MBS Project - Adani Group

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Anish Uppal 1014005

Balajikasiram Sundararajan 1014010

Mahesh Srivastava 1014025

Shailendra Jain 1014049

Adani Group Growth and Diversification Strategy

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Declaration

We hereby declare that this report titled “Adani Group - Growth and Diversification

Strategy” submitted towards the partial fulfillment of the Multi-Business Strategy course of

EPGP at Indian Institute of Management, Bangalore is an authentic record of our work and

does not contain any material that has been taken from any source except as acknowledged.

Anish Uppal 1014005

Balajikasiram Sundararajan 1014010

Mahesh Srivastava 1014025

Shailendra Jain 1014049

Date: 4th October, 2010

Place: Bangalore

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Table of Contents

1. Introduction ................................................................................................................. 5

1.1. Background ...................................................................................................... 5

1.2. Motivation ....................................................................................................... 5

2. Adani Group - Current Picture ...................................................................................... 6

2.1. Corporate Structure ......................................................................................... 6

2.2. Business Overview ........................................................................................... 7

3. Growth Strategy ........................................................................................................... 10

3.1. Major Events .................................................................................................... 10

3.2. Structure of Analysis ........................................................................................ 12

3.3. Phase 1 (1988-1994) - Trading .......................................................................... 14

3.4. Phase 2 (1994-2003) - Diversification in Power, Port, Edible Oil and SEZ ........... 17

3.5. Phase 3 (2005-2010) – Further Diversifications ................................................. 28

4. Conclusion .................................................................................................................... 34

Exhibit 1: Industry Attractiveness – Import Export trading business in 1980’s ................ 37

Exhibit 2: AEL Financials at a Glance .............................................................................. 38

Exhibit 3: Key Subsidiaries and Joint Ventures ............................................................... 40

Exhibit 4: Ports in India ................................................................................................. 44

Exhibit 5: Traffic in Indian ports ..................................................................................... 45

Exhibit 6: Adani Enterprises 5yr Stock Price ................................................................... 47

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Abbreviation and Acronyms

Acronym Description

JV Joint Venture

LoI Letter of Intent

LoA Letter of Approval

M&A Mergers and Acquisitions

SEZ Special Economic Zone

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1

Introduction

1.1. Background

The Adani Group, founded by Mr. Gautam S. Adani in 1988 was primarily a trading house for

commodities. The group grew and established itself in import / export and trading and went

public in 1994. Since then this group has grown and diversified into several businesses;

currently the group operates in Power, Infrastructure, Ports, Global trading, and Energy. The

group is now known as Adani Enterprises.

1.2. Motivation

Over the last 22 years, the Adani Group has grown into a conglomerate with annual

revenues of over Rs. 26000 crores. This Gujarat based Indian conglomerate has more than

50 companies under it. The group has 30 offices, including 8 overseas offices in USA, UAE,

China, Singapore, Indonesia, Mauritius and Myanmar. The company launched an IPO in 1994

that was oversubscribed 25 times. Due to high growth, its flagship company, Adani

Enterprises, was placed among the top 50 Asian Companies by Forbes Asia in the year 2009

and its rank is 1865 in Forbes Global 2000 for the year 2010.1

The high growth of the group makes it really interesting to understand how the group was

able to accelerate and sustain its growth during turbulent times. It is also interesting to study

how the group diversified into various businesses, the main business driver for its growth

and what will be/should be its future strategies.

1 http://www.forbes.com/global/2010/0927/fab-50-10-rio-tinto-wesfarmers-itc-who-runs-fab-50.html Forbes Asia Magazine

dated September 27, 2010 http://www.forbes.com/lists/2010/18/global-2000-10_The-Global-2000_Company.html accessed on 2nd October 2010

http://www.forbes.com/global/2010/0927/fab-50-10-rio-tinto-wesfarmers-itc-who-runs-fab-50.html

http://www.forbes.com/lists/2010/18/global-2000-10_The-Global-2000_Company.html

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2

Adani Group - Current Picture

2.1. Corporate Structure

7

The corporate structure of Adani group is shown above. The group is basically organized into

trading and projects. The trading activities involve coal, power, agro-commodities, ferrous

scrap and precious metals (Only coal and power are shown in the following figure)2, while

the project activities are diversified into a wide spectrum ranging from mining, power, and

infrastructure to Edible oil refining and Agri logistics.

The ports business (MPSEZ) is not shown in the figure above because the decision to

merge MPSEZ into Adani Enterprises Limited was taken in October 2009 and the merger is

yet to take place. However, for the purpose of analysis, we will consider MPSEZ as a part

of AEL.

2.2. Business Overview3

Currently, Adani group operates in a diverse range of sectors such as power project

development, coal mining, commodities trading, real estate development, agro-processing,

city gas distribution and logistics. The group had total revenues (revenue from sales and

operating income) of Rs. 26,258.28 crores for Fiscal 2009.

Adani Group’s trading business includes trading in coal, power, agro-commodities, ferrous

scrap and precious metals. This group is one of the largest traders of coal in India for the

year ended March 31, 2009, with coal mining rights both in the international and domestic

markets. According to Central Electricity Regulatory Commission Adani group was one of the

largest power traders by volume in India for the year ended March 31, 2009.

Adani Group’s energy business includes power generation and transmission, oil and gas

exploration, coal mining (as mine developer and operator), gas distribution and ship fuelling

(or “bunkering”). Adani Power, a subsidiary of Adani group is developing six thermal power

projects with a combined installed capacity of 9,240 MW and is planning to develop three

power projects with a combined installed capacity of 3,960 MW. Adani Power is also

venturing into power transmission through projects set up by Adani Power and its

2 Sourced from Adani Enterprises Limited, letter of offer dated 12th March 2010 (Page 60)


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subsidiaries. In addition, Adani Power has been allocated two coal blocks in India to mine

coal for one of its power projects.

Adani group has entered into oil and gas exploration sector and formed a joint venture,

Adani Welspun Exploration Limited (in which the Welspun Group has 35% stake), for oil and

gas exploration. Adani group is also involved in the business of bunkering at Mundra port

through Chemoil Adani Private Limited, a 50:50 joint venture with Chemoil Energy Limited,

Singapore.

Adani Group’s real estate business includes development of a township, and residential and

commercial projects. The group is currently involved in developing a township in

Ahmedabad, Gujarat; a commercial office space of approximately 1.50 million sq. ft. in

Mumbai’s Bandra-Kurla complex; a residential project in Borivali, Mumbai, and a residential-

cum-commercial project in Byculla, Mumbai.

Adani Shipping, a wholly-owned subsidiary of Adani group has entered into a contract for

purchase of two newly-built capesize vessels4 with expected delivery by December 2010.

The Group’s agro-related business is focused on manufacturing, storage and transportation

of various agricultural-based products in India. Through a 50% joint venture with Singapore’s

Wilmar Group, Adani group has a significant presence in the Indian edible oil industry and it

operates several fully integrated (from oilseed crushing to oil packaging) refineries. Adani

group subsidiary, Adani Agri Fresh has set up modern controlled-atmospheric storage

facilities for the storage of fruits and vegetables. The group has also entered into a 20 year

contract with the Food Corporation of India to store and transport food grain.

