Coal has highest share in cargo of Adani Ports since 2017

A seemingly unlikely driver of the Group’s coal businesses is Adani Ports and Special Economic Zone (‘Adani Ports’), which runs a string of ports along the Indian coastline. For years, the largest category of cargo handled at Adani’s ports were containers. These typically carry ‘clean’ manufactured cargo such as electronics and clothing.

Not anymore. During the September-December 2023 quarter, Adani Ports reported an increase in coal cargo, which became the higher share of cargo category for the first time since at least 2017, according to an investor presentation issued in February, contributing 37% of the company’s total cargo mix for the quarter. The gap between these two cargo categories – which was as much as 43% for containers and 33% for coal in 2020-21, has narrowed sharply since, as the chart shows.

Overall, Adani Ports handled 17.5 million tonnes more coal in the December 2023 quarter than in the December 2022 quarter. Coal represented two-thirds of the total increase in cargo handled between the two quarters. Considering the nine months from April to December 2023, coal contributed one-third of the increased cargo in comparison to the same period in 2022, which means that there was a sharp rise in coal handling during the later months of 2023.

During a call with investment analysts, Adani Ports’s managing director (and Gautam’s elder son), Karan Adani, and other officials of Adani Ports explained why the share of coal has risen, and how it is expected to grow further. The explanations include an increase in coal demand and a preference to move it by sea rather than by road and railways.

Karan Adani said that they have seen a surge in coal volumes due to the increase in coal-power generation and steel production in the country. Subrata Tripathy, CEO, Ports Business, elaborated on this, saying that the company sees a growth in so-called ‘coastal coal’ shipping, which is the movement of coal between different ports of India (as opposed to coal imported from other countries).

‘We have been guiding you that coastal coal is an opportunity in line with what [the] government has been saying about Atmanirbhar [Indian self-reliance] and the rise in the coal India's volumes and also private mining coming into India,’ Tripathy said. The company has seen a ‘volume upsurge’ at Dhamra Port in Odisha for coal arriving from the Talcher coalfields in the state, which was ‘hitherto not a feature,’ he added.

The coal makes its way to Krishnapatnam and Karaikal ports in southern India, which also belong to the company, he said. Coal is also shipped out of Gangavaram port – acquired by Adani in 2021 – on its way to coal-power plants near the coast in southern India, he said.

Tripathy added that, for the first time, they have noticed coal being shipped from their eastern ports into west India ports at Goa and Dahej, which is sent from those ports by road to north Indian coal-power plants.

‘This is certainly a very large upsurge,’ he said in conclusion. ‘We see that consolidating in the future with our appropriate presence both in the proximity of the coastal fields in Eastern India and receiving in Southern India and Western India terminals.’

Next year, the company expects its ports to handle 13-16 million tonnes of coastal coal, including 5-6 million sent out of the ports and 8-10 million tonnes received. This includes 1 million tonnes expected to be received at the Goa coal terminal, where local residents have for years complained that emissions of coal dust from coal terminals are causing respiratory diseases. In late March 2024, the company also acquired Gopalpur Port in Odisha, which predominantly handles coal and iron ore, and is located near the huge coal mines of central India.

Handling coal is incredibly rewarding for Adani Ports. During the call, Karan Adani revealed that the company makes $68-72 in profits for every $100 it earns from coal handling.

The rise in coastal coal-handling at Adani’s ports comes after the Modi government introduced policies that promoted the movement by sea of domestically-mined coal.

For example, the ministry of coal is in favour of almost trebling the amount of domestic coal moved by sea by 2030: from 40 million tonnes now to 112 million tonnes by that year. ‘The ministry believes that this so-called rail-sea-rail or RSR method has a lower carbon footprint, is more efficient than the current system of dispatching coal by the railways only, and also has the potential to revolutionise India's logistics industry,’ according to a press statement. This includes ‘full capacity utilisation of the ports along the southern and western coasts’ – many of which are operated by Adani Ports.

This may sound odd coming from a department that’s meant to be concerned with coal and not the utilisation of ports. But the press statement says that this is a part of a ‘whole of government’ approach to address challenges in evacuation of coal, and the policies are based on the recommendations of a panel consisting of representatives from the ministry of ports and shipping. Thus, sending coal by sea ‘creates export opportunities by building infrastructure that can be utilised for exports in the future,’ the statement said.

Coastal coal movement has already increased by 125% in the last four years, the statement said. ‘This will enable efficient transportation of more coal to power houses in Gujarat, Maharashtra, Karnataka, Goa, Tamil Nadu, Kerala and Andhra Pradesh,’ it added.

Adani Enterprises: coal growth

Meanwhile, coal continues to grow at Adani Enterprises, the group flagship involved in coal mining and trading. Speaking at the company’s financial analyst conference call for its Q3 results, Vinay Prakash, CEO of Adani Natural Resources reported that the Carmichael coal mine saw a 46% increase in coal production (at 8.3 million tonnes) and 62% increase in shipments (at 8.1 million tonnes) in the nine months to December 2023, in comparison the period in 2022. The company earned Rs 1020 crores (US $122 million) in profits (before interests and taxes) in the nine months to December 2023 from the Carmichael operations, Saurabh Shah, finance controller of the company, said in the call.

