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Review By Dilip Davda on January 20, 2023

•    AEL is a flagship company of the Adani Group that has diverse activities. 
•    It suffered a minor setback for FY21 on account of the Pandemic.
•    FY23-H1 numbers are indicative of its future stance.
•    This issue is designed on a partly paid share regime as an investor-friendly gesture.
•    This FPO is meant for investors looking for long-term wealth creation options. 

PREFACE:
AEL is coming out with its FPO (Follow-on Public Offer) after a gap of 28 years as its maiden IPO came in 1994. The announcement of FPO plans from this market's fancy counter became the talk of the town. As an investor-friendly gesture, it has opted for staggered payment options for the right issue as 50%, 25%, and 25%. As a flagship company of the Adani group, this company has rewarded its long-term stakeholders handsomely with preferential allotments in the other group companies that got listed during the last two decades plus. As per management, they will continue the trend of rewarding stakeholders at an appropriate opportune time. 

ABOUT COMPANY:
Adani Enterprises Ltd. (AEL) is a part of the Adani group, which is among India's top business houses with an integrated energy and infrastructure platform in India and a long track record of successfully executing large-scale projects. AEL is one of India's largest listed business incubators in terms of market capitalization and is driven by the philosophy of incubating businesses in four core industry sectors - energy and utility, transportation and logistics, consumer, and primary industry. 

It represents an effective complement of established and developing businesses that address the needs of India. It has, over the years, seeded new business interests for the Adani group, developed them into sizeable and self-sustaining business verticals, and subsequently demerged them into independently listed and scalable platforms, thereby unlocking value for its shareholders. The company has a demonstrated track record of creating sustainable infrastructure businesses since 1993. 

AEL has emerged as an incubator by investing, maturing, and eventually demerging various diversified businesses. Since inception, it has incubated six decacorn businesses and successfully listed them, including by way of demergers, as Adani Ports and Special Economic Zone Limited, Adani Power Limited, Adani Transmission Limited, Adani Green Energy Limited, Adani Total Gas Limited, and Adani Wilmar Limited. As of December 31, 2022, the Adani group had a market capitalization of Rs.18402 billion (approximately US$222 billion), and are one of the largest listed group by market capitalization in India. As of September 30, 2022, it had 1454 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
Adani Enterprise Ltd. (AEL) is planning to mobilize Rs. 20000 cr. from its FPO and has announced a price band of Rs. 3112 - Rs. 3276 per share of Re. 1 each. At the upper cap, the company is likely to issue approx. 61050060 fresh equity shares at the upper price band. This issue is being floated with investors friendly measures that include part payments in stages as and when called for by the company. The minimum application to be made is for 4 shares and in multiples thereon, thereafter. Only 50% amount is to be paid along with the application and the rest on one or more calls from time to time. After reserving the shares worth Rs. 50 cr. for its eligible employees, AEL has allocated 50% for QIBs, 15% for HNIs, and 35% for Retail investors. It is offering a discount of Rs. 64 per share to Retail investors. Thus the offer is being made at a discount of about 5.22% to 7.07% based on its last traded price of Rs. 3456.4 per share (as of January 20, 2023 - BSE Code 512599). The issue opens for subscription on January 27, 2023, and will close on January 31, 2023. Post allotment, shares will be listed on BSE and NSE as partly paid shares. The issue constitutes 5.08% of the post-FPO paid-up capital of the company. 

From the net proceeds of the FPO funds, it will spend Rs. 10869.00 cr. for the capital expenditure of its subsidiaries in relation to projects of green hydrogen ecosystems, improving the infrastructure of certain existing airport facilities and construction of greenfield expressway, Rs. 4165.00 cr. for repayment of certain borrowing by the subsidiaries in part or full, and the rest for general corporate purposes. 

The joint Book Running Lead Managers (BRLMs) to this FPO are ICICI Securities Ltd., Jefferies India Pvt. Ltd., SBI Capital Markets Ltd., Axis Capital Ltd., BoB Capital Markets Ltd., IDBI Capital Markets and Securities Ltd., JM Financial Ltd., IIFL Securities Ltd., Monarch Networth Capital Ltd., and Elara Capital (India) Pvt. Ltd. Link Intime India Pvt. Ltd. is the registrar of the issue. 

Post-FPO, AEL's current paid-up equity capital of Rs. 114.00 cr. will stand enhanced to Rs. 120.11 cr. Based on the upper cap of the FPO pricing, the company is looking for a market cap of Rs. 393464.37 cr. As of January 13, 2023, the total number of Shareholders of the Company was 267,918.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, AEL has (on a consolidated basis) posted a turnover/net profit of Rs. 44086.21 cr. / Rs. 798.00 cr. (FY20), Rs. 40290.93 cr. / Rs. 746..32 cr. (FY21), and Rs. 70432.69 cr. / Rs. 475.37 cr. (FY22). For H1 of FY23, it earned a net profit of Rs. 849.63 cr. on a turnover of Rs. 79507.89 cr. While it suffered a setback for FY21 on account of the pandemic in line with the general trends, it has posted super results for the H1 of FY23 indicating its future stances. 

For the last three fiscals, AEL has posted an average EPS of Rs. 8.05 and an average RoNW of 4.26%. The issue is priced at a P/BV of 10.32 based on its NAV of Rs. 317.34 as of September 30, 2022, and at a P/BV of 7.00 based on its post-FPO NAV of Rs. 467.73 per share. Its net debts to EBITDA (on an annualized basis) were 3.61 (H1 FY23), 5.20 (FY22), 3.01 (FY21), and 2.18 (FY20). 

If we annualize FY23 earnings and attribute it to post-FPO fully diluted paid-up equity capital, then the asking price is at a P/E of around 231.52. Thus the FPO appears fully priced. 

DIVIDEND POLICY:
AEL has been a dividend-paying company. It paid a dividend of 100% for the last three fiscals. It will continue to have a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
The company has no listed peers to compare with. 

MERCHANT BANKER'S TRACK RECORD:
The 10 BRLMs associated with the offer have handled 97 public issues in the past three years, out of which 34 issues closed below the offer price on the listing date.

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