I met Gautam Adani, Asia’s richest man, 23 years ago. It was at his headquarters in Ahmedabad in Western India. The 37-year-old was unknown beyond his home state.
The Adani Group was then a commodity trader. It was looking to enter infrastructure by promoting a port project. I was then an analyst in a private equity fund.
Adani’s manner was quiet and polite. He spoke softly, switching between English and his native Gujarati. My colleague Faizal Syed asked piercing questions about the financial viability of his port. Adani brushed them aside with supreme confidence in India’s trading potential.
This week, Adani made a triumphant arrival in Singapore. There is conference hyper- inflation in this town. Each day passes with another sparkling event featuring business leaders. But, none of the conferences was as prominent as the Forbes Global CEO Conference. None of its attendees was as rich.
With a fortune of US$187 billion ($268 billion), Adani is now the second richest man in the world. The Forbes event is one of his first appearances on the world stage.
The Adani Group is a sprawling conglomerate with US$13 billion in revenue. Its interests include commodities, infrastructure, power and real estate.
Determination was vital in this story. He was one of seven children of a minor trading family in Ahmedabad, and the fourth of five sons. It is a rags-to-riches tale in that Adani’s family had a history in textiles. His father was a trader in cloth. Adani’s father had a small cloth shop. It was similar to the sari shops found in Little India.
Adani found university boring. At 18, he stopped his studies and moved to Bombay. The young man had horizons well beyond his father’s textile shop. The teenage Adani had an iron will to make it in the city. He found a job as a diamond sorter. India is a massive importer of African diamonds. The raw diamonds are cut and distributed in the country.
Adani’s edge was his sharp memory and hustle. He was able to recall the clinching features in diamonds. He also squeezed the best deal from the buyers. The young man was handsomely rewarded. By the age of 20, he was a millionaire in rupee terms.
He then turned his attention to importing plastic pipes and commodity trading. These businesses were strictly licensed in the license raj era. But Adani had a way with the regulators.
Diversification was another pillar of Adani’s rise. By the late 1990s, Adani had emerged as India’s most prominent vegetable oil importer. Vegetable oil is a vital source of cooking oil.
Adani diversified into areas of business that were related to cooking oil. For instance, he bought a shipping line to improve his trading margins. Ports had long been a bottleneck for India’s development. He obtained a license to build India’s largest port. Today, one tenth of India’s trade passes through the Adani Port on the Arabian Sea.
Debt was the final pillar of Adani’s ascent. His rapid rise could not have been achieved without a complex web of lenders. According to Credit Sights, the total debt in the Adani Group stands at US$32 billion. The group businesses are highly cash flow generative and dominated by fixed assets. This feature has made it the darling of banks.
However, the group’s outlook is not entirely rosy. Adani Enterprises, the group’s listed flagship, has a net debt to ebitda of 5x. This level could be a challenge as interest rates are climbing. Also, Adani’s net worth and the group’s stock price have risen 33-fold in the last three years.
The dizzying ride has been driven by trading in companies with tiny free floats. The valuations of the group’s companies defy explanation. Adani Green is trading at 1100x trailing P/E. It’s close comparable, Tata Power, is at 48x.
The best proxy for Adani’s success may not be in India. It is listed on the Singapore Exchange and headed by another billionaire Kuok Khoon Hong: Wilmar International.
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Since 1999, Wilmar has operated a joint venture in cooking oil with Adani. In January, this joint venture, Adani-Wilmar, was listed. It is trading at a valuation of 104x P/E.
Despite the recent gain in commodity prices, Singapore-listed Wilmar is trading at just 7x trailing P/E. Adani’s uncut diamond may be on this island.
Nirgunan Tiruchelvam is head of consumer sector equity at Tellimer and author of Investing in the Covid Era. He does not hold any position in the stocks mentioned in these columns