Adani business revamp to unlock shareholder value
The group intends to move towards a structure that will have four independent, listed entities for four major business segments
Ahmedabad/Mumbai: Adani Enterprises Ltd, the holding company of the $9.4 billion (around ₹ 58,000 crore) Adani Group, on Friday outlined plans for a major business reorganization aimed at unravelling its corporate structure and unlocking shareholder value.
The group intends to move away from the holding company structure and move towards one in which it will have four independent, listed entities for its four major business segments.
The ports business of Adani Enterprises will be folded into Adani Ports and Special Economic Zone Ltd and all its power assets will be merged with Adani Power Ltd as part of the restructuring, the company said.
The power transmission business will be run by Adani Transmissions Ltd, which the group plans to list on BSE and the National Stock Exchange. The listing of Adani Transmissions, which has over 5,000 circuit km of power lines in western, northern and central India, is expected to unlock value.
Adani Mining Pvt. Ltd will be folded into Adani Enterprises.
The rearrangement will provide shareholders of Adani Enterprises direct holding in the operating companies and is “expected to unlock value for the shareholders of AEL (Adani Enterprises) by eliminating holding company discount", the company said.
After the restructuring, Adani Enterprises will be overseeing businesses including mining, city gas distribution, edible oils, agro commodity trading and logistics.
“The scheme of arrangement will simplify corporate structure and is a decisive step towards unlocking the potential value of the Adani Group companies," said Gautam Adani, the billionaire chairman of Adani Group.
“The scheme of arrangement will drive next level of value creation, competency, decision making and would be able to accelerate the business growth. These developments and positive macro-economic environment re-affirm our commitment towards securing infrastructure and energy need of the country," he added.
Investors cheered the announcement. Shares of Adani Enterprises rose 7.79% to ₹ 629.50 each on a day BSE’s benchmark Sensex fell 1.68% to 29,182.95 points.
The restructuring will reduce the ₹ 58,000 crore debt on the books of Adani Enterprises, officials said. Debt will be proportionately transferred to the units that will be spun off in the restructuring exercise.
The reorganization will be initiated by 1 April, subject to regulatory and other approvals. Chairman Adani and the promoter group hold a 75% stake in Adani Enterprises. The remaining is with the public, with institutions holding 21.2%. Of the 21.2%, foreign institutional investors hold 18.61%.
Experts said Adani Group’s restructuring is largely in line with a corporate trend in which large corporations are realigning their businesses to unlock latent shareholder value.
In the past, Larsen and Toubro Ltd, Grasim Industries Ltd and Vedanta Plc have carried out similar restructuring exercises. Most recently, Max India Ltd said it will split into three separate units—life insurance; health and allied businesses; and manufacturing.
A leading consultant who closely tracks the Adani Group said, on condition of anonymity, that given the group has a presence in multiple businesses, it was inevitable that it should spin off various units to sharpen its focus.
“From a promoter perspective, this restructuring will help to increase the valuations of the holding company and respective demerged companies. For instance, the port business with Adani Enterprises would not fetch a better valuation compared to a situation when it is with...Adani Ports. The current move will clean up the structure and derive maximum valuation for all units," he said.
For shareholders, the restructuring exercise is accretive in the long term, he added. “Shareholders will be getting shares of different companies under the restructuring and they are not saddled with lower valuations. Post-restructuring, shareholders will be having the flexiblity to sell out or stay put, based on the performance of the companies," he said.
The consultant said the Adani Group can sell shares of the mining firm at a future date, while the transmission company is likely to get a better valuation considering its business prospects.
On 26 December 2013, Mint reported that the Adani Group is considering separating its transmission business and spinning it off into a separate entity, citing unnamed officials.
The plan is for the separate entity to set up transmission lines across the country; eventually, it may sell shares to public and list on stock exchanges, Mint had reported.
Separately, Adani Enterprises said on Friday that fiscal third quarter profit rose more than sixfold on a consolidated basis.
Consolidated net profit increased to ₹ 444 crore in the three months ended 31 December from ₹ 68 crore in the year-ago quarter. Consolidated revenue increased by 30% to ₹ 17,850 crore from ₹ 13,739 crore in the same period, it said.
“Our overall performance has improved due to higher contribution from coal, ports and logistics, and power businesses," Ameet Desai, executive director and chief financial officer of the Adani Group, said in a statement.
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