Grip on India’s Economy Fuels Rebound After Hindenburg

By Advait Palepu, Jin Wu, Adrian Leung and Yasufumi Saito

July 30, 2023, 8:00 PM EDT

Over three decades, billionaire Gautam Adani built a vast infrastructure network across India that’s become indispensable for both local businesses and foreign firms like Apple Inc. and Amazon.com Inc.

That control over parts of the country’s transport links, coal production and private electricity supply has proved a trump card for the Adani Group as it attempts to recover from the fallout of fraud allegations by Hindenburg Research. The short seller’s January report knocked as much as $153 billion off the Adani Group’s value, and set off regulatory probes in India. Key findings are expected in coming weeks.

An overarching question lingers: What are Adani’s long-term prospects after its Hindenburg crisis?

Data compiled by Bloomberg show that Adani has the highest market share within the private sector in most of the Indian sectors in which it operates. Adani companies handled about 43% of all shipping containers in this nation of 1.4 billion, a third of all coal transported, about 22% of private thermal power capacity, the largest number of solar and wind plants, and 51% of India’s private electricity transmission. His airports help move nearly 75 million people annually, more than the population of France, and his ambitions are now expanding to doorstep delivery and logistics.

These numbers — based on government data and the group’s financial reports — describe a ports-to-power conglomerate that’s running vast swathes of the world’s fastest-growing major economy.

A graphic diagram that illustrates that fact that Adani has footprint in each step of the energy supply chain in India.

The conglomerate’s large size means that any major upheaval to its infrastructure has the potential to ripple through the Indian economy. The group has denied all Hindenburg’s allegations, but the tycoon lost his position as Asia’s richest man and his conglomerate faced funding challenges soon after the report was published in late January. While its stocks are recovering and share sales helped raise cash, the crisis highlighted the challenges of keeping such a sprawling infrastructure empire afloat.

Critics including opposition political parties have raised questions about what they say are close links between Adani and Prime Minister Narendra Modi’s government, although the billionaire has repeatedly denied that his firms receive any special treatment. Adani says his group’s strategy is to wed itself to the Indian growth story — and infrastructure is becoming increasingly central to that boom.

Components for Apple products could make their way through Adani ports. Amazon packages might pass through Adani transportation systems. Any stoppages by Adani Power’s plants could put the lights off in some areas, affecting homes and also factories. The conglomerate’s influence is also growing dramatically in the renewable energy space, where it’s the leading player and is outshining even state-owned enterprises. So even as regulatory uncertainties loom, the Indian economy’s dependence on Adani could allow his profits to keep growing.

“These are not boom and bust industries,” said Nirmalya Kumar, Lee Kong Chian professor of marketing at Singapore Management University, who has served on the boards of several Indian companies. “The return on capital is steady and has little risk because ultimately, these assets will see increasing usage and thus cash flows with the growth of India.”

In an email, the Adani Group said its ability to execute mega infrastructure projects fast and at a low cost has helped drive growth and margins. The conglomerate’s business is on “a solid footing,” leverage ratios are at comfortable levels and it follows all laws, the statement said.

Photo of two people passing Adani’s Mundra Thermal Power Plant in Gujarat. — Adani’s Mundra Thermal Power Plant in Gujarat can light up millions of homes in India. *Photographer: Dhiraj Singh/Bloomberg*

Cog in the Chain

One of the biggest names in emerging markets investing, Rajiv Jain, who bought into the conglomerate after the Hindenburg report, has said that he was attracted by the group’s infrastructure assets.

Early on, the Adani empire astutely avoided entering into areas where rivals like the Tata Group or Mukesh Ambani’s Reliance Industries Ltd. were already deeply entrenched. Instead, it sought to control the value-chain for a sector and then relentlessly invested in inter-connected businesses. In thermal power, Adani owns coal mines in the heart of India, Indonesia and Australia. These coal blocks are transported via Adani ships to Adani ports and then are fed into Adani Power’s plants across the country. The power plants then supply electricity through Adani Transmission’s cables into households and businesses across the country.

A graphic that shows Adani and its key competitors footprint in each step of the power supply chain. — Sources: Company websites

But this infrastructure chain does not exclusively serve Adani’s needs. Other local and global businesses also use Adani’s value-chain for their own needs. Whether it’s a rival thermal power plant requiring coal from abroad, an automobile manufacturer that imports steel, an electronics retailer bringing the latest handsets and gadgets from Southeast Asia or an oil and gas company importing raw crude from the Middle East, it is highly likely that an Adani port is being used. It’s also likely that Adani supplies electricity to that manufacturer.

So companies from the Tata Group to car maker Maruti Suzuki India Ltd. to Apple and Samsung Electronics Co. might end up using a piece of Adani’s infrastructure. “At this stage, India’s infrastructure buildout in large measure is premised on the Adani Group delivering on its promises,” said Milan Vaishnav, director of the South Asia Program at the Carnegie Endowment for International Peace.

Ships, Trains and Planes

Adani Ports and Special Economic Zone Ltd. has 14 ports across India, in addition to terminals in Sri Lanka, Israel and Australia, according to a May 2023 presentation.

