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Part 5 of our series simplifying Adani Group Companies and their businesses. This one covers the business of Adani Transmission Ltd.
Read all posts in the series here: Adani Group Explainer
Adani Transmission is the listed transmission and distribution company, owned by the Adani Group. It is present in 10 states with a transmission network of 15,487 circuit km (ckm), i.e., 1/10th of Power Grid’s set-up. The company also forayed into the distribution space with the acquisition of Reliance Infrastructure’s power unit in Mumbai.
Adani Electricity Mumbai Ltd. is known for providing electricity to over 3 million customers in Mumbai and Thane district with a distribution network spanning over 400 square km. This unit contributes a little more than 40% of Adani Transmission’s EBITDA. The unit is 75% owned by Adani Transmission, while the remaining is owned by Qatar Investment Authority.
The transmission business continues to have a strong revenue profile with the revenue being governed by a predictable regulatory regime or contracts signed under tariff-based competitive bidding. Its revenue is availability-based and does not depend on the quantum of energy flowing through the transmission network.
The tariff structure in all the transmission assets is either on a tariff-based competitive bidding (TBCB) or cost-plus basis. While, in the TBCB structure, the tariff is based on the bid amount and is fixed in nature for the period of concession, the cost-plus structure provides a fixed return on equity to the company in addition to the recovery of the cost incurred. As the transmission agreements are long-term in nature, it provides long-term revenue visibility.
In the transmission business, as most of its costs are fixed in nature, the EBITDA margin generated is 90%+. While the distribution business has comparatively lower margins of close to 20%. Over the last four years, the company’s debt has doubled. But its leverage has remained stable, the cost of debt has come down and the maturity period has increased to 10.3 years from 5.8 years.
The company expects states and centre to equally contribute to the transmission opportunity to double ckm lines by FY34. It pegs $33 billion of opportunity for the private sector. If Adani Transmission maintains its current market share in competitive bidding it could manage to win incremental projects worth $20 billion.
Adani Transmission’s market share in competitive bidding projects is 10% to date and 17% excluding Power Grid. Incremental projects worth $20 billion would mean six times its current gross asset block.
Currently, the company has nine projects at various stages of implementation with a revenue potential of ₹ 960 crore annually. Moreover, with the impending privatisation of distribution companies in union territories (UTs), there is a considerable opportunity in the distribution business as well.
There is no demand risk faced by the company in the transmission and distribution business. The only risk that the company faces is a delay in project execution and delay in payment of its dues.
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