Bit by Bit 11th Sept || Demystifying Blockchain & Adani Enterprises

Blockchain and Adani Enterprises

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MARKET UPDATE

(Markets were closed on 10th September, 2022)

INDUSTRIES

The Rise of Adani – A sneak peek into the life of world’s 3rd richest person

“I could never take orders from anyone”, these are the words of billionaire Gautam Adani. The Adani group led by 60-year-old 1st gen entrepreneur Gautam Adani, who has now become Asia’s richest and the world’s third-richest person with a fortune $138 billion, according to Forbes. The last two years have been the most fruitful for Gautam Adani, when his wealth grew from $8.9 bn to $138 bn.

The Journey:

• Gautam Adani moved from Gujarat to Mumbai in his teen age in 1978 and worked as a diamond sorter for Mahendra Brothers. He worked there for some time before establishing his own diamond brokerage firm at Zaveri Bazaar, Mumbai.

• In Ahmedabad, Gautam's elder brother Mansukhbhai Adani started a plastics unit in 1981 and invited him to manage operations. This venture turned out to be Adani's gateway to global trading via Polyvinyl Chloride (PVC) imports.

• He then started importing primary polymers for small-scale industries in 1985. Adani established Adani Exports in 1988 and is now known as Adani Enterprises. Listed in 1994, Adani Enterprises became India’s biggest coal trader and the biggest coal mining contractor.

• In 1998, Adani Ports and Special Economic Zone were set up. Mundra has become India’s largest commercial port by volume while APSEZ is India’s biggest private port operator, with 13 ports and terminals handling nearly one-fourth of the cargo movement in the country.

• The group entered the city gas distribution business in 2001. And in 2005, it won India’s first Mine Developer and Operator or MDO contract. Adani Ports and SEZ was listed on the exchanges in 2007. The following year, the group made its first overseas purchase by acquiring the Bunyu coal mine in Indonesia.

• Adani Transmission, the largest private-sector transmission and Distribution Company in India, was de-merged and listed in 2015. Adani Green Energy is among India’s biggest renewable power companies and also the group's most valuable company with a market cap of $45 billion.

• In 2020, the group forayed into airports business after winning the bid to operate six Airports Authority of India airports. It also acquired the Krishnapatnam Port, which is India’s second-largest private port.

• The seven publicly traded companies of the Adani group have a combined market capitalisation of $184 billion and that is only set to grow with the acquisition of Holcim’s India business. He also clinched a deal to acquire Ambuja and ACC cements.

Present Scenario:

The Adani group has been in spotlight recently since Mr. Gautam Adani has overtaken French Billionaire Bernard Arnault to become the third richest person in the world. The Adani group has grown at a monumental pace since 2014, having acquired more than 30 companies in the past 8 years spread across various verticals and businesses.

Adani’s net worth has gone from $10B in 2020 to over $138B in 2022. This drastic increase in net worth is partly due to surges in price of oil and natural gas. Adani Green Energy Ltd and Adani Total Gas Ltd have a Price to earnings ratio greater than 750.

Adani has recently witnessed a traction in four major sectors-cement, ports, airports and energy. Adani is now the second biggest player in the cement industry owing to its acquisition of Ambuja Cement and ACC. The group is also heavily involved in management of ports and airports, both in India and Abroad. Adani ports and SEZ Ltd is the market leader in commercial port operation with a share of 24% in 7 states. The group will also manage six key airports in India for a period of 50 years.

Adani has the largest renewable energy portfolio in India. The total energy portfolio stands at 19 Gigawatts out of which 5.4 Gigawatts is contributed by renewable energy.

A similar trend of acquisitions can be seen in other sectors and industries Adani operates in. A recent case is the takeover attempt on NDTV group by acquiring a 29.2% in the company. These acquisitions tend to be debt funded which has raised some concerns in the market recently.

Is Adani group an Asset for India or too big to fail?

Ambani-Adani are the new Birla-Tata of India. We will be talking about the second A today and not because of his bid to acquire NDTV, that is a different story, but of a report that came 12 hours before this bid. A research unit of Fitch Group named CreditSights published a report by R Lakshmanan, Rohan Kapur, and Jonathan Tan which said that the Adani group is excessively overly leveraged.

Overleveraging occurs when a business has borrowed too much money and is unable to pay interest payments, principal repayments, or maintenance payments for its operating expenses due to the debt burden. A financial leverage ratio of less than 1 is usually considered good by industry standards. A leverage ratio higher than 1 can cause a company to be considered a risky investment by lenders and potential investors, while a financial leverage ratio higher than 2 is cause for concern.

According to a report, Adani group has a very aggressive and expensive extension plan because they are moving into the areas of infrastructure which is capital intensive. They are also moving into more new and unrelated businesses. Simply put, unrelated business activity is a trade or business activity that is regularly carried on and is not substantially related to the purpose for which the organization's tax exemption was granted. The report also says that there is little evidence of promoter equity or capital injections into group companies which is not reducing leverage into their stressed balance sheet.

But the twist here is that promoter’s equity in Adani Group companies is already very high. The strong competition between the Reliance group and Adani group in related sectors can lead to imprudent business decision-making, just like the case of Jet Airways and Kingfisher airlines, which is a cause of concern. The report also says that there are governance and ESG risks involved. Some things that are working for them are their solid relationships with the banks and their friendly behaviour with the current government. The company has also a strong track record of launching strong and stable companies. The other positive working for them is that India is focusing on Infrastructure and energy which can be a tailwind for their business. Adani group bonds were also marked at a higher level on G- Spread ratings and lower on YTW ratings. CreditSights says that they remain ‘cautiously watchful’ of this ‘debt-funded growth.’