Mundra Port and Special Economic Zone Limited (MPSEZ), India’s largest private port and

special economic zone, was incorporated as Gujarat Adani Port Limited (GAPL) in 1998 to

develop a private port at Mundra, on the west coast of India. The company commenced

commercial operations in October 2001. Mundra Special Economic Zone Limited (MSEZ) was

4 In dry bulk shipping, Capesize vessels are classified as ships with a cargo-carrying capability (referred to as the Deadweight

tonnage or DWT) in excess of 100,000 metric tonnes. (http://www.glgroup.com/Dictionary/EI-Capesize-Vessel-Industry.html accessed on 3-October-2010)

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incorporated in November 2003, to set up an SEZ at Mundra. MSEZ was merged with GAPL

in April 2006. The company was renamed as Mundra Port and Special Economic Zone

Limited.

In a major restructuring exercise, Adanis, the promoters of Mundra Port and Special

Economic Zone Ltd (MPSEZ) have decided to merge their 81% equity holding with Adani

Enterprises Ltd (AEL), the flagship company of Ahmadabad-based Adani group. With this,

MPSEZ will become a subsidiary of AEL. The restructuring exercise would bring all group

businesses under one flagship entity AEL.5

5 http://www.adanigroup.com/inthepress.html#api accessed on 30th October 2010

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3

Growth Strategy

In 1980, Gautam Adani was an ordinary worker in a Mumbai diamond processing unit

earning a salary of Rs 1,000 a month. Today, he is the king of a vast empire which boasts an

annual turnover over Rs 26,000 crores.6 He was even named the 10th richest man in India by

Forbes. In this section we shall systematically analyze the reasons behind this meteoric

growth.

3.1. Major Events

Following table outlines the major events in the history of Adani Enterprises.7

Year Business Activity Business Areas

Phase 1

1988 - 1993

Gautam Adani started Industrial Commodity Imports (Raw Polymer for Plastic Industries)

Registered as a partnership firm

Commenced trading in commodities

Trading

Import / Exports

6 http://indiatoday.intoday.in/site/Story/21105/Economy/Growth+curve.html, accessed on 02 October 2010

7 Following resources were accessed on 29th September 2010 -

http://www.adani.in/AnalistReport/I-Sec_March_08.pdf, http://www.adani.in/AnalistReport/Enam_Jun_09.pdf, http://www.adani.in/coal.htm http://en.wikipedia.org/wiki/Mundra_Port http://www.portofmundra.com/ http://www.adani.in/AnalistReport/Pioneer%20Research%20Report_AEL.pdf, Mundra Port and special economic zone ltd, prospectus dated 14th November 2007, Adani power Ltd Prospectus dated 5th June 2009 http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId=5579672 Adani power Ltd Prospectus dated 5th June 2009, page 180

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Year Business Activity Business Areas

Phase 2

1994 – 2003

Incorporation of Adani Power Ltd

Commenced Coal Trading Business

Incorporated Adani Global FZE in Dubai for trading commodities

Gujarat Adani Port Ltd. incorporated, a joint sector company promoted by Adani Port Limited and Gujarat Port Infrastructure Development Company Ltd.

Adani Wilmar - 50:50 JV between Adani group and Wilmar holdings (for edible oil manufacturing)

Incorporated Adani Global PTE in Singapore for trading activities

SEZ establishment in Mundra (MSEZ is first largest private SEZ in India)

Power Generation

Port development

Edible Oil

SEZ Development

Phase 3

2004 – 2010

Incorporated Adani Shipping PTE, Singapore, a wholly owned subsidiary of Adani Power Ltd

Started Adani Logistics Ltd

Started Adani Agri Fresh ltd

Started Adani Mining private Limited

Incorporated PT Adani Global - 100% subsidiary for mining operation in Indonesia

Started Adani Gas Ltd - Gas Distribution

Started Adani Welspun Exploration Ltd - AWEL - Oil & Gas Exploration & Production Joint Venture

Became a Public Ltd Company (AEL – Adani Enterprises Ltd)

Chemicals

Logistics

Agro Products

Mining

Gas distribution

Oil and gas

exploration

Mining

Trading

Import / Export

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3.2. Structure of Analysis

Adani group vision as stated by the chairman Gautam Adani.8

“Dear Members, let me state that our company has demonstrated its ability to attain scale in

any business it has ventured into and this is the beginning of its journey. Our vision by year

2020 is to operationalise generation capacity of 20,000 MW, 200 Million Tonnes of Coal

mining, 50 Million Tonnes of Coal trading and to build the largest integrated Agri business”

Growth strategy of Adani Group given in the rights issue document.9

“Trading is a low margin business, is susceptible to fluctuation in commodity prices and is

heavily regulated by the government. In Fiscal 2009, AEL generated approximately 80% of

its revenues from trading activities. However, in order to insulate ourselves from the

inherent fluctuation in the trading activities, we seek transform ourselves from being a

trader of assets to an owner of assets. We seek to leverage our experience in commodities

trading and access to commodities including coal, iron ore and steel scrap to evolve into an

asset-backed trading entity participating directly in the energy, shipping, agricultural and

infrastructure sectors in India and, in certain areas, overseas”

8 http://www.adani.com/ChairmansSpeech-AEL-2009AGM.pdf accessed on 2nd October 2010

9 page 44, Adani Enterprises Limited, letter of offer dated 12th March 2010

http://www.adani.com/ChairmansSpeech-AEL-2009AGM.pdf

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In this section we have attempted to analyze the various phases in AEL’s journey from its

inception to what it is today. We have divided the evolution of AEL into three phases based

on the event time line presented in previous section.

Phase 1 (1988 – 1993) - Trading Phase

Phase 2 (1994 – 2003) – Power, Ports, Edible Oil and SEZ

Phase 3 (2004 – 2010) – Further diversifications

Our analysis is organized in the following manner.

We will structure our analysis phase wise. For each phase, we will begin by exploring the

motive behind the expansion or diversification, and then we will study and analyze the

method used for diversification (JV, Acquisition or Greenfield). In the analysis of

diversification, we will try to validate the suitability of the method used in the given context.

Subsequently, we will study the fit of the parent and child (in case of acquisition), and the fit

of partners (in the case of JV). Finally, we will conclude with our observations. At the end of

the phase wise analysis, we will correlate the observations of all the phases and try to

construct an overall picture. We will try to see whether the current growth strategy is

moving in the right direction for the Adani group to achieve its goals. In the process, we will

try to identify gaps, if any, and suggest possible measures to address these gaps.

We will use the following theoretical frameworks in our analysis:

Six Questions Exercise10

Porter’s Three Essential Tests11

Fitment of Resources, Synergies and Market Factors12

10 To Diversify Or Not To Diversify by Constantios C. Markides, HBR November-December 1997

11 From Competitive Advantage to Corporate Strategy by Michael E. Porter, HBR May-June 1987

12 "When to Ally & When to Acquire", Jeffrey H. Dyer, Prashant Kale and Harbir Singh, HBR July-August 2004

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3.3. Phase 1 (1988-1994) - Trading

Context13

The Adani group has its beginnings in a plastic packaging factory set up by Gautam Adani’s

brother in 1982. In this period, due to the license raj, there was a very high demand for

polymers. The domestic manufacturers, Shriram chemicals, IPCL, and NOCIL were not able to

cater to the demand. So, the Indian government issued import quotas to make up for the

shortfall. In that period, the Indian plastic industry was fragmented and there was no

coordinated buying and hence no possibility of getting discounts from the foreign vendors.

