Gautam Adani-led Adani Enterprises returns to profit as revenue jumps 75%, but shares fall | Can new businesses deliver?
Adani Enterprises Ltd., the flagship company of billionaire Gautam Adani’s conglomerate, returned to profit in the September quarter as newer businesses, including airports and data centres, scaled up. But with the stock down more than 20% from its July peak, investors are looking for earnings growth to justify the company’s expansion plans.
Net income was ₹1,490 crore for the three months ended 30 September, according to an exchange filing on Wednesday. While profit was 55% lower than a year earlier, the company returned to the black after reporting a loss of ₹1,160 crore in the previous quarter amid costs linked to the settlement of US legal cases.
Revenue rose 75% year-on-year to ₹37,220 crore, while costs increased 71% to ₹36,020 crore. Gross debt slipped 0.3% from the preceding quarter to ₹97,294 crore.
Quick answers to key questions
•5 QUESTIONS
1
What were Adani Enterprises’ Q2 FY27 results?⌵Adani Enterprises reported net profit of about ₹1,490 crore for the September quarter, returning to profit after a loss in the previous quarter. Revenue rose 75% year-on-year to ₹37,220 crore.
2
Why did Adani Enterprises shares fall despite returning to profit?⌵The shares fell more than 20% from their July peak as investors shifted their focus from growth potential to earnings delivery. The company also faces execution and financing-cost concerns as it pursues expansion.
3
Which Adani Enterprises businesses are expected to drive future growth?⌵Airports, data centres, roads, copper and clean-energy ventures are expected to contribute more to the company’s profit mix as they scale up and generate cash flow.
4
What are the main risks to Adani Enterprises’ expansion plans?⌵The company needs to execute multiple infrastructure projects to meet its earnings expectations. Financing costs and gross debt, which stood at ₹97,294 crore, are also concerns for investors.
5
What should investors watch in Adani Enterprises’ next results?⌵Investors are watching earnings delivery from newer businesses, including airports and data centres, as well as progress in copper and passenger volumes. They will also assess whether project execution supports the company’s expansion plans.
The return to profitability could ease investor concerns about funding requirements for expansion and whether newer businesses are approaching an earnings inflection point. Airports, data centres, roads and clean-energy ventures are expected to play a growing role in the company’s profit mix as they start generating cash flow.
However, the company needs to deliver on multiple infrastructure projects to fulfil its earnings promise. Its shares have tumbled more than 20% from their July peak, wiping out almost $10 billion in market value. The retreat follows a 43% rally earlier this year after the conglomerate settled multiple regulatory and legal cases in India and the US.
The earlier rally “priced in stronger institutional support, fresh capital and faster earnings growth across Adani Enterprises’ emerging businesses,” Gary Tan, a portfolio manager at Allspring Global Investments, which holds the stock, told Bloomberg. Now investors have shifted their focus “from growth potential to earnings delivery,” he said.
The company’s integrated resources management unit, which mostly consists of coal trading and contributes the most to overall revenue, reported a 6.6% increase in revenue to ₹7,097 crore.
The airports business is gaining a larger share of the revenue mix, with revenue rising 15% to nearly ₹3,700 crore. The new energy and commercial mining units also reported higher revenue than a year earlier.
Investors will focus on the growth prospects of the airport and copper businesses, as well as the company’s joint venture with Jabil for manufacturing artificial intelligence and data centre equipment.
The airports unit separately raised about $1 billion in September from investors including Alpha Wave Global, Temasek Holdings and funds managed by BlackRock. Investors will also watch the company’s plans to expand beyond aviation, including integrated city-side developments across its airport network.
Adani Enterprises accelerated its growth plans after resolving its legal troubles in the US. In May, the Department of Justice dropped criminal bribery charges against Gautam Adani and his nephew, Sagar Adani, after they agreed to pay $18 million to settle a parallel civil fraud case. Separately, Adani Enterprises paid $275 million to resolve a sanctions probe by the Office of Foreign Assets Control. Neither the executives nor the company admitted wrongdoing.
However, financing costs remain a concern amid rising bond yields. Before the stock fell from its July high, at least three brokerages, including Morgan Stanley, had initiated coverage with buy recommendations. None has changed its recommendation so far.
“Everyone knows the bull case, so a beat has to be clean to restart the rally, while a miss or cautious guidance would accelerate the selloff,” Maxence Visseau, chief investment officer and founder of Arkevium Fzco, told Bloomberg.
“Any comment on the Jabil timeline, the copper ramp or passenger volumes will move the stock,” he said.
GQG Partners, a long-time backer of the Adani conglomerate, reduced its holding in Adani Enterprises to 1.82% at the end of September from 3.9% in March, regulatory filings show.
“Adani was a relatively big exposure,” GQG Partners co-founder Rajiv Jain told Bloomberg. “The stock had appreciated in value. We reduced our exposure to keep the position size reasonable.”
Still, Jain said there was “zero decline in our enthusiasm” for infrastructure investments in India as demand continued to be unabated.
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