata Power group or Even Reliance? Whatever happens, considering the key role these Adani Group firms have played in India’s green energy transition, there is no doubt that they remain the most well placed to recover fastest and back on track, if this setback does blow over quickly as the group is hoping and working for.