This scenario presented an opportunity for Gautam Adani to set up “Adani Associates”, a

trading firm for import of polymer trading. Adani Associates was able to exploit this

opportunity and was able to aggregate demand, import in bulk and distribute among the

small buyers. Adani Associates was able to place orders in huge quantities (in the range of

5000 to 10000 tonnes) while others placed orders in the range of 2000 tonnes or lower. This

was a huge growth period for Adani associates. In 1988–89 the Indian government gave

100% tax exemption to earnings from exports subsequently “Adani Associates” became

“Adani Exports” and started trading in a wide variety of commodities such as ferrous and

non-ferrous metals, fabrics, sugar etc. The company went public in 1994.

Motive for Diversification

This phase was not a “Diversification” phase, but a phase of growth in a single “Trading

Business”

Method of Diversification

Not Applicable

Analysis

Since this is a start of a new business we will begin with a “Porters 5 forces analysis” to

measure the industry attractiveness (Exhibit 1). From the analysis we can see that the

trading business in the 80’s was “Medium to High attractive”.

13 www.portofmundra.com/newsroom/Businessindia.pdf accessed on 2-October-2010

http://www.portofmundra.com/newsroom/Businessindia.pdf

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Now let us examine the resources that Adani Exports has, and what it needs to be successful

in the Trading business. The resources Adani Exports has are:

Knowledge & Network in plastics industry – Prior to starting commodity export-

import, Gautam Adani had exposure to plastic packaging industry

Knowledge of International trade – Because of his exposure to diamond trading, he

possessed some knowledge of international business.

The following are the resources Adani Exports requires:

Knowledge of international trade

Import Quotas & Licenses

Political connections

Ability to aggregate demand

Large Capital

Well-oiled distribution mechanism

Evidently, Adani Exports needed to fill several gaps to be successful in the trading business,

It used the following strategies to fill these gaps:

Adani Exports managed to get credit from Gujarat export bank with a credit

guarantee of doing business worth at least Rs. 2 Crore per annum. Further, Adani

exports collected advances from the industrial consumers10.

There is no specific evidence of Adani’s political connection in the 80’s. However

Adani’s close connection with sibling of Gujarat chief minister Chiman Bhai Patel was

a key driver in speeding up activities in Mundra port14. Hence we can infer that

Adani had requisite political connections to obtain necessary quotas and permits.

Thanks to Adani’s network with plastic product manufacturers, Adani Exports could

aggregate the demand to bargain in the international market.

We were unable to find evidence of an efficient, well-oiled distribution mechanism

14 www.portofmundra.com/newsroom/Businessindia.pdf accessed on 2-October-2010


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Results & Observations

The bulk import of raw material for plastic industry was the first step in the much larger

import-export business. Starting with the plastic polymer import, it gained a foothold in the

commodities trading business which helped Adani Exports to enlarge its portfolio. This large

scale trading business possibly provided Adani Exports with

Initial lessons in managing a large organization

Access to capital

Knowledge of international business

Possible Political connections

Experience in supply chain management

Adani Exports went public in 1994, and its IPO was oversubscribed 25 times.15 It seems that

investors also accepted the growth path of Adani Exports.

15 http://www.adani.com/milestones.html accessed on 2nd October 2010

http://www.adani.com/milestones.html

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3.4. Phase 2 (1994-2003) - Diversification in

Power, Port, Edible Oil and SEZ

Context

During this phase Adani Exports diversified into Ports, SEZ, Edible Oil, and Power.

Ports and SEZ

Adani Exports was dealing in trade of commodities that were low price and high volume. The

key to this business was a smooth and well integrated supply chain. Initially 80% of the

goods were handled through Kandla and Mumbai ports. But these ports were congested,

and the delays caused heavy handling and storage charges. To overcome this problem and

maintain a smooth supply chain, Adani group started looking out for options. Adani group

was in a JV with Cargill for salt exports In Mundra, and building a Jetty was part of the

project. Problems in the JV resulted in pull out of Adani exports. But, the Idea of building

ports began to take shape. In 1995, when the Gujarat state government announced a policy

of private port development, Adani group and the state government formed a JV, Gujarat

Adani Ports Ltd (GAPL). Thus began the foray of Adani group into the ports business.16 When

the Indian government announced SEZ policy, Adani group started working on Gautan

Adani’s pet project of setting SEZ at Mundra.

Power Generation

The Adani Group wanted to capitalize on the growth of the Indian power generation sector

and realize the opportunities presented by the power sector reforms. This led to the

establishment of Adani Power in 1996.

Edible Oil

The per capita consumption of edible oil in India had been increasing in 1990s. It increased

from 6.8 kg per year in 1991 to about 10 kg per year in 1990-200017. A growing population,

increasing rate of consumption and increasing per capita income were accelerating the

16 www.portofmundra.com/newsroom/Businessindia.pdf, accessed on 2nd October 2010

17 http://www.iimahd.ernet.in/~graghu/2009%201%20Adani%20Wilmar%20Limited%20(AWL).pdf

18

demand for edible oil18. This prompted a joint venture between Adani Group and Wilmar

Trading Private Limited (WTPL) Singapore in June 1999.

Dropsy, technically known as oedema, refers to the abnormal accumulation of fluids in the

body. It causes a type of swelling called oedema. It is a typical 'impurities' disease caused by

an accumulation of waste products in the blood.19 In the mid 90s dropsy struck Delhi. 60

people died and around 3,000 fell sick. Mustard oil laced with argemone was blamed for the

malady. Sale of loose mustard oil was banned, and strict regulations were imposed on

packaging by several states in India.20 To exploit this opportunity, Adani Exports formed a JV

with Wilmar (a leading player in the World packaging Industry). In the same period, the

Government introduced differential duty on Refined and Unrefined oils, thereby making

import of refined oils costlier and unrefined oil cheaper. The JV set up a refining unit in

Mundra. Today Adani Wilmar has several brands in the edible oil segment including

“Fortune” cooking Oil.21


Ports and SEZ

With the increased export and import, Adani group was facing port infrastructure problems

that affected its business negatively. This prompted Adani group to undertake private port

development in Mundra. With the new SEZ policy, Adani group undertook another “related”

diversification in SEZ by developing an integrated SEZ in Mundra so that the Mundra port

can be utilized to the full capacity. The key success factors in setting up a port include tie-ups

with major container lines, a balanced import and export cargo mix and availability of round-

the-clock container management services for speedier evacuation. The Mundra port

adopted modern cargo handling facilities which are more operationally efficient. This saves

time during cargo handling giving it a distinctive advantage.

