An Ambani-Adani show

by Mahesh Vyas

The Ambani and Adani industrial houses dominated new investment announcements in the quarter ended June 2021. The Mukesh Ambani led Reliance Industries announced investments worth Rs.600 billion into a Green Energy Giga Complex in Jamnagar, Gujarat and the Gautam Adani led Adani Enterprises announced a Rs.292 billion PVC plant in Mundra, also in Gujarat. These two projects alone account for more than 57 per cent of all new investment proposals made in India during the quarter ended June 2021. The completion plans of both these projects are not known. However, reports suggest that the Ambani’s investment would be made in a three year period.

It is also not lost on anyone watching the Indian business environment that Ambani and Adani are the two fastest growing business groups in India in recent times. Each appears to have gained dominant positions in their respective industries. Investment proposals made by these two industrial conglomerates during the first quarter of 2021-22 stand out for multiple reasons. First, while the Adani group is already heavily invested in the green energy segment,the Ambani group has made known its newest foray in the same segment. And, correspondingly, while the Ambani group is heavily invested into plastics through the petrochemicals route, now the Adani group aims to enter the same through the coal route. Secondly, it is interesting that these two are the only large investors during the second wave of the Covid-19 pandemic in India. Others have essentially given new investment proposals a pass for now.

The two projects announced by them in the June 2021 quarter stand tall among other new investment announcements made during the June 2021 quarter. The next two big projects in this quarter were the Rs.78 billion solar power project by NTPC and the Rs.72 billion renewable energy project by Solar Energy Corpn, both public sector enterprises.

New investment proposals during fiscal 2020-21 add up to Rs.5.95 trillion. The top two projects were by Arcelormittal Nippon Steel a Rs.500 billion steel plant in Kendrapara in Odisha and a Rs.360 billion (since raised to Rs.500 billion) steel plant in Surat in Gujarat. Collectively, these two are similar in size to the Ambani and Adani projects. But, they account for only 14.5 per cent of the total investments announced in 2020-21. This comparison illustrates how the Ambani and Adani projects of June 2021 quarter are not exceptionally large but seem so because of the much smaller investments made by others.

Reliance Industries had announced a larger Rs.700 billion crude-to-chemical unit at its Jamnagar refinery in November 2019. This project received the Standard Terms of Reference from the Ministry of Environment, Forests and Climate Change in January 2020. No further progress on this project has been reported since then. It is not clear when this project will be completed.

The Rs.5.95 trillion worth of new projects announced in fiscal 2020-21 was the lowest since 2004-05. Investment proposals fell sharply from the Rs.16.6 trillion worth of announcements made in 2019-20. This is understandable as 2020-21 was the year of the Covid-19 pandemic and the consequent lockdown or restrictions on movements. But, 2020-21 was also a year of exceptional profits for the large listed companies. Companies have chosen not to deploy those profits into new investment plans. Net fixed assets of listed companies as of March 2021 were a meagre 3.3 per cent higher than a year ago in nominal terms. New investment proposals were very low in 2020-21 and continued to remain at similarly low levels in the first quarter of 2021-22.

Total new investment proposals made in the first quarter of 2021-22 at Rs.1.6 trillion is not too far from the average investment of the order of Rs.1.5 trillion per quarter in 2020-21. Besides, as seen above most of this investment was by just two projects. The general investment climate continues to remain weak.

One of the reasons for the poor show on new investment announcements in the quarter of June 2021 could be the second wave of Covid-19 that has hit India since March 2021 and the consequent subdued sentiments. It is also likely that the fear of a third wave turned entrepreneurs a lot more circumspect on making new large investment bets on the Indian economy. Uncertainty could continue to plague investment sentiments since industry continues to carry large unutilised capacities. The last OBICUS survey from RBI is of December 2020. It shows a capacity utilisation of 66.6 per cent. This is unlikely to have improved in the second wave of Covid-19.

The value of new investment proposals in the June 2021 quarter and also the total for fiscal 2020-21 is expected to be revised upwards. But, even after the expected revisions, they will remain low compared to the recent past. They will also show a sharp fall on top of a decelerating trend in new investment announcements since 2015-16.

New investment proposals made during 2015-16 added up to Rs.22 trillion. This fell to Rs.19 trillion in 2016-17 and then to Rs.16 trillion in 2017-18. Between 2017-18 and 2019-20 investment proposals stagnated at Rs.16 trillion. The fall in 2020-21 to less than Rs.6 trillion is therefore very sharp. Trends seen in the first quarter of 2021-22 do not indicate any signs of a revival.

We do not expect investments to revive any time soon.

Unemployment Rate (30-DAY MVG. AVG.)
Per cent
6.9 -1.9
Consumer Sentiments Index
Base September-December 2015
52.1 0.0
Consumer Expectations Index
Base September-December 2015
54.8 0.0
Current Economic Conditions Index
Base September-December 2015
48.0 0.0
Quarterly CapEx Aggregates
(Rs.trillion) Sep 20 Dec 20 Mar 21 Jun 21
New projects 1.99 1.25 1.87 1.81
Completed projects 0.76 0.85 1.10 0.57
Stalled projects 0.06 0.31 0.14 0.16
Revived projects 0.25 0.15 0.21 0.12
Implementation stalled projects 0.09 0.15 0.30 0.27
Updated on: 28 Jul 2021 8:28PM
Quarterly Financials of Listed Companies
(% change) Sep 20 Dec 20 Mar 21 Jun 21
All listed Companies
 Income -6.3 1.6 15.0 33.2
 Expenses -10.3 0.1 7.4 33.7
 Net profit 47.5 58.0 304.2 76.6
 PAT margin (%) 8.3 8.4 9.1 12.7
 Count of Cos. 4,419 4,433 4,211 396
Non-financial Companies
 Income -10.5 0.2 17.7 51.2
 Expenses -14.2 -0.7 10.6 56.1
 Net profit 31.7 54.4 218.4 82.2
 PAT margin (%) 8.1 8.8 9.3 13.0
 Net fixed assets 5.9 2.3
 Current assets 0.7 4.8
 Current liabilities -2.7 0.8
 Borrowings 8.3 -4.3
 Reserves & surplus 4.2 12.3
 Count of Cos. 3,278 3,293 3,143 300
Numbers are net of P&E
Updated on: 28 Jul 2021 8:29PM
Annual Financials of All Companies
(% change) FY19 FY20 FY21
All Companies
 Income 13.4 0.0 2.8
 Expenses 13.8 -0.1 0.4
 Net profit 14.2 -7.3 33.8
 PAT margin (%) 2.1 2.1 9.5
 Assets 9.8 8.3 17.1
 Net worth 8.5 4.3 18.7
 RONW (%) 3.7 3.6 10.7
 Count of Cos. 31,492 30,180 1,463
Non-financial Companies
 Income 14.1 -1.9 -0.8
 Expenses 14.4 -1.7 -2.3
 Net profit 20.6 -18.4 15.0
 PAT margin (%) 2.9 2.4 10.9
 Net fixed assets 5.6 9.7 7.0
 Net worth 7.9 1.9 18.0
 RONW (%) 6.3 5.1 13.5
 Debt / Equity (times) 1.0 1.1 0.5
 Interest cover (times) 2.3 2.0 5.8
 Net working capital cycle (days) 73 80 32
 Count of Cos. 25,254 24,140 1,091
Numbers are net of P&E
Updated on: 28 Jul 2021 4:45PM