Adani Group central to India's economic ambitions, says US-based analyst

Billionaire Gautam Adani's sprawling conglomerate is core to India's ambitions to become the world's third-largest economy by 2030, as it plays a key role across the infrastructure sector, US-based Cantor Fitzgerald & Co said in a note.

Adani Enterprises Ltd, the group's flagship company, can deliver a gain of more than 50 per cent, analysts Brett Knoblauch and Thomas Shinske wrote in a note dated January 28, initiating coverage of the company.

"India is now the most populous country in the world and has ambitions to be the world's third-largest economy by 2030. To get there, India needs to invest in both digital and physical infrastructure, in addition to increasing its energy production, as energy consumption will be meaningfully higher," the US-based broker said.

These investments, it said, are paramount for India to drive productivity growth, as GDP per capita of $2,250 is meaningfully below that of China ($12,556).

"Adani Enterprises Ltd is at the core of everything India wants to accomplish," it said.

The firm is the most relied upon company for bringing energy resources into India - it owns eight airports that account for about 25 per cent of airline passenger traffic and 33 per cent of cargo, it is building several data centres throughout the country, it is contracted to lay more than 5,000 km of roads and is an integral manufacturer of solar and wind equipment for the country's renewable energy ambitions.

The risk-reward at AEL is attractive at current levels, it noted.

Analysts said AEL is one of the largest yet most under-covered names in India.

Based on market cap, AEL is the 10th largest non-financial publicly traded company in India, which now has the fourth largest stock market in the world.

"Despite that, it has virtually no analyst coverage, which in our view, has served as a hindrance to investor education of not only AEL but all of Adani-named businesses. To that extent, we believe much of what the investor community knows about Adani has come from a short report published in early 2023.

While the Hindenburg report brought to light "serious concerns", the company has taken actions to reduce liquidity risk (from share-backed loans), improve governance, and increase transparency.

Adani Group has repeatedly denied Hindenburg's allegations of accounting fraud and stock manipulation, which at its lowest point, had wiped away more than $150 billion of the group's market value.

"At this juncture, we believe Adani is too big to ignore, and for India, we believe the country needs Adani as much as Adani needs the country," Cantor said.

AEL has a proven history of incubating and spinning out businesses, it said, adding that since its founding in 1988, AEL has spun out seven businesses that are publicly traded, with a combined market cap exceeding $156 billion.

"Its ability to identify future trends that are key to India has been on display for multiple decades, and we believe this is something that will continue to differentiate AEL for the coming decades. In its current portfolio, we believe there are several businesses that will eventually be spun out, including its airports segment; its data centre joint venture with EdgeConneX (private), and its new energy ecosystem segment, which consists of solar and wind manufacturing, as well as its green hydrogen ecosystem ambitions," it said.