The company reported ‘very, very high’ numbers on coal trading, according to one analyst in the call. In terms of margins, the company earned Rs 700 per ton compared with Rs 500 in the last couple of years. Prakash said that this was because of a fall in coal prices in the last year.

‘Since market was correcting and we were holding the orders, we got benefited because of our low sourcing cost, i.e purchase cost, which is getting reflected in the results,’ Prakash said, indicating that the company ended up sourcing coal at low prices but serving them for orders placed at higher prices.

The company faced recent setbacks in coal-mining operations in India, including a stinging order by the National Green Tribunal cancelling the environmental approval for a coal mine in the Hadseo forests that has a capacity of 23 million tonnes per annum. Nevertheless, Prakash seemed confident of increasing the company’s coal-mining output from 25 million tonnes per annum to 40 million tonnes.

To a question from an analyst about whether the company was struggling to achieve this target, Prakash said, ‘we are on our target of achieving 40 million tons [capacity] in FY'25 [the financial year ending March 2025]. I don’t say we are struggling.’

He added: ‘We were expecting some permissions in FY'24, which got a little delayed. But now we have all the permission, and I'm confident that the target of 40 million in FY'25 is going to be likely there.’

As mentioned earlier, Adani Enterprises is expecting a growth in its coal-trading business in which it imports coal into India for various clients, which is in contrast to the Indian government’s commitments to cut down coal imports as part of Narendra Modi’s call for national self-sufficiency. As the country’s coal minister said in January, there are supposed to be ‘zero’ coal imports by the 2025-26 financial year.

In the conference call, which happened just a week later on 1 February, an analyst asked the company how a cut in coal imports would affect its coal-trading business. In response, Vinay Prakash said, ‘in India, even though the target had been set to make import zero long back, but on an actual basis, on a practical basis, it is not going to be zero any time in the future also for two reasons.’

The first reason, he said, was that Indian coal had high ash content, so power plants designed to run on low ash need to import such coal to blend with domestic coal. Second, many coastal power plants in India are ‘designed for low ash only’, including those run by the government’s NTPC Limited. Finally, he said that, for the many coal-power plants that are located on the coast, coal imported by sea from as far as Chile could be cheaper than domestic coal.

‘So, if you ask us, we are very clear that even next 5 years, 10 years, 15 years down the line, the imported coal market will remain in excess of 150 million or 160 million tons,’ Prakash concluded. 

A recent report by American financial services firm Cantor Fitzgerald also confirmed that, despite the investments of Adani Enterprises in green hydrogen, solar and wind-power manufacturing, coal continues to be a mainstay. The report says mining-services revenue will grow 35% over 2024-2026, and the commercial mining business is ‘still in growth phase with more capacity coming online’, the firm noted. Integrated resource management – in which Adani Enterprises procures coal for global buyers – will be a ‘meaningful profitability contributor’. Together, coal-related businesses are currently valued at Rs 58854 crore or US $7 billion. The firm estimates that the share prices of Adani Enterprises would rise 50% in the coming years (as opposed to Hindenburg’s estimate of a 85% collapse).

An increase in coal power

Rounding off the Adani Group’s coal growth is Adani Power, India’s largest private coal-power producer. According to an investor presentation dated 1 March 2024, the company burns 60 million tonnes of coal every year, generating 13 million tonnes of ash. Domestically-mined coal powers only a little over half (56%) of its 15 GW capacity, meaning the rest is imported. In fact, coastal power stations form one-third of the company’s total power-generation capacity. The company imports coal mainly at Mundra, Dhamra and Mangalore ports. The former two are operated by Adani Ports, while the latter is close to its Udupi coal power station.

While the Group did not add any coal power capacity from 2015 to 2019 fiscal years, the company is now planning to add an estimated 5.5 GW of coal-power capacity in the coming years, even as another 1.6 GW is under construction.

‘The issues and challenges that we faced earlier are well behind us,’ said SB Khyalia, CEO of Adani Power, to analysts in January 2024. ‘We look forward to generating sustainable value for our stakeholders in the coming years, which are full of growth opportunities.’

A newspaper recently termed this a part of Adani Power’s recent revival of ‘old ambitions’ of touching 20 GW of coal-power capacity. In an earlier analyst call in late 2023, the company said it is ‘poised to take off successfully for the long haul as India’s power demand grows strongly in line with its economy’.

In its investor presentation, the company said it estimates 59% of all electricity units supplied in India in the 2031-32 fiscal year would be from coal power.

The American brokerage firm Cantor Fitzgerald said Adani would grow because it is ‘at the core of everything India wants to accomplish’. It is no wonder, then, that as India continues to consume coal, that Adani would continue to optimistic about its coal businesses. Too bad about the Earth's climate.