India's Adani Group Plans $30 Billion Investments Through 2017 and Acquires Australian Coal Mine

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Researched by Industrial Info Resources (Sugar Land, Texas)--Adani Enterprise Limited (BSE:512599) (AEL) (Ahmedabad, Gujarat), the flagship company of India-based diversified business house Adani Group (Ahmedabad, Gujarat), recently acquired the Galilee coal tenement in central-west Queensland, Australia, from coal-sector company Linc Energy Limited (ASX:LNC) (Brisbane, Australia) with an initial payment of about $458 million. The cash and royalty deal, implemented by AEL's Australian subsidiary Adani Mining Pty Limited, is worth a total of about $2.75 billion, and Linc Energy will receive about $1.80 per ton in royalties for the first two decades of coal production. The Adani Group followed the acquisition with the announcement that it plans to invest $25 billion to $30 billion during the next seven years in its many business interests, which include cement manufacturing, coal mine acquisitions, overseas farming, port construction, power generation and shipping. Meanwhile, AEL subsidiary Adani Power Limited (APL) (Ahmedabad, Gujarat) is making an entry in the renewable energy sector by setting up a 40-megawatt (MW) solar power plant in Gujarat.

While addressing the company's last Annual General Meeting, Chairman Gautam Adani said: "This investment will be made in all our businesses. We have a stated vision. By 2020, we should have port-handling capacity of more than 200 million tons of cargo annually, 20,000 MW of commissioned power generation capacity, and 200 million tons per annum of coal mining capacity in India and overseas." The target includes achieving 50 million tons per year in coal trading and development of the country's largest integrated agricultural business.

The development of the Galilee tenement and the associated port will require an investment of about $1.7 billion to $2 billion during the next three years, before the Adani Group can utilize the full potential of the mine. The tenement is reportedly the largest single coal tenement in Australia and is estimated to have coal reserves of about 7.8 billion tons. The mine is expected to produce about 50 million tons per year of coal when it reaches its peak production in four to five years. Chief Financial Officer Devang Desai of AEL said that operations at the mine would begin in about four years. He said that the Galilee coal tenement deal would be funded by internal accruals and existing credit lines.

Linc Energy is very satisfied with the deal. "It's a fantastic deal for us," Chief Executive Officer Peter Bond said. "We also have the flexibility to sell the royalty agreement to monetize it into cash now, or hold it and receive the full benefit of 20 years of cash flow." He said that the Adani Group would set up a giant coal mine that would be fully integrated from coal mine to power station. He said that the project would create thousands of jobs during the development stage, and about 1,100 persons would find full time employment when the mine begins operations.

The Adani Group is India's largest importer of coal and plans to import about 35 million tons during 2010-11, an increase of 5 million tons over 2009-10. The company sources its coal from mines in Africa and Indonesia. The group already owns a 6 million-ton-per-year coal mine in Indonesia while it has long-term supply and purchase agreements with other Indonesian mines. The company plans to acquire other coal mines in Africa, Australia and Indonesia, and expand its existing Indonesian coal mine to produce 10 million tons per year. Gautam Adani said that the group is continuously studying the potential of eight to 10 coal mines at any given point in time. In India, AEL has mining rights for 70 million tons per year of coal at the Machhakata coal block in Orissa, and the Kente Basan and Parsa East coal blocks in Chhattisgarh.

India currently imports about 60 million tons per year of coal, but that figure is expected to reach 200 million tons by 2015. The Adani Group intends to grab a large chunk of that pie. Rajeev Phanse, the director at boutique investment bank Singhi Advisors (Mumbai), said, "Adani accounts for about two-thirds of the total coal trade, and to retain such a market share, the group needs to have ownership of at least 50% of the coal that is brought in."

The group plans to have a presence in every part of the power generation value chain, and in keeping with that plan, the Adani Group plans to develop a $1 billion coal terminal at Dudgeon Point near Mackay in Australia. The terminal would have a capacity of 30 million to 60 million tons per year.

The Adani Group already has long-term charter contracts, with about 70 ships to manage freight logistics; it plans to improve that situation within the next five years by owning a fleet of 20 ships with an investment of about $1.5 billion. Since freight rates play an important role in sales, the company plans to eliminate that dependency as much as possible by owning its own fleet. Adani said, "We've already placed orders for four cape-size ships requiring an investment of $250 million."

APL is working to achieve about 16,000 MW of coal-based power generation capacity. The company has an operational capacity of 990 MW, and another 9,900 MW is expected to be brought online by 2013. Commenting on the company's new solar power venture, Chief Executive Officer Ravi Sharma of APL said: "We are putting up a 40 MW (solar) plant in Gujarat, for which we have already signed a power purchase agreement (PPA) with the Gujarat government. It should be operational by end of 2011." He added that if the venture was successful, the capacity was likely to be increased in future. Sharma did not disclose any investment details, but analysts are of the opinion that a 40-MW solar power plant in India would require an investment outlay of about $12 million to $14 million.

India launched its Jawaharlal Nehru National Solar Mission in January 2010, under which the country aims to generate 20,000 MW of grid-connected solar power by 2022. The country also aims to reduce its carbon emissions by 20% to 25% of the 2005 levels by 2020.

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