By capturing a number of points of entry and exit, Adani’s ports command a significant share of the cargo and container ships docking at and leaving Indian shores. This means that most consumer items that Indian households import such as laptops and phones most likely pass through an Adani-owned port before reaching the customer. These operations are strategically important for India’s global trade.

The company handled 24% of all cargo imported or exported last year. According to the company, about a third of all coal imported into India goes through an Adani port.

A graphic that uses number of highlighted shipping containers to indicate how many of shipping containers leaving and arriving India are handled at Adani's port network. — Source: Adani Ports and Special Economic Zone Ltd

Note: Graphic shows April 2022 to March 2023 fiscal year data

Adani Ports is the largest private ports operator. But the conglomerate also owns its own private railway network in India, which is 300 kilometers long. That’s in addition to a rail line in Australia. Adani also plans to build 12,000 km of roadways by 2026 in India.

With the seafront and rail network secured, Adani looked skyward a few years ago. India has nearly 150 airports, most of which are managed by the government. Adani is the largest private player in the space.

A graphic that uses number of highlighted airplane windows to indicate how much of air passengers in India travel through Adani's airports. — Source: Adani Enterprises Ltd

Note: Graphic shows April 2022 to March 2023 fiscal year data. It includes passengers on international and domestic flights operated at India’s airports.

Source: Adani Enterprises Ltd

Note: Graphic shows April 2022 to March 2023 fiscal year data. It includes passengers on international and domestic flights operated at India’s airports.

The group operates seven airports and is constructing its eighth, the Navi Mumbai International Airport outside Mumbai city. In the fiscal year ending March 2023, Adani’s airports handled 790,000 tonnes of cargo. GQG’s Jain has pointed to Adani’s coal mining assets, his data centers and his majority stake in Mumbai’s busy international airport as signs of a robust business.

“We believe the airport itself could be worth more than the company,” Jain has told Bloomberg.

Powering India

A treemap chart that shows how much of India's thermal power generation was from private operators and how much of that was from Adani. — Source: National Power Portal

Notes: Data as of April 30

Even though the state controls more than 91% of India’s electricity grid, Adani seized the opportunity as the government handed out more and more contracts to private players over the past six years.

While Tata Power Ltd. and Anil Ambani’s Reliance Power Ltd. were the ones to bag government licenses for large thermal power projects, Adani decided to set up his own coal-based power plant in Mundra, Gujarat around the same time. More than a decade later, Adani Power is the second largest thermal-power producer in the country after state-owned NTPC Ltd.

A chart showing top 10 thermal power plants in India, ranked by capacity. — Source: Central Electricity Authority of India

While its overall share in terms of installed capacity and generation is fairly low given the dominance of state-owned enterprises, Adani Power accounts for 20% of private power capacity. It accounts for only 5% of its total thermal power generation because of the control by government firms, according to data from the Central Electricity Authority of India. Adani’s transmission network is the main electricity distributor for the 22 million residents of India’s financial capital, Mumbai.

“Big is a relative concept,” the group said in its statement, pointing to areas like power generation, where government or state-owned entities dominate. “Our transmission network and substation capacity are in the low single digits of the entire industry, while our coal trading volumes are less than 10% of Coal India’s.”

A set of small charts that show top three private operators in thermal power generation, transmission lines and renewable energy capacity. — Sources: National Power Portal; Central Electricity Authority of India; Company documents

Note: ckm = Circuit kilometer

Fossil fuels are, however, running out and countries across the world will begin to scale back their reliance on thermal power over the next three decades.

Adani Green Energy is the single-largest renewable energy company in India. The group plans to invest $70 billion over the next decade in green energy projects, including solar cell manufacturing and green hydrogen with a target of 20 GW of renewable energy capacity. At an annual meeting this month, the billionaire touted plans to build a massive wind and solar facility in the deserts of Gujarat, the home state of Adani and also Prime Minister Modi.

The conglomerate said close to 85% of its investments over the next seven years will go into creating a green energy ecosystem, including transmission lines, transport and logistics. The majority of its future revenue and earnings could come from the green space, it said.

Photo of solar panels at an Adani operated solar plant in Telangana. — An Adani operated solar plant in the Indian southern state of Telangana. *Photographer: Mahesh Kumar A./AP Photo*

While the sharp share declines after the Hindenburg crisis forced the Adani conglomerate to cancel a planned share sale and temper its expansion goals, the group has since raised billions in equity capital, paid off some of its debt and is in talks to refinance more. An interim report by a court-appointed panel in May said that while Hindenburg’s report led to a crash in Adani Group stocks, it could not find any regulatory failure connected to violations of securities laws. Now, India’s capital markets regulator has an Aug. 14 deadline from the Supreme Court to submit an investigation report into any securities law violations by the conglomerate, as well as any unusual market activity in its stocks.

The billionaire has already begun to highlight large projects that are in the works, although investors are likely to first focus on results from the probe that’s expected next month.

Grip on India’s Economy Fuels Rebound After Hindenburg

Cog in the Chain

Ships, Trains and Planes

Adani Ports Handle Most Shipping Containers Entering and Departing India

Powering India

Top 105 Power Plants in India

Top 3 Private Companies in India’s Energy Industry