18 http://www.ameft.com/picture/upload/file/08.pdf

19 http://www.best-home-remedies.com/popular/dropsy.htm, accessed on 2nd October 2010

20 http://www.indiaenvironmentportal.org.in/node/37842, accessed on 2nd October 2010

21 www.portofmundra.com/newsroom/Businessindia.pdf, accessed on 2

nd October 2010


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Power Generation

One of the most critical success factors for power generation is the availability of cost-

effective fuel sources throughout the lifetime of the project. One of the major commodities

Adani group imports is coal. The coal imported through the Mundra port is being used by

Adani power. Currently, coal powers more than half of India’s electricity plants22. The Adani

power project is located close to the Mundra port operated by the promoter group

company. The power plant is located very close to a coal-jetty which lowers the

transportation cost of the raw material. Close proximity to the sea will ensure water for

steam generation and cooling.

Adani Power had twin aims – exploit growth potential in the power sector, and satisfy the

energy needs of Mundra SEZ.

Edible Oil

The Adani group diversified into the edible oil business when they realized that they could

leverage their own distribution network to give them a competitive advantage. Since there is

little difference in the raw material and the processing cost of edible oil, one of the major

areas where one could get a competitive advantage was in managing the supply chain.

Transportation accounted for about 70% of the total supply chain cost. This would mean

that an optimal distribution network was important for success in this business.

Consumption patterns of various edible oils differ from region to region. For example, in the

west of India soya oil, ground-nut oil and cottonseed oil are preferred. Adani Wilmar Limited

(AWL) planned to market its refined edible oil in western and northern India, since it would

give the company a distribution advantage due to easy serving from Mundra.


The Mundra Port and Special Economic Zone was a joint venture between the Adani

group and the Gujarat Port Infrastructure Development Company Ltd (GPIDC Ltd), an

undertaking of the Government of India.

22 http://economictimes.indiatimes.com/news/economy/foreign-trade/India-ready-for-huge-coal-import-boom-

Adani/articleshow/6642630.cms

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Adani setup its power generation plants through a Greenfield venture.

Adani Wilmar Limited was a result of a 50-50 joint venture between the Adani group

and Wilmar Trading Private Limited (WTPL) of Singapore in June 1999.

Please refer to exhibit 3 for more details.

Analysis

This whole phase (phase 2) of diversification seems to revolve around the trading business.

Port business is started to drive trading business, and SEZ is started to drive port business. Is

this the right move? What was the impact of this diversification on all the businesses? We

will try to answer these questions using various analytical frameworks.

We can use to “Constantinos C. Markides’s six question” framework to analyze Adani’s

strategy to diversify into the Ports, SEZ, Power Generation and Edible Oil businesses. This is

described below:

1. What can our company do better than any of its competitors in its current market?

Because of its experience in the trading business, Adani group possessed the

following crucial assets which proved to be very useful in its foray into port, power,

edible oil manufacturing and SEZ

Capability of managing a large enterprise

Access to capital

Knowledge of international business

Expertise in supply chain management

Extensive supply chain and distribution network

Government contacts

Of all the strengths shown above, the Adani group has been able to use its extensive

supply chain and distribution network to its advantage. Its distribution network has

been particularly useful in success of its trading business and is a key differentiating

factor for the Adani group.

2. What strategic assets do we need in order to succeed in the new market?

To conquer the territory Adani was operating in, the location of the Mundra trading

port made a big difference. The port is located close to major shipping routes to

western countries. MPSEZ’s hinterland consists of the most industrialized states in

India, which account for nearly 70% of India’s container traffic.

21

Other assets critical for Adani to succeed were:

Know-how of Power generation and distribution

Fuel supply for power generation

Power plant operational capabilities

Project management skills

Know-how of port development

Technology for speedy cargo handling

Land Acquisition

Know-how of edible oil manufacturing

Capacity , Mindset and patience to handle a completely different business

with long gestation periods (Ports and SEZ)

3. Can we catch up to or leapfrog competitors at their own game?

For this let us have a brief overview of the overall scenario in each sector in the 90s

Edible Oils – AWL’s is marketing its edible oil in Western and Northern India is

because it is easier to serve these geographies from Mundra. The company would

find it difficult to serve East and South India since road freight is higher than ocean

freight. In fact, it may be cheaper to serve East India from countries located to the

east of India. Hence, it is not advisable for Adani to serve the East and South of India

unless they piggy-back on someone else’s distribution network.

Power Generation – Public sector companies like NTPC, and post reforms a host of

private sector companies. However the demand for power was so high, there was

space for a lot more to enter into generation and transmission space.

Ports – Prior to 2000, there were a total of 11 major ports in India23 (Please refer

exhibit 4), and all of these were government operated ports. Key success factors for

success of a port are strategic location, hinterland connectivity; tie up with container

lines, and speed of cargo handling. Mundra port had the advantage of location; it is

the nearest point of contact in the Indian sub-continent to reach Middle East and

through Suez Canal to Europe and USA24. Proximity to land locked north also adds to

23 http://www.imaritime.com/backoffice/published_files/India_Port_Report_Numbered.pdf. page 19

24 http://www.imaritime.com/backoffice/published_files/India_Port_Report_Numbered.pdf. page 180

http://www.imaritime.com/backoffice/published_files/India_Port_Report_Numbered.pdf

http://www.imaritime.com/backoffice/published_files/India_Port_Report_Numbered.pdf

22

attractiveness of Mundra. Congestion in nearby ports provided the additional

incentive. If Adani group could achieve speed of cargo handling, and infrastructure

for hinterland connectivity (Road, Rail, etc.) prospects of success are quite high.

However Adani group should be mindful of the fact that this port can effectively

service only Western and Northern India. High road freight charges makes servicing

of Southern India unviable.

4. Will diversification break-up strategic assets that need to be kept together?

By comparing the existing and required assets, it seems that management

bandwidth, and distribution network are the assets that might come under pressure.

However we feel that this limited diversification may not completely break up these

assets and affect the existing business.

5. Will we be simply a player in the new market or will we emerge a winner?

The Ability of Adani group to emerge as a winner in power depended on the group’s

ability to

Operate the power plant efficiently

Good transmission facilities

Fuel availability

If the group were able to fulfill the above requirements, given the demand for power

in India, there was a good chance for Adani group to succeed in the Power business.

In the 90s, there was a steady increase of port traffic in India both in terms of

commodities and container traffic (Exhibit 5). This depicted a good growth chance in

the ports business. The Ability of Adani group to emerge as a winner in ports

depended on the group’s ability to

Have good connectivity with hinterland

Efficient cargo handling

Given the steady increase in per capita consumption of edible oil in India and with a

penetration of 90% in India25, Adani has potential to supply soya oil to part of

25 Edible Oil Consumption in India by P.Ramesh and M.Murughan http://www.ameft.com/picture/upload/file/08.pdf

http://www.ameft.com/picture/upload/file/08.pdf

23

Western and Northern India along with rise in per capita income. It may not be able

to emerge as a winner due to edible oil consumption preferences and inability to

penetrate the Eastern and South Indian markets.

6. What can our company learn by diversifying, and are we sufficiently organized to

learn it?

For a group that was involved only in trading, the learning opportunities are

multitude. The company can learn how to manage multiple businesses, and how to

use synergies between these businesses if any. Even more importantly, the Adani

group can learn to work in industries that involve very high gestation periods

compared to trading. The Group can learn project management and operations of

plants. We were unable to find out the level of organization in the Adani Group to

facilitate this learning.

At a macro level, it seems that it was beneficial for the Adani group to diversify into the

Power, Ports, and Oil business. Let us now analyze the individual diversifications in more

detail.

