A couple of years ago, the Adani Group, which was going along at a steady pace, turned on the boosters, and skyrocketed. It created the largest renewable energy company in India, with ambitions of making it the biggest in the world. The enterprise value of all the portfolio companies of the Adani Group rose rapidly. Funding poured in. And in the blink of an eye, Gautam Adani became the richest person in Asia. 

That’s one way to tell the story. Told as a series of events. First, this happened, then this, then this, and boom, richest man in Asia. 

However, the second way to tell the story is to step back a bit, and look at things structurally. 

When we do this, the events start to form a broader pattern, and I think this is far more revelatory about how Adani got where he did so quickly. Also, there’s another reason why Adani’s rise is an exception. Over the last decade or two, almost exclusively, the way to become a billionaire in record time has been to create a high-growth technology company. Instead, Adani got there by building companies in legacy, boring non-tech sectors. Even with all the resources at your disposal, it’s practically impossible to disrupt areas like cement, power, energy, and infrastructure. To disrupt all of them, and to displace companies that have been around for decades in a matter of months, is the corporate version of science fiction. 

So how did this happen? 

Well, basically, it’s a four-step playbook. 

First, India took a policy decision to go all-in on liberalisation

Look, we all know what happened. The state had tight controls over lots of key sectors. Then in the early 1990s, it let private companies invest and take over some areas, which led to an economic boom, etc, etc. Over the next few decades, multiple governments decided that this move was not the exception, but the rule. And over time, slowly, the state withdrew from sector after sector, and invited private companies to take their place. 

The assumption was that private players could do a great job at what public companies used to do, with greater efficiency, and presumably better results. Around a decade ago, the big buzzword going around in policy circles was PPP, i.e., public private partnership. And very quickly, private companies came in and did what the government used to do, and the state, in turn, collected a share from them. 

Essentially, the state went from an owner to a rent-seeker. In sector after sector. 

In some areas, this was fabulous. Take cement. For a long time, cement was an item listed under the Essential Commodities Act of 1955. This placed significant restrictions and centralised control on the production, sale, and distribution of cement. Then in the early 2000s, it removed cement from this list, paving the way (heh!) for companies to change the way they manufactured and distributed cement. Freed of state control, infrastructure projects exploded, and cement companies became prosperous. 

But in other areas, liberalisation made things worse. The most affected are areas like education and healthcare, which led to a steep decline in public schools and the health system. And the most affected are the ones who cannot afford to read this newsletter. 

But one area where everyone believed in PPPs was infrastructure. 

Want to build a road? Put out a tender. Metro line? Tender. A port? Tender. 

Then, in 2019, the government decided that managing airports, ostensibly a public good, was too cumbersome, and put out a tender asking for private companies to operate, develop, and manage airports in India. 

Till date, eight airports have been leased out. 

Seven of them to the Adani Group. 

This is a consistent theme and a major contributing factor to the rise of Adani. The state decides to liberalise a sector, essentially walking away from the burden of building and managing it. It decides to do a private public partnership. And in a surprising number of instances, the private player is… the Adani Group. There’s airports. 

Then ports.

Ports. Airports. Roads and highways. Railways. 

In sector after sector, when the smoke clears, more often than not, the Adani Group is the winner.

Second, access to capital seems to be endless 

The thing about most infrastructure projects is that they are ridiculously capital-intensive. This is one of the reasons why many private companies hesitate to take part in them. Winning tenders is one thing, but getting the money to deliver is another thing altogether. And then to make money off it is another bridge to cross. 

However, the Adani Group seems to manage this through a seemingly limitless stream of capital. They access everyone from local banks to foreign investors, and raise debt to fund their projects. 

And this has been worrying observers for a while. 

Take Credit Suisse, for instance, which released three annual reports titled ‘House of Debt’ between the years 2012 and 2015. The Adani Group was highlighted in all three editions of the report. Most companies, and creditors, would use this knowledge and tread with caution. But not Adani’s creditors. They seem to be still raising billions from foreign investors, and from other financial entities. 

And their debt? Have they brought it under control? 

Well, here’s the latest update, as of last week. 

And what happens with this money? 

Third, acquisitions to buy revenue

There are two ways you can deploy capital. You can build with it, or you can buy.

And if you are the Adani Group, well, buying is always a priority.  

We already wrote about cement at the beginning, and this has always been Adani’s playbook. Get lots of capital. Buy companies and entities. According to a report by Moneycontrol, the Adani Group has acquired 30 companies since 2014 across four key areas—cement, ports, airports, and energy. 

The best part about acquisitions is that it allows you to grow rapidly, practically overnight. Saves you decades of building.

Fourth, stock prices are disconnected from earnings 

All of the factors above lead to something really strange and peculiar about the Adani Group. Its stock prices operate in a world of their own, and seemingly have no bearing on things like earnings, revenue, or profits of the companies themselves. 

In many ways, in 2020, the Adani Group was the most successful business group in India if you just looked at the stock performance. 

But in terms of earnings? 

Well, not exactly. 

So what’s going on? 

But guess what’s another advantage of a high stock price? It makes it easier for you to raise debt. Because in many cases, the amount that you can raise is closely tied to the stock price of the company, creating leverage. A higher price means you can borrow more, at more favourable terms. 

This is the virtuous cycle where the Adani Group finds itself. Sectors get liberalised. Private players with deep pockets are sought in order to fund huge capital expenses. The Adani Group enters, flush with money from an endless supply of capital. Contract is won. Stock price goes up, which in turn increases its ability to raise more debt. 

And that’s how Adani became the richest billionaire in Asia in record time.