MBS Project - Adani Group

Adani Group Growth and Diversification Strategy

Anish Uppal

1014005

Balajikasiram Sundararajan

1014010

Mahesh Srivastava

1014025

Shailendra Jain

1014049

1

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

2

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

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2 Adani Group - Current Picture 2.1. Corporate Structure

6

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 Overview

3

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 3

Sourced from Adani Enterprises Limited, letter of offer dated 12th March 2010 (Page 60) Sourced from Adani Enterprises Limited, letter of offer dated 12th March 2010 (Page 41)

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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 residentialcum-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

6 7

Business Activity

Phase 1



1988 - 1993

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

 

Registered as a partnership firm Commenced trading in commodities

Business Areas Trading Import / Exports

http://indiatoday.intoday.in/site/Story/21105/Economy/Growth+curve.html, accessed on 02 October 2010 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 Phase 2 1994 – 2003

Business Activity    

  

Phase 3



2004 – 2010

      

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)

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)

Business Areas Power Generation Port development Edible Oil SEZ Development

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 9

http://www.adani.com/ChairmansSpeech-AEL-2009AGM.pdf accessed on 2nd October 2010 page 44, Adani Enterprises Limited, letter of offer dated 12th March 2010

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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 Factors 12

10

To Diversify Or Not To Diversify by Constantios C. Markides, HBR November-December 1997 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 11

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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

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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 exportimport, 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.



14

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

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

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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 17

www.portofmundra.com/newsroom/Businessindia.pdf, accessed on 2nd October 2010 http://www.iimahd.ernet.in/~graghu/2009%201%20Adani%20Wilmar%20Limited%20(AWL).pdf

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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

Motive for Diversification 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 roundthe-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 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 nd www.portofmundra.com/newsroom/Businessindia.pdf, accessed on 2 October 2010 19

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Power Generation One of the most critical success factors for power generation is the availability of costeffective 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 plants 22. 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.

Method of Diversification 

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-boomAdani/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.

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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 24

http://www.imaritime.com/backoffice/published_files/India_Port_Report_Numbered.pdf. page 19 http://www.imaritime.com/backoffice/published_files/India_Port_Report_Numbered.pdf. page 180

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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

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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

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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

Equity alliance

(AEL used this port as a cargo port for AEL’s overseas trading business) Nature of Resources (Relative value of soft to hard resource)

Extent of Redundant Resources

26

High

Equity alliance

(AEL primarily partnered with GPIDCL for their skills in port development) Low (There was little if any commonality in resources between AEL and GPIDCL)

Non-equity alliance

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

24

Criteria

Evaluation

Suggested Strategy

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

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

(Degree of competition for resources)

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.) Criteria

Evaluation

Suggested Strategy

Type of Synergies

Sequential (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

Equity alliance

(Relative value of soft to hard resource)

Extent of Redundant Resources

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

25

Criteria

Evaluation

Suggested Strategy

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

Level of Competition

Medium

Equity alliance

(Degree of competition for resources)

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

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.

26

Results & Observations 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 coalbased power generation plants in the years to come.

27

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.

Motive for Diversification 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

28

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 ongoing 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.

Method of Diversification 

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)



28 29

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

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

29



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 –

Criteria

Evaluation

Suggested Strategy

Type of Synergies

Sequential (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

Equity alliance

(Relative value of soft to hard resource)

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

30

(Adani has done well by being collaborative, not combative) http://www.dnaindia.com/money/column_adani-has-done-wellby-being-collaborative-not-combative_1188970 31 "When to Ally & When to Acquire", Jeffrey H. Dyer, Prashant Kale and Harbir Singh, HBR July-August 2004

30

Criteria

Evaluation

Suggested Strategy

Extent of Redundant Resources

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

Non-equity alliance

Degree of Market Uncertainty

Low

Non-equity alliance

(There is large market for oil and gas Worldwide.) Level of Competition (Degree of competition for resources)

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). Criteria

Evaluation

Suggested Strategy

Type of Synergies

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

Equity alliance

Nature of Resources

Low

Non-equity alliance

(Relative value of soft to hard resource)

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

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

31

Criteria

Evaluation

Suggested Strategy

Extent of Redundant Resources

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

Non-equity alliance

Degree of Market Uncertainty

Low

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) Level of Competition (Degree of competition for resources)

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

Results & Observations 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 "Indonesian Coal Mining Concessions at" at http://www.aifl.net/CompanyProfile/ManagementDiscussion.aspx?id=83&FinCode=112599 accessed on 2 -October-2010 34

32

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.

33

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

34

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

35

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

36

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

2

3

4

5 X

Rivalry among competitors

Very less competitors

X

Barriers to exit Barriers to entry

Remarks

High

Very low barriers to exit

X

Political connections required to obtain licenses

Threat of substitutes

Not Applicable

Existence of complements

Not applicable X

Power of buyers X

Power of suppliers

Fragmented buyers Lot of suppliers resulting in low power of suppliers

Government Action Overall attractiveness

X

No government support 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

37

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

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

-

-

-

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

Share Capital#

24.66

Reserves & Surplus

-

207.98

-

2.84

0.93

-

-

Financed By 24.65

22.55

32.05

32.05

42.05

52.55

61.55

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

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

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

16.15

24.65

16.90

22.62

6.72

6.36

994.90

1,072.16 775.54

Dividends (Incl. Tax on Dividend)

37

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

38

- 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

12.66

6.35

5.24

4.89

5.58

3.94

2.81

5.08

8.01

0.60

0.45

0.45

0.40

0.40

0.30

0.30

0.30

0.30

54.27

42.36

34.58

30.03

27.84

24.86

22.50

21.63

16.88 1.08:1

* Earning per Share (Rs) 13.24 * Dividend per Share (Rs)

1.00

* Book Value per Share 66.63 (Rs) 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

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

39

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-ofthe-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.

38

Sourced from Adani Enterprises Limited, letter of offer dated 12th March 2010 (Page 45)

40

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, agrocommodities, 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”).

41

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.

42

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.

43

Exhibit 4: Ports in India39

39

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

44

Exhibit 5: Traffic in Indian ports40

40

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

45

46

Exhibit 6: Adani Enterprises 5yr Stock Price41

41

http://www.moneycontrol.com/india/stockpricequote/trading/adanienterprises/AE13, accessed on 04th Oct 2010

47