GQG Partners has bought shares worth Rs 15,446 crore in four Adani group companies, marking the first major investment in the Indian conglomerate since short-seller Hindenburg’s critical report sparked a stock rout
GQG Partners has bought shares worth Rs 15,446 crore in four Adani group companies, marking the first major investment in the Indian conglomerate since short-seller Hindenburg’s critical report sparked a stock rout.
Here are five key takeaways on the reasoning behind the investments and risks associated with it.
How Rajiv Jain sees investment in Adani group
Jain says every name in the Adani group has its own unique elements, which made it very attractive for investing in those companies. The fact that GQG partners already have significant investments of $5 billion in utility type assets like pipelines, airports also helps in understanding the business better. “I thought there was a kind of a mismatch between how people look at classic PE type stuff, which is not really that sort of relevant in the stage these companies are at, so that was kind of the genesis of how we thought about the whole group,” Jain said.
Issues around debt levels
Rajiv Jain said that the majority of assets of Adani group are regulated assets and that the companies have predictable earnings streams that have 20-plus year visibility. “The group companies have regulated assets and in growth utilities, they tend to have negative free cash flow. In fact, you want them to have negative free cash flows, so that they are able to deploy capital on a longer-term basis with fairly attractive returns,” he said.
The NRI investor further added that from a utility perspective, debt levels are actually on the lower side and not the reverse. “But if they lower the capex plans which they have already announced, I think it becomes a fairly attractive sort of risk reward,” Jain said.
Why invest now and not earlier
Jain said that the fundamentals of group businesses are much better currently than in the last two years. Further, he added that valuations made it very difficult for them to make an entry and they could not have done it in a proper manner as against in a mini crisis time like the current scenario.
Growth prospects of Adani group companies
Even though the growth prospects vary for different companies, Jain feels Adani Green probably has the faster growth rate, but the company is also the most leveraged. Overall, Jain says mid-teens growth is very-very doable and even a little bit higher. “If you think about across India, there are not too many businesses which can deliver at sensible valuations because if they slow down the growth capex plans, the free cash flow will come in pretty quickly. So, I think you are looking at mid-teen plus kind of growth rates,” he said.
Risks associated with the investment
According to Jain, the risk for the investment would slow down growth in some group companies because of the regulatory issues that they might face on a go forward basis. “In a regulated business, the biggest risk always is regulation, that is both positive and negative,” Jain said, adding that the Adani group deserves credit for showing remarkable ability to execute on greenfield projects, something which others have struggled to do.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
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