Analysis of the Green field Power Generation Venture at Mundra

To analyze the conditions Adani would have considered before foraying into the Power

Generation business, we will refer to the framework, detailed by Michael Porter, which lists

the three essential tests that need to pass for a diversification to truly create shareholder

value.

1. The attractiveness test

The power generation business is a high attractive industry since:

The barriers to entry are high

Suppliers and buyers have moderate bargaining power

Substitute products are very few and not as economical

Rivalry between competitors exists but the demand exceeds the supply of

power

This structure of the power generation industry made it high attractive to the Adani

group.

2. The cost-of-entry test

24

A critical success factor for power generation is availability of cost-effective fuel

sources throughout the lifetime of the power project. For Adani Power, the most

important resources were coal and availability of water. Adani Power was able to

source coal very easily through its shipping and distribution network and hence the

cost-of-entry for Adani group in power generation was extremely low.

3. The better-off test

Adani Power Ltd’s strategy in Power Generation is as follows:

Capitalize on the growth of the Indian power generation sector

Realize the opportunities presented by power sector reforms and benefits

extended by the Government of India

Benefit from the power scenario in Western India

Adani Power located its power generation plants close to power deficit areas so that

it can capitalize on the opportunity available to supply power to these areas. Overall,

Adani group would benefit from this diversification strategy.

Analysis of Adani group’s JV with Gujarat Port Infrastructure Development Company Ltd

Adani Group’s partnership with Gujarat Port Infrastructure Development Company Ltd can

be analyzed in the framework proposed by Dyer, Kale and Singh26 –

Criteria Evaluation Suggested Strategy

Type of Synergies Sequential

(AEL used this port as a cargo port for AEL’s overseas trading business)

Equity alliance

Nature of Resources

(Relative value of soft to hard resource)

High

(AEL primarily partnered with GPIDCL for their skills in port development)

Equity alliance

Extent of Redundant Resources Low

(There was little if any commonality in resources between AEL and GPIDCL)

Non-equity alliance

26 "When to Ally & When to Acquire", Jeffrey H. Dyer, Prashant Kale and Harbir Singh, HBR July-August 2004

25


Degree of Market Uncertainty High

(It was not certain whether the Mundra port would be successful. Some critics question that even today.)

Equity alliance

Level of Competition

(Degree of competition for resources)

Medium

(AEL initially tried to partner with Cargill however the JV could not take off. There was enough competition in establishing the port infrastructure in Gujarat cost.)

Equity alliance

From the above analysis, we can infer that various factors related to resources, synergies

and market conditions favored going for an equity alliance. Hence Adani Group’s decision of

forming JV with GPIDCL seems to be a move in the right direction.

Analysis of Adani Group’s JV with Wilmar International

Similarly we can analyze Adani Group’s partnership with Wilmar International Limited of

Singapore. (Wilmar is Asia’s leading agribusiness group specialized in oilseeds crushing and

edible oils refining apart from its other businesses.)



(AEL’s import was to be used in the edible oil refining unit which was Wilmar’s area of expertise)

Equity alliance

Nature of Resources


High

(AEL primarily partnered with Wilmar for their skills in oilseed crushing and edible oil refinement)

Equity alliance

Extent of Redundant Resources High

(Wilmar has expertise in the entire value chain of oilseed production, processing, extraction and distribution however they did not have

Equity alliance (from

AEL’s perspective)

26


presence in Indian market) Acquisition

(from Wilmar’s

perspective)

Degree of Market Uncertainty Low

(India is one of the largest market of edible oils in the World)

Non-equity alliance



Medium

(With the opening of Indian economy in 1990s there was rush for establishing businesses in various sector.)

Equity alliance

Most of the factors above indicate that it was in Adani Group’s advantage to go for joint

venture with an established player like Wilmar. In return, Wilmar got access to AEL’s local

market knowledge and distribution network in India.

27


Adani group has diversified in a calculated manner by utilizing its distribution network to its

strength. The new businesses setup are heavily dependent on distribution, however, the

subsidiaries do not run the risk of hold-up since the distribution network is owned by the

promoters.

Adani group capitalized on the rise in edible oil consumption in India and started processing

unrefined soya oil imported from other countries and distributed it to West and North India.

However, it has not been able to widen its product line by trying to supply other commonly

used oils like mustard, rapeseed and sun flower oil. It is also not viable for the company to

export to locations other than West and North of India.

Due to congestion in other shipping ports in Gujarat, the Adani group chose to start up a

new port in Gujarat. The group started the SEZ complex offering a distinctive advantage in

terms of better occupancy of the SEZ and committed cargo to the port. The state-of-art

technology used in the port gives it a competitive advantage in the West coast. The port has

the capacity to witness continued traffic growth.

The strategic location of APL’s power projects enjoys advantages like easy access to fuel,

water and proximity to power deficit areas. At the time of going public, investors had

concerns about the Adani group having no experience in power generation and distribution.

However, this green-field venture of Adani group has proved extremely successful over the

years with a large amount of expansion on the cards. The only disadvantage Adani Power

has is its dependence on coal as a raw material. Adani group has mitigated this risk by

backward integrating and owning coal mines both domestically and internationally. The

latest government initiative to generate “cleaner” power may pose a threat for Adani’s coal-

based power generation plants in the years to come.

28

3.5. Phase 3 (2005-2010) – Further

Diversifications

Context

Adani group’s hitherto flagship company Adani Exports name was changed to Adani

Enterprises Limited (AEL) in 2006. From now on in the analysis, Adani group and AEL will be

used synonymously.

This is the current period in the evolution of the Adani group. In this phase of further

diversifications, AEL is trying to redefine its business model by entering into asset based,

high margin business and by investing in sectors such as coal mining, agro, real estate, and

oil and gas. AEL is investing heavily in multiple sectors attempting both forward as well as

backward integration. AEL is also infusing additional capital in its existing businesses too. For

example, it is laying private transmission lines for sale of power generated by AEL’s power

plants. In the subsequent sections we will try to understand the motive behind these

diversifications.


Adani Agri Logistics

According to the Economic Survey 2004-05, the growth rate in the agriculture and allied

sector was 9.6 percent in 2003-04 and is estimated to grow 1.1 per cent in 2004 - 05. India’s

total grain stocks grew by 7.3 per cent to 23.6 million tons (mt) as on Nov, 2004, according

to the Food Ministry. India's food grain production rose to 209 million tons in the fiscal year

ending in March 2006, from 205 million tons last year according to the Centre for Monitoring

Indian Economy. Agreement with FCI, new technology and consistent growth in food grain

production opened an opportunity for AEL to grow organically. 27 Adani Agri logistics was set

up to capitalize this opportunity. Adani Agri Logistics Ltd. (100% subsidiary of AEL) is

responsible for development and operation of bulk food grain handling, storage and

transportation facilities.