On September 8, 2022, CreditSights said it had discovered calculation errors in its recent debt report on two power and transmission companies controlled by Gautam Adani, following a conversation with the management. "Management views that the group's leverage is at manageable levels, and that its expansion plans have not been mainly debt funded," CreditSights said about the group. "These corrections did not change our investment recommendations," CreditSights said, adding that it, however, did not have formal recommendations on the two power and transmission companies.

TECH

Is Blockchain Worth The Hype?

The Story:

Blockchain explained: Blockchain is a distributed, unchangeable database that makes it easier to track assets and record transactions in a corporate network. An asset may be physical (such as a home, car, money, or land) or intangible (intellectual property, patents, copyrights, branding). On a blockchain network, practically anything of value may be recorded and traded, lowering risk and increasing efficiency for all parties.

Information is essential to business. It is best if it is received quickly and is accurate. Blockchain is the best technology for delivering that information because it offers real-time, shareable, and entirely transparent data that is kept on an immutable ledger and accessible exclusively to members of a permission network. Among other things, a blockchain network can track orders, payments, accounts, and production. Additionally, because everyone has access to the same version of the truth, you can see every aspect of a transaction from beginning to end, increasing your confidence and opening up new prospects.

Key elements of a blockchain:

Distributed ledger technology: The distributed ledger and its immutable record of transactions are available to all network users. Transactions are only recorded once with this shared ledger, preventing the duplication of effort present in conventional corporate networks.

Unchangeable records: Once a transaction has been added to the shared ledger, no participant is permitted to alter or interfere with it. A fresh transaction must be added to undo an error in a transaction record before both transactions are displayed.

Sensible contracts: A set of instructions known as a smart contract is saved on the blockchain and automatically carried out to speed up transactions. A smart contract can specify parameters for corporate bond transfers, stipulate how much must be paid for travel insurance, and much more.

How blockchain works:

Each transaction is recorded as a "block" of data as it happens.

These transactions demonstrate the transfer of an asset, which may be tangible (a product) or intangible (intellectual). Who, what, when, where, how much, and even the condition—such as the temperature of a food shipment—can all be recorded in the data block.

Every block is interconnected with those that came before and after it.

As an asset is moved from one location to another or ownership changes, these blocks create a chain of data. The blocks link securely together to prevent any blocks from being altered or a block from being introduced between two existing blocks, and the blocks certify the precise timing and order of transactions.

A blockchain is an unbreakable chain of transactions that are blocked together.

Every new block reinforces the prior block's verification, and by extension, the blockchain as a whole. This gives the blockchain its crucial strength of immutability and makes it tamper-evident. By doing this, you and other network users may create a trusted ledger of transactions and eliminate the chance of tampering by malevolent actors.

Stories Around Blockchain

NFTs are introducing additional blockchain use cases

 Non-fungible tokens, or NFTs for short, have been one of the biggest topics in blockchain technology this year. As one-of-a-kind tokens that are impossible to replicate, NFTs are created on the blockchain, bringing the concept of scarcity to digital assets for the first time. Beyond digital artifacts and art, NFTs open up a wide range of potential use cases for blockchain technology.

As musicians began tokenizing their tracks and selling them directly to their fans, the music industry was among the first to embrace NFTs. NFTs can enable automatic royalty payments to record labels, musicians, managers, and any other parties involved, which is advantageous for the music business.

Blockchain Industry Application in Banking and Financial Sector

What if we could transform the financial industry where unprecedented cooperation, inventiveness, and speed replace outdated procedures and paperwork? Where the widespread belief in a highly secure, common understanding of the truth could one day put an end to fraud and crime.

It's already taking place. With Blockchain, top financial institutions are paving the way forward by collaborating to eliminate long-standing barriers, develop novel solutions, and provide measurable business results.

Streamlining operations: Real-time, multi-party tracking, and management of bank guarantees and letters of credit are made possible by blockchain.

Automated compliance: Depend on faster and more accurate reporting with an automated compliance process that draws on immutable data records.

Faster settlement: Benefit from the near real-time, point-to-point transfer of funds between financial institutions, removing friction and accelerating settlement.

RBI to collaborate with Indian banks on a blockchain-based financing project

The goal of this project is to show that the central bank can successfully implement blockchain technology into its main financial system. The Reserve Bank of India (RBI) intends to collaborate with several leading Indian banks to develop a blockchain proof-of-concept project concentrating on trade financing.

According to The Economic Times, HDFC Bank, ICICI Bank, and State Bank of India are among the financial institutions taking part in the plan to fight loan fraud.

To avoid their tampering, the initiative will only issue digital versions of papers like letters of credit (LC). Scams involving billions of rupees, like those committed by Nirav Modi and Mehul Choksi, could be stopped through digital documentation.

According to a report, the project is receiving technological backing from IBM (IBM), Corda Technologies, and the settlement of Belgium.

Blockchain technology may survive without cryptocurrencies, according to Governor Shaktikanta Das of India's central bank, which is well-known for its anti-crypto stance.