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Adanis: From ports to supermarkets

Joydeep Ray | June 26, 2004

It will be another high-profile diversification for the fast-moving and highly diversified Adani Group. Next month, at the flick of a switch, piped gas will begin flowing for the first time to thousands of homes and factories in and around Vadodara.

A month or so later, a similar scenario will be played out in Ahmedabad as the Adanis start supplying gas to the city over a giant network of pipelines laid during the last few months. Soon afterwards, the Adanis will start supplying compressed natural gas in and around Ahmedabad.

For the Adani Group their multi-crore piped gas projects will be another case of speedily grabbing an opportunity that presented itself. In the last decade the group has moved at bewildering speed from being a trading house to a diversified group with an array of interests from port development to supermarkets and edible oils.

It's important to remember one thing about the Adanis: this is one group that doesn't believe in the theory of core competence. It's has just started building a multi-cargo port for Petronet LNG.

Besides that, it's also developing a special economic zone close to the port. And after the Electricity Act was passed last year, it also moved into the high-voltage business of power trading.

So, is this a group that's focusing on giant infrastructure projects and core sector areas like power? That could be one way of looking at the group but it wouldn't be the full picture.

After all, they've also made a highly publicised splash into retailing and now run 23 hyper- and supermarkets in Gujarat. They've also jumped onto the BPO bandwagon and opened a call centre in the state.

Even more amazingly, their three-year-old foray into edible oils has been a startling hit. For the last two years the Adani Group's Fortune oil has been the bestselling edible oil in the country.

"Initially, we had remained a company having operations within Gujarat and were known as a Gujarat company but now we are trying to become a truly national company with a presence everywhere," says Sanjay Gupta, the former IAS officer who is now chief executive officer of the Adani Group.

Gupta is the person responsible for the swift growth of Gujarat State Petroleum Corporation Limited, India's only state government run oil and gas company. After joining the Adanis he has become a key person responsible for the group's growth.

Gas will be one giant growth area and the group is already looking at ways to move beyond Gujarat. Gupta says the group is already holding talks with regional governments about its CNG and PNG (piped natural gas) business. Besides that, it's looking at the possibility of getting into highway construction and is hoping to buy terminals in a major port.

Also, a new company, Mundra SEZ Company, has been formed and construction work on the sprawling SEZ -- which is spread out over a 10,000 hectare site -- will start before the monsoons. Over the next 10 years the group plans to pour Rs 7,000 crore (Rs 70 billion) into the project, of which a large chunk may be raised from the financial institutions.

"We are not planning to raise funds from the public for the SEZ as we would rather opt for project finance schemes from the financial institutions," says Gupta.

Does it sound like the group has too much on its plate already? Clearly, Gautam Adani, who founded the group, and Gupta don't think so. In the nine months till December the Adanis imported 1.7 million tonnes of coal from countries like Indonesia, Australia, China and South Africa.

Now it's looking at the possibility of buying a coal mine in one of these countries. Gupta believes the business could boost revenues and will be highly lucrative.

"We can get cheaper coal and resell in cheaper rates to our customers, mainly the power plants once we start mining from our own mines," he says. Some of the coal will probably be sold to the two 250MW power stations that the group is putting up at Mundra.

How does the group pull off all these diversifications almost simultaneously? Adani Exports was launched back in 1988-89 as a partnership firm floated by Adani who was 25 at the time and in its first year it had a turnover of Rs 2.2 crore (Rs 22 million).

At the end of the last fiscal year AEL, which is the group's flagship company, reported a net profit of Rs 140 crore  (Rs 1.4 billion) and Rs 103 crore (Rs 1.03 billion) the year before.

Then, there's Adani Wilmar, which manufactures and markets Fortune edible oil, which reported a turnover of around Rs 2,000 crore (Rs 20 billion) during 2003-04. This venture has turned into a moneyspinner even though the company had to take on the established companies in the field.

The Adanis brought in several key executives who had worked with the National Dairy Development Board which makes Dhara oil. The former Dhara executives included Anshu Mullick, who is now reckoned to be the main force behind Fortune.

Industry analysts say the team put its main stress on a retail marketing network and expanded from one state to another, exploiting the fact that there aren't many organised sector players in the field.

In the infrastructure sector there are companies like Adani Port Ltd and Gujarat Adani Port Limited, which have a combined turnover of around Rs 400 crore (Rs 4 billion). Another group company Adani Global, based in Dubai, has a turnover of around Rs 100 crore (Rs 1 billion). The group has large amounts for several projects but insist that debt is at comfortable levels.

Says Gupta: "For the infrastructure companies, we have borrowed from banks and financial institutions in phases and presently our debt stands at around Rs 800 crore (Rs 8 billion). That will also be cleared soon."

Indeed, the group appears to have leapt swiftly into every field that's showing signs of high growth. A typical example is power where it made fast moves almost immediately after the Electricity Act was given the green signal by the Lok Sabha last year.

It quickly identified states, which had surplus power and figured ways it could be transported to states where there are heavy shortages. So, for instance, AEL has entered into a power purchase agreement with the Sikkim government.

Similarly, it's negotiating with the West Bengal State Electricity Board, Arunachal Pradesh, Tenughat, Kerala, Calcutta Electricity Supply Corporation, Madhya Pradesh and Tenughat. It has hired a power sector official for its operations.

"We have also observed that power trading is going to be another emerging area and we have already made our presence felt in this sector, though in a very small way to start with," says Gupta.

Nevertheless, trading is still a key operation for the group. It deals in more than 60 commodities that are bought and sold in all corners of the world. It is strong, for instance, in products like oilseeds, cotton and yarn. Gujarat produces large quantities of oilseeds.

What about the future? The Adanis have faced their share of controversies in the past but that hasn't forced them out of the fast lane.

The group now has 17 supermarkets in Ahmedabad and they've just opened a hypermarket in the city's Bapunagar district. There are plans to open six more hypermarkets in the coming year. So, it's clear that the Adani Group is looking forward to rapid growth.

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