In September and October 2018, the Modi government awarded 126 contracts to firms to set up and operate piped natural gas networks and fuel stations across India.

These bids were notable for three reasons. First, the number of contracts given out in these two months was significantly higher than those given in the previous nine years – 35 contracts under the Congress-led United Progressive Alliance government, and 63 contracts under the Modi government until then.

Second, the government put these contracts up for bidding even though the networks for transporting gas to these cities and districts are still not in place. By March 2017, India had laid 17,753 km of pipeline for natural gas. An executive tracking these auctions at Swan Energy, a company in the natural gas sector, said another 13,000 km of pipeline is needed before gas can be supplied to the new areas.

Though these bids have been evaluated on factors like the number of houses and vehicles that bidders will convert to piped gas in the first five years, the bidding has been done without clarity on when gas will reach these areas and at what price.

The largest winner of the bids was Gujarat-based Adani Group. In a bidding process that saw 23 participants for 126 tenders, the group won 25 bids – 15 on its own and 10 in a joint venture with government-owned Indian Oil Corporation. Other companies bagged fewer contracts.

A dizzying burst of growth

These gas contracts are part of a larger pattern of growth for the Gautam Adani-led infrastructure conglomerate. One part of the expansion has come through acquisitions.

In 2018, apart from winning the gas bids, it acquired Reliance Power’s electricity transmission business in Mumbai, GMR’s thermal power project in Chhattisgarh, Larsen and Toubro’s Katupalli port near Chennai, and a power transmission line owned by KEC International in Rajasthan. The group also bid for 51% in a power project owned by Tamil Nadu-based Coastal Energen, which is still undecided, and came close to buying Ruchi Soya.

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The group also entered new businesses. Towards the end of 2018, bagging a project to treat wastewater in Allahabad, it entered the sewage treatment market. In February 2019, when the Modi government invited bids from private players to manage six airports, the Adani Group, a newcomer to airport management, trumped established players like GMR and bagged all six contracts. In January, it announced a plan to set up solar-powered data centres in and around Visakhapatnam, Andhra Pradesh.

Apart from these, the group kept investing in its existing businesses.

This mix of acquisitions, new businesses and organic growth can be seen in previous years as well. Between 2014 and 2017, the Adani Group acquired projects like Lanco’s Udupi thermal power project and L&T and Tata’s Dhamra port in Odisha. It also entered new sectors – wind energy, solar manufacturing, lending, power distribution, and aerospace and defence. In September 2017, it tied up with Swedish defense giant Saab to make unmanned aerial vehicles and helicopters.

As the maps below show, as recently as 2013, most of the group’s assets were located in Gujarat. Six years later, it straddles most parts of India. In an emailed statement, a company spokesperson said: “From its modest beginning, the group is now present in more than 260 cities across India.”

The group has also diversified its areas of operation. The company’s statement said the group has “interests in resources (coal mining and trading), logistics (ports, logistics, shipping and rail), energy (renewable and thermal power generation, transmission and distribution), agro (commodities, edible oil, food products, cold storage and grain silos), real estate, public transport infrastructure, consumer finance and defence.”

Already the dominant player in sectors like coal and edible oil, the group is now close to becoming the behemoth in India’s public utility infrastructure space.

“Every economic epoch has a few companies which have proximity to power, interest in the sector, and access to capital,” said the head of an infrastructure consultancy on condition of anonymity. “In the public utility space, Adani is that company right now.”

A question of financing

This great burst of growth runs contrary to the pattern witnessed by other players in the field.

The last four years have been difficult for the Indian infrastructure sector. Hit by policy shocks like the Supreme Court’s decision in September 2014 to cancel the allocation of over 200 coal block allocations to power and steel firms, depriving them of cheap sources of fuel, many debt-strapped Indian business groups have put infrastructure assets on sale to avoid getting dragged into insolvency proceedings. International sovereign and pension funds are vying to pick up these assets.

At the same time, the Indian government is auctioning a large number of existing and proposed infrastructure projects in sectors like highways and gas distribution. Not only has the Adani group escaped the headwinds that hampered its peers in the infrastructure sector, it has bought assets both from them and the government.

