Adani Group’s Odisha investment plan signals major metal aspirations

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Adani Group, which forayed into metals earlier this year, is gearing up take giant leaps into a sector that has been dominated by the big boys of the industry.

Adani Group’s big bang announcement to invest Rs 57,575 crore in Odisha on metal projects solidifies the billionaire Gautam Adani-led group’s ambitions in the sector, signalling that the conglomerate will continue on its diversification drive.

In the last year alone, the group has diversified to add three new businesses — cement, industrial 5G, and metals, to it portfolio. With the latest announcement of the plan to invest in Odisha to set up an alumina refinery and iron ore plant, the group is making its aspirations clear that it is keen to get a foothold in the metal sector, which was thus far been dominated by heavyweights like Aditya Birla Group, Tata Group, and Anil Agarwal-led Vedanta.

In a statement on August 11, Chairman Adani said, “Metals are critical commodities in which our nation must be self-reliant. And these projects are aligned with our vision of Atmanirbharta. In addition, being a power-intensive business, it is a great adjacency to the renewable energy that we are able to generate and help to produce the greenest alumina anywhere.”

The Adani Group first indicated its interest in the steel sector when it tied up with Korean Steel major POSCO for a steel manufacturing unit in Gujarat. In June, it announced plans to set up a copper complex.

Strategic Move

Adani Group set to invest Rs 57,575 crore in Odisha 

Rakesh Arora, the founder of Go India Stocks and former research head of Macquire Capital Securities, told Moneycontrol, “Adani Group is moving fast to capitalise on its triple strengths of green energy, logistics, and mining. The group aims at becoming a facilitator for companies heavy on energy and raw material like Posco.”

By investing in power guzzling businesses like copper and alumina manufacturing, the group is creating end-user demand for its power business. The investment in an iron ore beneficiation plant and pellets could be with the intention of being a facilitator for manufacturing green steel for Posco, whereby it could provide both hydrogen and iron ore pellets for making green steel, Arora said.

Green steel, as a concept, is fast catching the fancy of the world. Essentially, green steel is the manufacturing of steel without the use of fossil fuels. The so-called “green hydrogen” is a solution that could help reduce the steel industry's carbon footprint.

In July 2021, ArcelorMittal announced that its Sestao plant in Spain will become the world’s first full-scale zero carbon-emission steel plant. The company signed a memorandum of understanding with the Government of Spain to invest €1 billion in the construction of a green hydrogen direct reduced iron (DRI) plant as well as a new hybrid electric arc furnace (EAF).

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Adani’s investment in Odisha is strategic as the state holds over half of the nation’s bauxite and iron ore reserves. Chairman Adani said in the statement that Odisha is “one of our most strategic states” in which the group has continued to invest.

Commenting on the development, Jayanta Roy, Senior Vice President, ICRA, said, “India is a net importer of both bauxite and alumina, key inputs in the production of aluminum. Also, Odisha has most of the good quality bauxite in the country. The proposed investment in the alumina refinery being planned by the Adani group is likely to have considered these factors. Nonetheless, securing adequate bauxite quantity would be a key success factor for the project.”

Profit potential

The foray into the alumina business, on a standalone basis, is expected to be highly profitable in nature.  Arora says alumina is a high return on equity (ROE) accretive business.

Commenting on Adani’s planned project, Vikash Singh, Research Analyst, Phillip Capital India, said that he expects relatively lower profitability from the plant as compared to the peers due to the lack of bauxite sourcing for the plant until now.

“This may be more of an export-oriented initiative since other major players like Hindalco and Nalco are self-sufficient. Vedanta is also increasing its alumina capacity and is expected to be self-sufficient by the time Adani’s plant is commissioned and fully optimised,” he added.