Adani Enterprises’ ₹20,000 crore FPO now open, analysts maintain cautious optimism

• Adani Enterprises’ ₹20,000 crore follow-on public offer (FPO) has received mixed reception from brokerages, who underline that the green hydrogen bet is ‘high risk’.
• However, if the bet pays off, brokerages note that it could propel Adani Enterprises into a new league.
• Overall, brokerages maintained cautious optimism while highlighting the risk and rewards of investing in the company.

Adani Enterprises’ ₹20,000 crore follow-on public offer (FPO) is now open for subscription. The FPO is the largest in India Inc’s history, and the company has raised ₹5,985 crore from anchor investors already.

While Gautam Adani’s ambitious $50 billion green hydrogen ambitions require a lot more funding, brokerages have maintained cautious optimism when it comes to their outlook on the FPO.

Adani is not the only Indian billionaire betting on the future with green energy. His rival, Mukesh Ambani also set the wheels in motion for a ‘green’ future of Reliance Industries.

The green energy bets, primarily based on green and blue hydrogen, of these two richest Indians amount to $125 billion. This involves setting up an integrated green hydrogen ecosystem which consists of giga factories, solar modules and wind turbines to power the electrolysers in those giga factories.

Why is Adani Enterprises raising ₹20,000 crore?

Adani Enterprises intends to use the proceeds of the FPO to meet capital expenditure requirements of its green energy projects, and paring down its debt and that of its subsidiaries.

According to the red herring prospectus (RHP) filed by the company, ₹10,869 crore has been earmarked for its green hydrogen projects, apart from improving its existing airport facilities and constructing a greenfield expressway.

Adani Enterprises also intends to use ₹4,165 crore towards partially repaying debt of Adani Airport Holdings, Adani Road Transport, and Mundra Solar.

‘High risk’ green hydrogen bet, but Adani has made ‘rapid progress’, say analysts

Analysts at Nirmal Bang note that this is a high risk bet by Adani and will be instrumental in deciding the future of the group.

“Adani Enterprises’ leap into futuristic technologies like green hydrogen with heavy investments can propel the company into a new league or it could bleed the financials if the market dynamics shifts in favour of other alternate fuels,” said the Nirmal Bang report.

Post the FPO, the shareholding of the promoter group will dilute from the existing 72.63% to 68.94%, according to the RHP filed by the company.

Of the ₹20,000 crore, 35% or ₹7,000 crore is reserved for retail investors, ₹3,000 crore for non-institutional investors, and the remaining ₹10,000 crore for qualified institutional buyers.

In its RHP, the company noted that the limited operational history of some of its businesses may not be adequate for investors to evaluate the group’s future prospects. It also underlined its “substantial indebtedness” as another key risk factor that could adversely affect its future operations.

“Adani Enterprises’ business model involves high risk with uncertain business outcomes and thus we have a ‘Neutral’ rating on the issue,” the brokerage added.

On the other hand, analysts at Ventura Securities were bullish on the company’s prospects, saying, “The turbulence in the energy market (post the Russia-Ukraine war) and climate change issues have necessitated a rapid switch to alternative clean fuel sources. Green hydrogen has the most potential and Adani has made rapid progress to harness this opportunity.” The brokerage gave a ‘buy’ rating with an investment horizon of 24 months.

While the analysts at SBI Securities did not give any recommendation, they noted that at the upper end of the FPO price band of ₹3,276, the company is valued at a price-earnings multiple of 317 times.

In its first phase, Adani Enterprises plans to develop a green hydrogen production capacity of 1 million tonnes per annum by 2030.

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