Gautam Adani comes up with a new business idea worth $5 billion

Two years after making a big push into India’s cement industry, Adani Group is planning to spend $5 billion to enter the Indian metals business.

The group will leverage synergies shared with other businesses to challenge existing players such as Anil Agarwal-driven Vedanta Ltd, Aditya Birla Group-owned Hindalco Industries Ltd and the Tata Group.

Adani’s natural resources arm has decided to use the funds for the mining, refining and production of copper, iron, steel and aluminum over the next three to five years, two people familiar with the matter said on condition of anonymity.

A person close to the group said, “The group is in a good position to enter other metals such as aluminum and steel.” The group launched the first phase of its copper business in March with a smelting capacity of 500 ktpa. Of the $5 billion, $2 billion will be invested in copper and the remaining $3 billion in other metals, the person said on condition of anonymity.

Some of the largest metals players in India are run by Vedanta (aluminum, zinc led silver, steel, nickel), Tata Group (steel), Hindalco (copper and aluminum) and JSW (steel).

Metals has significant synergies with Adani’s renewable energy, transmission, logistics, ports and infrastructure businesses, two people familiar with the matter said.

An email sent to Adani Group remained unanswered.

In 2022, the Adani Group entered the cement industry with the $6.6 billion acquisition of Ambuja Cement Ltd and ACC Ltd, triggering competition with Ultratech Cement Ltd, the market leader of the Aditya Birla Group, and marking the beginning of industry consolidation.

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Like cement, Adani also sees synergies in metals, said one of the two people cited above. Adani, which is in the power and transport business, has an advantage in metals as these businesses account for a large part of the metals business, the person added, noting that the more important reason is own consumption. “This is critical for the group’s green energy business (solar, wind and green hydrogen) and transmission,” the person added.

“In order to control costs and production, it is crucial to have an end-to-end ecosystem. Much of this (metal business) should be created in the next 2-3 years,” the first person said.

The pair said plans to own its own aluminum assets could be a possibility as the group aims to have 50GW of renewable energy generation by 20230 and the group itself needs large quantities of aluminum to make solar panels, frames, brackets and wind turbines. Playing a key role The group’s energy production costs are lower and it earns better sales margins than other companies.

“This benefit can be further passed on to consumers. Since production costs are lower, output costs will also be lower. Additionally, at a macro or industry level, supply and demand balance will ensure less volatility in these commodities and reduce foreign exposure to Dependence on suppliers,” the person mentioned above said.

The group currently imports aluminum powder Used in the manufacture of solar panels, frames, power transmission systems and wind turbines.

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Three years ago, the Adani Group considered setting up an alumina refinery under its wholly-owned subsidiary Mundra Aluminum Ltd, but the unit has so far had little business.

In 2022, Adani received approval to build an alumina refinery and a captive power plant in Rayagada, Odisha, but work on the project has not yet started.

However, the group’s copper plant has just become operational under subsidiary Kutch Copper, and the group plans to invest another $1 billion in the coming quarters to double production capacity.

“India’s direct copper demand is expected to double over the next five years, meaning reliance on imports will rise unless supply increases,” the second person said.

In addition to wires and cables used to generate and transmit electricity, copper is also used in the manufacture of wind turbine motors (green energy) and electric vehicles (EVs). Adani Group’s main competitors in copper and aluminum will be Vedanta and Hindalco.

While Adani Group itself is in the thermal and green power generation business, it also plans to sell copper to electric vehicle manufacturers and other power industry players.

Likewise, the group’s infrastructure businesses such as roads, real estate and other construction also need steel, two people familiar with the matter said.

In the mining services portfolio, during the July-September quarter, AEL received Orissa Letter of award for the development and operation of the Taldih iron ore mine with a capacity of 7 tons/year. In the steel business, Tata Steel Ltd and NMDC Ltd will be the main competitors.

AEL has signed an MDO (mine developer and operator) agreement for the Dahegaon coal mine with Maharashtra’s Ambuja Cement Company. With these new mines, AEL’s MDO business has 9 coal blocks and 2 iron ore blocks.

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In the September quarter, total mining services dispatches increased 32% to 8.2 million tonnes, while revenue increased 64% to 8.2 million tonnes. $8.03 billion, operating income increased by 65% ​​to $The company told analysts that the year-on-year growth was Rs 4 billion.

The $5 billion planned for the first phase of the group’s metals foray is on top of the group’s already invested in Kutch Copper.

“These (metals) businesses offer very high RoCE (return on capital employed), almost over 25% in some cases,” the first person added.