Adani Agri Fresh

27 http://www.adani.in/AnalistReport/KRC-Adani_EntreprisesLtd.pdf

29

Himachal Pradesh alone produces 2 crore apple boxes p.a. but poor Agri-infrastructure—

including storage, pre-cooling and logistical facilities—causes more than 25% of the produce

to spoil between harvest and consumption. Adani Agri fresh Ltd was established to capitalize

this opportunity. Adani Agri Fresh Ltd (100% subsidiary of AEL) got approval from Himachal

Pradesh government for the establishment of Controlled Atmosphere’ (CA) storage and a

controlled atmosphere-chain network in the four districts that comprise the apple belt.28

Coal Mining

India is the third largest producer of coal in the world. The all India coal demand assessed for

the FY06 is 436.46 MT (million tonnes). Against this demand, availability of coal in FY06 is

indicated as 412.50 MT. Thus there would be a gap of 23.96 MT between demand and

supply and this is likely to be met through import mainly by steel, power, and cement

sectors. The domestic coal imports have been posting a CAGR of ~14% in the last 5 years and

the same is expected to accelerate to around 22-25% by 2010. India's coal demand is

expected to increase manifold within the next 5 to 10 years due to the completion of on-

going power projects and demand from metallurgical and other industries. Although the

nation has 200 billion tonnes of coal reserves but this is not sufficient enough to meet the

burgeoning demand as huge investment are lined up mainly in power sector which envisages

an addition of 50,000 MW by 2010.29 This is a growth sector for the Adani group to move in.

Oil and Gas

With exponential growth of energy demand in India, it makes sense to foray into the

business of finding energy resources. But the choice of Welspun, a textile and pipe

manufacturing company with much lesser expertise in oil exploration is a surprising choice.


Adani Agri Logistics Ltd, and Adani Agri Fresh Ltd are greenfield ventures.

Adani Group’s entry into Oil and Gas exploration is a Joint venture with Welspun

resulting in Adani Welspun Exploration Limited (AWEL)

Adani Gas Ltd is a green field venture for Oil and Gas distribution



30

Adani Mining Ltd is a green field venture for coal mining, however Adani Mining has

entered into JV with RRUVNL for mining operations.

Analysis

Adani Agri logistics, Agri Fresh, and Gas distribution are more related to trading business and

exploit the group’s Government contacts (For contracts with Food corporation of India),

supply chain and distribution capabilities. Our analysis is more focused on the group’s

mining and gas exploration businesses.

Analysis of Adani Group’s Partnership with Welspun

Adani Group’s partnership with Welspun in the field of Oil and Gas Exploration is very

interesting. Here Adani did not prefer established foreign partner to bring expertise.

Welspun’s subsidiary “Welspun Natural Resources Pvt Ltd” is already active in the field of oil

and gas exploration. According to Mr. Gautam Adani, he chose welspun to share

management responsibility and get the expertise of different like-minded promoters in

different fields in order to ensure a faster growth.30

Following is an analysis of Adani Group’s partnership with Welspun in the framework proposed by Dyer, Kale and Singh31 –



(AEL did not have management expertise to handle this sector but it had necessary liaison skills that are required for getting government contracts in India for exploration.)

Equity alliance

Nature of Resources


High

(AEL partnered with Welspun to bridge the skill gap in oil and gas exploration.)

Equity alliance

30 (Adani has done well by being collaborative, not combative) http://www.dnaindia.com/money/column_adani-has-done-well-

by-being-collaborative-not-combative_1188970 31

"When to Ally & When to Acquire", Jeffrey H. Dyer, Prashant Kale and Harbir Singh, HBR July-August 2004

31



(AEL brings the contract to the table whereas Welspun has the execution capabilities.)

Non-equity alliance


(There is large market for oil and gas Worldwide.)

Non-equity alliance



Low

(AEL apparently did not face much competition for getting an appropriate partnership.)

Equity alliance

Clearly, various factors related to resources, synergies and market conditions favored

going for an equity alliance. However it is not clear why Adani group went ahead with

forming a partnership with an Indian business house not so well known for their expertise

in Oil and Gas Exploration. Probably some other factors such as political compulsion have

played part in making this decision.

Analysis of Adani Group’s Partnership with RRUVNL

Similarly we can analyze Adani Group’s partnership with RRUVNL (Rajasthan Rajya Vidyut

Utpadan Nigam Limited).



(AEL is looking at the supply of coal for its thermal power plant at Mundra.)

Equity alliance

Nature of Resources


Low

(AEL had to partner with RRUVNL for access to collieries to which only RRUVNL had license.32)

Non-equity alliance

32“Parsa East and Kente Basan Coal Block” at

http://www.aifl.net/CompanyProfile/ManagementDiscussion.aspx?id=83&FinCode=112599 accessed on 2-October-2010

http://www.aifl.net/CompanyProfile/ManagementDiscussion.aspx?id=83&FinCode=112599

32



(Both the companies are operating in different part of the value chain.)

Non-equity alliance


(India is one of the largest market of coal since 70% of the electricity generation needs are fulfilled by coal based thermal power plants33)

Non-equity alliance



High

(There is high clamor for getting access to coal sources across the world.)

Acquisition

Even though most of the factors above point in the direction of non-equity alliance

however Adani Group has gone for an equity alliance in form of a joint venture possibly to

ensure the exclusive supply of coal to its power plants. Interestingly due to high level of

competition, it is suggested to go for an outright acquisition, the business and organization

structure prevents doing an acquisition and RRUVNL is a public sector unit. Wherever

possible, Adani Group has owned the coal mining venture as it has done in Indonesia

through its subsidiary PT Adani Global.34


Adani Group has set its target on broadening its reach in the value chain especially in Energy

sector with power plants, Oil and gas exploration, distribution, and power trading. With

burgeoning energy demand in India, it is a good sector to target. However, the group has its

own thermal power plants (coal based) and mines to supply coal to these thermal power

plants. All of this is fine till Thermal power plants are viable economically, and

environmentally. If newer technology (Nuclear Power) or even more importantly, climate

33 http://en.wikipedia.org/wiki/Electricity_sector_in_India accessed on 2-October-2010

34 "Indonesian Coal Mining Concessions at" at

http://www.aifl.net/CompanyProfile/ManagementDiscussion.aspx?id=83&FinCode=112599 accessed on 2 -October-2010

http://en.wikipedia.org/wiki/Electricity_sector_in_India

33

change and environmental regulations make Thermal power generation unviable, the whole

idea of owning everything to generate thermal power may become very costly. A JV for oil

exploration with a partner who has little expertise in the exploration business seems

illogical. Other diversifications into Agri logistics and Agri farm fresh satisfy their goal of asset

ownership while exploiting the group’s supply chain and distribution capabilities.

34

4

Conclusion

The Adani group has come a long way from its humble beginnings in plastic polymer import

business. The promoters’ ambitions did not stop at being a large trading house of India. The

Adani’s have invested the cash generated from the trading business to spawn a number of

new ventures. The large trading business was not just a cash cow for Adani group; it also

helped them in absorbing the lessons in managing a large organization. The trading business

also contributed the invaluable experience of conducting business overseas and supply chain

management. In the initial growth phase, Adani group was probably helped by some political

connection; however the group has proven its resilience in post-liberalization period. It is

particularly impressive how fast Adani group has scaled up its operations (compared to its

formidable competitors such as Reliance) in various sectors particularly SEZ and Ports. For

example, it took only 10 years for Adani group to cross the Rs. 15000 crore mark after Adani

Exports was listed in bourses. Its Mundra SEZ was completed while other SEZs were only in

planning or notification stage.35

Adani group's diversification move coincides with economic liberalization of India. Some of

the diversification moves were prompted by infrastructural deficiencies whereas some

others were made to exploit the emerging opportunities post liberalization. For example,

when Adani group found congested ports of Mumbai and Kandla unsuitable for its growing

export-import business, it decided to build its own private port at Mundra. It made a very

opportune move in edible oil refining helped by government regulation. Some other new

ventures such as SEZ and Power, started in the early diversification phase were a

combination of both needs and opportunities. All these forays required patient capital which

was very different from the group's trading background. Moreover the group lacked

35 www.portofmundra.com/newsroom/Businessindia.pdf (Page 43 and 47) accessed on 1-October-2010


35

experience in almost every sector is diversified into. Consequently, in most of the cases, the

group chose JV route and sought help of an experienced partner.

