Tuesday, March 21, 2023

Adani Enterprises’ ₹20,000 crore FPO is now open, analysts remain cautiously optimistic

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  • Adani The follow-on public offering (FPO) of ₹20,000 crore from companies has received a mixed reception from brokers, underlining that the bet on green hydrogen is ‘high risk’.
  • However, if the bet pays off, brokers note it could propel Adani Enterprises into a new league.
  • Overall, brokers remained cautiously optimistic while highlighting the risks and rewards of investing in the company.

Adani Enterprises’ ₹20,000 crore follow-on public offering (FPO) is now open for tender. The FPO is the largest in the history of India Inc and the company has already raised ₹5,985 crore from anchor investors.

While Gautama AdaniThe ambitious $50 billion green hydrogen ambitions require much more funding, brokers remain cautiously optimistic when it comes to their view of the FPO.

Adani is not the only Indian billionaire betting on the future of green energy. His rival, Mukesh Ambani, also set the wheels in motion for a ‘green’ future for Reliance Industries.

The bets on green energy, mainly based on green and blue hydrogen, of these two richest Indians amount to 125 billion dollars. It involves setting up an integrated green hydrogen ecosystem consisting of gigafactories, solar panels and wind turbines to power the electrolysers in those gigafactories.

Why is Adani Enterprises raising ₹ 20,000 crore?

Adani Enterprises plans to use the proceeds from the FPO to meet the investment requirements of its green energy projects and to reduce its debt and that of its subsidiaries.

According to the red herring prospectus (RHP) submitted by the company, ₹10,869 crore has been earmarked for its green hydrogen projects apart from improving the existing airport facilities and constructing a greenfield highway.

Adani Enterprises also plans to use ₹4,165 crore for partial repayment of debts of Adani Airport Holdings, Adani Road Transport and Mundra Solar.

Green hydrogen ‘high risk’, but Adani has made ‘rapid progress’, analysts say

Nirmal Bang analysts note that this is a high-risk bet by Adani and will play a major role in determining the group’s future.

“Adani Enterprises’ leap into futuristic technologies like green hydrogen with heavy investment could propel the company into a new class or it could bleed its finances if market dynamics shift in favor of other alternative fuels,” the Nirmal Bang report said.

Following the FPO, the promoter group’s shareholding will dilute from the existing 72.63% to 68.94%, according to the RHP filed by the company.

Of the ₹20,000 crore, 35% or ₹7,000 crore is reserved for retail investors, ₹3,000 crore for non-institutional investors and the remaining ₹10,000 crore for qualified institutional buyers.

In its RHP, the company noted that the limited operating history of some of its businesses may not be enough for investors to evaluate the group’s future prospects. It also highlighted its “significant debt burden” as another major risk factor that could negatively affect its future business.

“Adani Enterprises’ business model involves high risk with uncertain business outcomes and so we have a ‘Neutral’ rating on the matter,” the broker added.

On the other hand, Ventura Securities analysts were optimistic about the company’s prospects, saying, “The turbulence in the energy market (after the war between Russia and Ukraine) and climate change have necessitated a rapid shift to alternative clean fuel sources. Green hydrogen has the most potential and Adani has made rapid progress to capitalize on this opportunity.” The brokerage issued a buy recommendation with an investment horizon of 24 months.

While SBI Securities analysts did not give any recommendation, they noted that the company is valued at the top end of the FPO price range of ₹3,276 at a price-to-earnings ratio of 317 times.

In the first phase, Adani Enterprises plans to develop a green hydrogen production capacity of 1 million tons per year by 2030.


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