The foundations of its growth, however, are not well understood. The media has intermittently flagged questions about the government’s concessions to the group, as in the case of airports or its Godda power project in Jharkhand. But the related question of how the group funds this expansion has remained unanswered.

A look at its investments in 2018 explains why this question is important. That year, the group bought Reliance’s power transmission business for Rs 12,300 crore, GMR Chhattisgarh for Rs 5,200 crore, Katupalli port for Rs 1,950 crore, and paid Rs 228 crore for the power transmission line between Bikaner and Sikar. This adds up to Rs 19,687 crore on acquisitions alone.

It also committed to expenditure on new projects. Each gas contract translates into an investment of Rs 1,200 crore-Rs 1,500 crore, said the Swan Energy executive. For 25 contracts, the most conservative estimate shows the group having to make an outlay of Rs 24,000 crore.

Similarly, the group announced an investment of Rs 70,000 crore over the next 20 years for its data centres in Andhra Pradesh and another Rs 53,000 crore in Katupalli port. Apart from these, the group also made investments in its existing businesses such as the Rs 500 crore it infused into Adani Capital and Rs 940 crore in its troubled Australian coal project. In addition, it ensured that none of its struggling businesses defaulted on payments.

As the second part of this series will show, the group kept lending to its power business at a time its thermal power project in Mundra was bleeding but loan repayments had to be made.

The Adani Group did not respond to’s questions about the total sum of its investments in 2018. However, in 2018 alone, between acquisitions, new businesses and existing businesses, the group announced future expenditure of Rs 167,000 crore.

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Where did this money come from?

Not only is Adani Group growing at a time when other infrastructure companies are shedding assets, it is growing despite relatively small profits.

Its website pegs the group’s revenues at $11 billion, around Rs 77,000 crore at current conversion rates. Its six listed companies account for almost all of this Rs 77,000 crore.

EBITDA stands for earnings before interest, taxes, depreciation and amortisation, which reflects a company’s operating profits after deducting expenses from revenues.

Between them, these six companies had revenues of Rs 75,920.05 crore. Their operating profits – or EBITDA, in financial parlance, which stands for earnings before interest, taxes, depreciation and amortisation – came to Rs 20,141 crore for 2017-’18.

The statement by a spokesperson of the Adani Group said operating profits for all group companies stood at Rs 23,000 crore in 2017-’18.

This is one way Adani differs from other leviathans in India’s economy like the Mukesh Ambani-led Reliance Group or the Tata group of companies. Each of them has at least one large cash cow – Reliance has petrochemicals giant Reliance Industries which posted operating profits of Rs 59,961 crore for 2017-’18, while the Tata group has the software major Tata Consultancy Services, which posted operating profits of Rs 32,516 crore in the same year.

The Adani group lacks a similar cash engine. Even Adani Ports, despite an EBITDA margin of 62% in 2017-’18, only generated Rs 7,062 crore as operating profits. Consequently, most of the group’s expansion has been through debt.

As a result, the group is one of the most indebted business conglomerates in India.

The size of the group’s total loans is not known. It doesn’t provide indebtedness numbers for its unlisted companies, said a company spokesperson. The only information in the public domain pertains to borrowings of its six listed companies. In 2018, citing Bloomberg data, news agency IANS pegged the group’s total debt at Rs 99,181.09 crore.

Said a financial markets commentator in Delhi, who did not want to be identified: “Assuming debt levels of Rs 100,000 crore and a moderate interest rate of 8%, the company would have to make annual interest payments of Rs 8,000 crore.”

After accounting for estimated interest payments, of the group’s Rs 23,000 crore operating profits, it is left with Rs 15,000 crore, out of which the group also has to pay taxes, depreciation and amortisation charges.

After deducting taxes, depreciation and amortisation, the group’s net profit from its six listed companies stood at Rs 3,445.34 crore in 2017-’18.

To start a business, promoters need equity and debt. Typically, businesses can, depending on the risks they face, raise three-four times equity as debt. By this yardstick, if the Adani Group was to have converted all its net profits into fresh equity, it could have borrowed an additional Rs 10,366.02 crore-Rs 13,781.36 crore in the 2018 financial year.

But the investments it announced in 2018 are much higher.

In the next part, takes a closer look at the Adani Group’s financial statements to understand how it has funded its expansion.