In the recent past, the Adani group has started to venture out in even more sectors such as

Logistics, Mining, Chemical, Agri products, and Oil and Gas to achieve it stated goal of

moving into asset based, high margin business. It has set its target on broadening its reach in

the value chain especially in power sector. Meanwhile it is trying to synthesize its various

businesses in Adani Enterprise Limited as a cohesive whole.

There is method behind the maddening pace of Adanis. Following patterns can be discerned

in Adani’s decision making process –

Adani group is adept in distribution especially in Western and Northern India. The

Adani group developed this supply chain expertise as part of trading operations.

Some of its ventures are inextricably linked to exploit the capability of utilizing the

supply chain. Examples of such ventures are edible oil refining and Agri businesses.

Adanis prefer to set up a joint venture in case they lack the technical capabilities. In

such cases, Adani group brings either a ready market or a source of raw material to

the table (in addition to capital). Many Adani JVs are set up in this manner so to

cover an entire range of businesses in value chain especially in Power. Today Adani

group mine coal, transport and feed into thermal power stations and distribute the

generated electricity.

Another very observable peculiarity about Adani group companies is that they are

not started as a division of Adani Enterprises Limited. Only once these companies

are established as profit generating entities, they are merged into the flagship

organization. Recently the group has been consolidating its various entities under

the umbrella of AEL.

The Adani group has become a highly vertically integrated group. Due to the

presence in the entire value chain, the group is now able to reap more benefits

hitherto unreachable.

The Adani group is betting high stakes at Power and Infrastructure. There are

opportunities abound in this sector as the Indian government has set ambitious

36

goals of 78.7 GW in the 11th plan for power sector owing to which the power sector

is poised for significant expansion.36

The Adani group seems to have been making all the right moves resulting in high growth. But

the group’s strategy of high vertical integration may prove to be both a strength and

weakness. For example, the group has made many asset specific investments such as the

one in coal mining for completing the entire value chain since its power business is entirely

based on coal based thermal power generation. This can prove to be a non-starter in coming

decades due to increasing environmental concerns and shift towards cleaner nuclear energy.

The Adani group is marching confidently towards higher value businesses to reduce the

exposure to the cyclicality of the commodities trading business. Currently the group has set

its sight on becoming a diversified infrastructure player. The group is also trying to develop a

balanced portfolio of businesses in multiple industry sectors.

We conclude that the Adani group has the ability to leverage its existing capabilities and

assets to expand its product categories, geographical coverage and market presence.

36 Power Sector in India - White paper on Implementation Challenges and Opportunities by KPMG

37

Exhibit 1: Industry Attractiveness – Import Export

trading business in 1980’s

Attractiveness

Remarks Low High

1 2 3 4 5

Rivalry among competitors X

Very less competitors

Barriers to exit X

Very low barriers to exit

Barriers to entry X

Political connections required

to obtain licenses

Threat of substitutes

Not Applicable

Existence of complements

Not applicable

Power of buyers X

Fragmented buyers

Power of suppliers X

Lot of suppliers resulting in low

power of suppliers

Government Action X

No government support

Overall attractiveness X Medium to High attractiveness

Note: This analysis was done based on our knowledge and inference of the situation in India

in the 80’s, supported by studying the following article(s) / reference(s) –

www.portofmundra.com/newsroom/Businessindia.pdf


38

Exhibit 2: AEL Financials at a Glance37

Financials at a Glance (Rs. in Cr.)

Financial Highlights 2008- 09 2007- 08 2006- 07 2005-06 2004- 05 2003-04 2002-03 2001-02 2000-01 1999-00

Asset Employed

Net Fixed Assets 222 219.10 207.98 78.13 56.17 36.00 36.92 38.96 38.17 36.15

Investments 2,156.75 1,494.77 600.82 192.93 46.67 69.38 78.02 56.57 60.02 38.95

Net Current Assets 2,490.91 2,702.46 3,276.83 1,825.81 1,417.28 1,182.74 859.50 899.37 973.97 700.44

Misc. Expenditure - - - 2.84 0.93 - - - -

TOTAL 4,869.66 4,416.33 4,085.63 2,096.87 1,522.96 1,289.05 974.44 994.90 1,072.16 775.54

Financed By

Share Capital# 24.66 24.65 24.65 22.62 22.55 32.05 32.05 42.05 52.55 61.55

Reserves & Surplus 1,618.44 1,313.01 1,019.53 747.81 654.72 591.66 518.63 474.06 454.86 350.03

Shareholder's Funds 1,643.10 1,337.66 1,044.18 770.43 677.27 623.71 550.68 516.11 507.41 411.58

Loan Fund's 3,206.72 3,062.52 3,024.55 1,319.72 839.33 662.54 420.91 475.47 564.75 363.96

Deferred Tax Liability 19.84 16.15 16.90 6.72 6.36 2.80 2.85 3.32

TOTAL 4,869.66 4,416.33 4,085.63 2,096.87 1,522.96 1,289.05 974.44 994.90 1,072.16 775.54

Sales & Other Income 11,587.89 11,624.61 10,155.65 9,339.26 13,518.87 7,155.53 2,872.50 2,825.55 3,065.80 2,853.11

Operating Profit 386.68 363.76 205.21 159.66 132.73 127.92 92.77 67.86 121.68 113.03

Depreciation 12.08 11.25 6.90 3.21 2.11 1.79 1.86 1.89 1.71 2.03

Profit Before Tax 374.60 352.51 198.31 156.45 130.62 126.13 90.91 65.97 119.97 111.00

Tax 48.18 40.44 47.62 38.11 22.33 2.05 2.58 0.30 1.67 0.02

Profit After Tax 326.42 312.07 150.69 118.34 108.29 124.08 88.33 65.67 118.30 110.98

Dividends (Incl. Tax on Dividend)

37 http://www.adani.in/Financials.htm accessed on 2-October-2010

http://www.adani.in/Financials.htm

39

- Equity 28.86 17.30 12.93 11.65 10.31 9.95 6.61 6.61 7.29 4.69

- Preference - - - - 0.19 1.12 1.43 3.65 6.17 5.87

Retained Earning 843.94 606.38 371.61 323.85 257.16 113.01 80.29 55.41 104.84 100.42

* Earning per Share (Rs) 13.24 12.66 6.35 5.24 4.89 5.58 3.94 2.81 5.08 8.01

* Dividend per Share (Rs)

1.00 0.60 0.45 0.45 0.40 0.40 0.30 0.30 0.30 0.30

* Book Value per Share (Rs)

66.63 54.27 42.36 34.58 30.03 27.84 24.86 22.50 21.63 16.88

Debt : Equity Ratio 1.89:1 2.22:1 2.67 : 1 1.46:1 0.96:1 0.47:1 0.29:1 0.04 1.25:1 1.08:1

Bonus Issue - - - - - - - - 0.04

# Includes Preference Share Capital of Rs. 3000 Lacs in 1997-98, Rs. 3500 Lacs in 1998-99, Rs.

3950 Lacs in 1999-00, Rs. 3050 Lacs in 2000-01, Rs. 2000 Lacs in 2001-02, Rs. 1000 Lacs in

2002-03 & Rs. 1000 Lacs

* Figures have been adjusted to make comparable with previous years.

