Baazigar O Baazigar..

It was the Mughal emperor Babur who introduced playing cards in India. Little did he know back then that Indians already knew how to play their cards. India is always regarded as one of the "Jugaadu" countries that rely more on makeshifts than something concrete. I don't believe this. Yes, we do engage ourselves in various "jugaadu activities," but we are hell-bent on innovation and permanent solutions. Come what may, we know how to get ourselves out of any situation. You don't believe me? Look at Adani. It's already been 13 months since the Hindenburg-Adani saga, and Adani has come out without a single scratch. After making the allegations public, it was eminent that the group would take a massive hit (not in terms of falling share prices). But it didn't. Do you know why? Because he knows how to play his cards effectively and with charm. How did Adani come out of the situation that Hindenburg put him in? How did Adani manage to gain shareholder confidence? How did Adani pull this off? I will answer all these questions in today's blog. So, without any further ado, let's dissect his moves. 

His way out of the situation was a combination of multiple strategies that he executed flawlessly. One such strategy was acquiring valuable assets all over the globe. These are not some random assets. Every asset that he has acquired has been of utmost importance, not just to the group, but also to the country he bought that in. Let's start with India's biggest cargo handling port Mundra. Adani built his first port at Mundra into a logistics and transport hub that is now India's biggest commercial port by volume. Adani ports and special economic zones control 24% of India's marine cargo market, making it a dominant player. 

Comprising 13 ports, as well as warehousing, grain silos and railways, APSEZ is able to generate revenues worth $1.5 - 2 billion. The company did not stop and ventured outside by acquiring ports in Sri Lanka, Myanmar and the iconic Haifa Port of Israel. Bypassing from Suez Canal, Haifa port cuts the shipping time from Mumbai to Europe by almost 40%. Haifa port is expected to be the biggest revenue generator for Adani ports.

Adani started the transmission business in 2006 in order to power assets across India, including a distribution business in the financial capital of India in which the Qatar Investment Authority holds a 25% stake. Habibi's don't like to invest where they might lose their money. Adani is still investing heavily in building electricity projects, and Fitch puts Transmission's debt at around 5 times its earnings. But bankers argue that many of Adani's power projects, including solar, operate under government contracts and are regarded as reliable sources of cash. 

Hoping on the next assets, they are the 7 airports. Adani emerged as the surprise victor of India's airport privatization push in 2018, winning the right to operate and develop all six facilities up for auction. The group also acquired India's biggest airport in Mumbai and is building a brand new one in neighboring Navi Mumbai. His next wild card entry was in the cement sector. Adani became India's second-biggest cement maker virtually overnight when it acquired Holcim's Indian assets, Ambuja Cement and its subsidiary ACC, in a $10.5 billion deal last year. Ambuja is debt-free and has just over $1 billion of cash and cash equivalents. One Mumbai financier pointed out that these cement businesses are "cash cows," which Adani could potentially borrow against. 

One of the major allegations Hindenburg alleged Adani made was round tripping of money. Hindenburg alleged that Adani took bank loans in Adani Enterprise for the specific purpose of growing his subsidiary companies, but then siphoned that money into 38 shell companies registered in tax havens, allegedly controlled by Vinod Adani. This money was round tripped into India as "foreign direct investment" via P notes, so as to inflate the prices of his parent company. These inflated valuations allowed him to take on more loans, keeping his shares as collateral. 

Now how did he manage to prove Hindenburg wrong on this one? This is a blog in itself. It is true that Adani was diversifying and expanding at a breakneck speed, most of it on borrowed money, but what people forgot to factor in was his wide asset base, his ability to raise as much capital as he wants from anywhere, his close connections with every government, and his business acumen. Tell me one thing. When did you last hear that a businessman is richer than Ambani's? As far as I can imagine, every time it has happened in the past, the promoters have paid a big price. Look at the promoters of Sun Pharma, Anil Ambani, Satyam, and many more. The Hindenburg report has acted as a speed breaker for the group, forcing them to think about their strategies. 

As a confidence-building measure, the group paid debts of Rs 1500 crore to SBI Mutual funds and returned over $2 billion of money that he had pledged against his shares. When you carefully analyze the statements given by mutual funds that have stakes in the group, one thing that everyone pointed out was the group's ability to generate cash. SBI said that "even after factoring in the share price fall, their cash flows are adequate to meet debt obligations." The group has become so big that calling him a small-scale economy wouldn't be wrong. People do criticize him and the government when it comes to building megaprojects. The fact is, no one else has the ability to undertake projects that are structurally, geographically, and economically so important for India. Look at FY 23 and the past 2 months of FY 24. The group has been active in the debt markets, and Adani shares have already recovered from their bottom. 

Another strategy that Mr. Adani used in order to make his enterprise bulletproof was to get the backing of major financial institutions like the Abu Dhabi Investment Trust, the Saudi Pension Fund, the Quatar Investment Authority, LIC, SBI, and investors like Rajiv Jain. Having them as investors provides the required assurance that retailers need. Ignoring everything, one must acknowledge the business acumen this man has. I'll share a story about the Mundra port. It was Congress CM Chiman Bhai Patel in the 1990's that gave Adani the right to operate a minor port in the Kutch desert that did not even have a rail connection. In order to generate revenues for his port, he strategically identified the one item that India always needed, and that was coal. He started importing coal in large quantities. 

To handle large volumes, he built the world's largest and most automated coal handling facility, including 22 kilometers of conveyer belts, which allowed multiple ships to unload at the same time. Then, to promote the use of his port for exports, he built a special economic zone and also provided the businesses with electrical supplies. He then added a massive terminal, turning barren land into the country's largest port. A foot is nothing short of a miracle. Do visit the Mundra port to see how far this group has gone in terms of automation. 

Mr. Gautam Adani's life and the late Mr. Dhirubhai Ambani's life have a lot of similarities. Both of them came from a middle-class background. Both of them build a cash cow business. Both of them had a unique way of doing business. Both of them are accused of being close to politicians, and both of them had persistence and ambition to build the best and to not compromise on quality. 

Adani today has become a "too big to fail" conglomerate. It's true that India has a lot of dependency on this group. It's true that this group has a lot of debt. It's true that this group is politically well connected. It might be that the group is indulged in round-tripping. But it is also true that he has the ability to borrow. He has the ability to generate cash. He has used his political connections, not for his benefit but for the betterment of this nation. Shah Rukh Khan once said that you can hate me or you can love me, but you can't ignore the fact that I am Shah Rukh Khan. Similarly, you can hate the group or you can love the group, but you can't ignore the group.