Adani takes baby steps into petrochemicals, rattled by Ambani’s renewables foray

P Manoj Mumbai | Updated on July 31, 2021

Gautam Adani, Chairman   -  REUTERS

Registers Adani Petrochemicals Ltd with Registrar of Companies, Ahmedabad

Gautam Adani took a small step on Saturday to enter the petrochemicals business by forming a wholly-owned unit under Adani Enterprises Ltd. Sources tracking the company said this is in response to Mukesh Ambani’s announcement in June that Reliance Industries Ltd would make a massive Rs 75,000-crore investment in a green energy giga complex in Jamnagar, Gujarat.

Adani Petrochemicals Limited was registered on Friday with the Registrar of Companies, Ahmedabad to “carry on the business of setting up refineries, petrochemicals complexes, speciality chemicals units, hydrogen and related chemicals plants and other such similar units,” Adani Enterprises said in a regulatory filing.

The Group did not offer details.

The Adani Group is understood to be “rattled” by Ambani’s entry into the renewable energy space, a segment in which it had set lofty global ambitions.

Since entering the renewables business more than a year ago, the Adani Group has quickly moved to become the world’s biggest solar power developer through a mix of acquisitions and strategic partnerships.

Inducting TotalEnergies as a 20 per cent partner in the renewables business sealed a strategic alliance that covers investments in LNG terminals and renewable assets across India, besides the gas utility business.

Since January 2020, the value of the Group’s renewables business has increased over 600 times, thereby, yielding one of the best returns across all stock markets.

Thereafter, in May 2021, it acquired Softbank and Bharti’s 5 Gigawatts portfolio of renewable assets, allowing it to leapfrog and get to the target of 25 Gigawatts four years ahead of schedule.

The Group also decided that a significant part of its future investments will be focused on sustainable and renewable energy.

But, unlike Ambani’s entry into the renewable energy sector, Adani’s foray into petrochemicals lacks vision without a refinery in its fold, says sources.

In the refining business, the availability of petrochemicals in the product portfolio hedges against a drop in price/demand of fuels. Besides, integration of refining and petrochemicals can lead to better profit margins.

India will drive more than 10 per cent of the world’s growth in petrochemicals over the next decade and will need to set up one cracker every year until 2035 to meet domestic demand, according to an August 2020 report by consultant Kearney. The sector provides a direct investment opportunity of more than $30 billion, which will cascade into downstream sectors — adding about 150 basis points to GDP and generating more than 100,000 jobs over the next decade, the report, ‘Riding India’s Petrochemicals Wave’, said.

Incumbents and new entrants will need to assess the market dynamics, capability requirements, business model fit, competition landscape, and potential disruptions before making long-term bets, the report said.

A robust portfolio strategy needs to build in flexibility to account for product evolution, product switches for netback optimisation, and synergistic offerings for high-value propositions.

As players prepare for partnership opportunities, there are three imperatives for success. “First, lay out a clear set of growth objectives and identify the internal and external capabilities required to achieve them. Second, build strong in-house M&A capabilities to evaluate the opportunities. Finally, adopt a proactive and systematic approach to M&A, putting value creation at the core,” Kearney said in the report.

In 2020, German chemical giant BASF SE, Abu Dhabi National Oil Company, Adani Group and Borealis AG had signed an agreement to set up a chemical complex at Mundra in Gujarat at an investment of $4 billion.

But, the plan was put on hold a year later citing the pandemic.

In hindsight, Adani made a mistake by not participating in the privatisation of Bharat Petroleum Corporation Ltd, a company that is expanding into petrochemicals in a big way and would have given wing to the Group’s petrochemicals ambitions, an oil industry official said.

Published on July 31, 2021

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