Note: Standalone Figures

40

Exhibit 3: Key Subsidiaries and Joint Ventures38

Adani Agri Fresh Limited (“Adani Agri Fresh”)

Adani Agri Fresh is a wholly owned subsidiary of the Company and was incorporated to

undertake storage and trading of fruits. Adani Agri Fresh has developed integrated,

controlled atmosphere storage facilities in Himachal Pradesh. Adani Agri Fresh contributed

approximately 0.35% of the total revenue in the Fiscal 2009.

Adani Agri Logistics Limited (“AAL”)

AAL is a wholly owned subsidiary of the Company and was incorporated to undertake the

business of bulk food grains handling, storage and transportation. It has entered into an

agreement with FCI to develop, design, finance, construct, operate and maintain state-of-

the-art grain storage facilities. AAL contributed approximately 0.26% of the total revenue in

the Fiscal 2009.

Adani Energy Limited (“Adani Energy”)

Adani Energy is a wholly owned subsidiary of the Company and was incorporated to

undertake gas distribution business. It has established gas distribution network in

Ahmedabad, Vadodara and Faridabad, and has received NOCs to develop and operate gas

distribution network in Noida, Lucknow, Khurja, Udaipur and Jaipur. Adani Energy

contributed approximately 1.23% of total revenue in the Fiscal 2009. The gas distribution

business of Adani Energy was demerged into Adani Energy (U.P.) Private Limited (now

known as Adani Gas Limited) with effect from January 1, 2007 pursuant to a scheme of

arrangement, approved by the High Court of Gujarat through an order dated November 19,

2009.


41

Adani Gas Limited (“Adani Gas”)

Adani Gas is a wholly owned subsidiary of the Company which was incorporated to

undertake gas distribution business. The city gas distribution business of Adani Energy was

demerged and transferred into Adani Gas with effect from January 1, 2007 pursuant to a

scheme of arrangement, approved by the High Court of Gujarat through an order dated

November 19, 2009.

Adani Global FZE (“Adani Dubai”)

Adani Dubai is a 100% subsidiary of Adani Mauritius. Adani Dubai is engaged in trading

commodities, such as coal and metal scrap. It also owns Adani Virginia Inc., a US company

that operates a ship breaking yard in the United States. Adani Dubai contributed

approximately 8.26% of total revenue in the Fiscal 2009.

Adani Global Pte Limited (“Adani Singapore”)

Adani Singapore is a 100% subsidiary of Adani Mauritius and trades in coal, iron ore, agro-

commodities, metal scrap and also imports certain agro-commodities into India. Adani

Singapore contributed approximately 39.29% of total revenue in the Fiscal 2009.

Adani Mining Private Limited (“Adani Mining”)

Adani Mining is a wholly owned subsidiary of the Company and was incorporated to

undertake coal mining operations. It has entered into coal mining services agreement with

Parsa Kente Collieries Limited for undertaking various activities, such as coal mining,

obtaining approvals (including approval of mining plan), acquisition of land, setting up

washery and construction of railway siding at the mine.

Adani Power Limited (“Adani Power”)

Adani Power is a subsidiary of AEL and has been incorporated in India to operate and

construct power projects. Adani Power currently has six power projects under various stages

of development and implementation, which will have a combined installed capacity of 9,240

MW. Additionally, Adani Power is also planning to develop three power projects with a

combined installed capacity of 3,960 MW. Adani Power undertook an initial public offer of

its 301,652,031 equity shares aggregating to Rs. 3,016.52 crores in July 2009 (“APL IPO”).

42

Pursuant to the APL IPO, the equity shares of Adani Power Limited were listed on the Stock

Exchanges on August 20, 2009.

Adani Shipping Pte Limited (“Adani Shipping”)

Adani Shipping is a 100% subsidiary of Adani Power and has been incorporated in Singapore

to operate shipping business. Adani Shipping has entered into a contract for the purchase of

two newly-built capesize vessels with expected delivery by December 2010 for

transportation of coal from the Indonesian coal mines operated by the group.

Adani Welspun Exploration Limited (“Adani Welspun”)

Adani Welspun is a joint venture in which the Company has a 65% stake and undertakes the

business of oil and gas exploration. It has been awarded six exploration blocks in India and

abroad.

Adani Wilmar Limited (“Adani Wilmar”)

Adani Wilmar is a 50:50 joint venture and has been established to operate edible oil

business in India. Adani Wilmar operates several fully integrated (from oilseed crushing to oil

packaging) refineries, with a refining capacity of 3,590 tpd, crushing capacity of 5,650 tpd

and hydrogenation capacity of 525 tpd and its “Fortune” brand is a leading edible oil brand.

Adani Wilmar contributed approximately 11.04% of total revenue in the Fiscal 2009.

Chemoil Adani Private Limited (“Adani Chemoil”)

Adani Chemoil is a 100% subsidiary of Chemoil Adani Pte Limited, which is a 50:50 joint

venture between the Adani Mauritius and Chemoil Energy Limited and undertakes the

business of bunkering. Adani Chemoil contributed approximately 0.48% of total revenue in

the Fiscal 2009.

Parsa Kente Collieries Limited (“PKCL”)

PKCL is a joint venture of the Company, wherein the Company owns a 74% equity interest

for mining coal from Parsa East and Kante Basan coal blocks in Chhattisgarh. PKCL and

RRVUNL have entered into a coal mining and delivery agreement pursuant to which PKCL

will act as exclusive contractor for mining coal from these blocks and delivering coal to

RRVUNL's power stations.

43

PT Adani Global (“Adani Indonesia”)

Adani Indonesia is owned by Adani Mauritius and Adani Singapore and has been set up in

Indonesia to undertake coal mining business through contractual arrangements with

Indonesian entities. Adani Indonesia will carry out mining in the island of Bunyu in a

concession spread over 1,000 hectares.

44

Exhibit 4: Ports in India39

39 Page 34, http://www.imaritime.com/backoffice/published_files/India_Port_Report_Numbered.pdf

45

Exhibit 5: Traffic in Indian ports40

40 Page 204 - 207, http://www.imaritime.com/backoffice/published_files/India_Port_Report_Numbered.pdf

46

47

Exhibit 6: Adani Enterprises 5yr Stock Price41

41 http://www.moneycontrol.com/india/stockpricequote/trading/adanienterprises/AE13, accessed on

04th Oct 2010

http://www.moneycontrol.com/india/stockpricequote/trading/adanienterprises/AE13

MBS Project - Adani Group

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