No wonder, state-owned electricity distribution companies keep sinking into a vortex of losses and debt despite many attempts to revive them. Users can’t, or won’t, pay enough for natural monopolies whose size and quality is dictated by the aspirations of a small but vocal middle class, but pricing must be decided by a large swathe of less affluent users. But the capital stuck in them is hard to sweat. This is the hard reality facing most of Adani’s business: It has a sprawling portfolio ranging from ports and airports to coal mines, power stations, solar farms, gas pipelines, wind turbines, warehouses, and a lot else besides. Post-tax profit in nine months through December was flat shares have collapsed by nearly three-fourths since the short seller’s attack. may be a function of its city-gas business winning tenders to supply an ever-bigger geographical area - in line with the government’s desire to provide 90% of the population with a cleaner energy source than diesel, coal, and cow-dung patties. Even the elevated profitability of Adani Total Gas Ltd. Adani Enterprises Ltd., the flagship, has a sub-10% return on capital employed, as does Adani Green Energy Ltd., one of India’s largest producers of solar power. Look deeper into the Adani meltdown, and you’ll see the opposite pattern: Most of the group’s stocks that have crashed this year never did boast of superior capital efficiency. The one thing common to all of them? They all generate reasonably high returns on capital employed, which is what you would expect in a youthful country of 1.4 billion people, teeming with cheap labor. is now almost twice as large by market value as its Japanese parent. Ditto for scooter- and autorickshaw-maker Bajaj Auto Ltd., which sells half of its two-wheelers in other developing nations in Asia, Africa and Latin America. and Wipro Ltd., homegrown software exporters that are now multinationals in their own right. They rub shoulders with the likes of Tata Consultancy Services Ltd., Infosys Ltd. Some of India’s more efficient firms are consumer multinationals that have been around a long time, such as Unilever Plc and Colgate-Palmolive Co. And that’s where the Adani Group operates. Except that these opportunities are usually not available in infrastructure outside of telecom. But for foreigners willing to take the risks that come with emerging markets, a 30%-plus return on capital employed (1)is par for the course. Yes, domestic savings are low, and only now getting deployed by asset managers beyond the traditional havens of gold, real estate and bank deposits. When it comes to channeling capital efficiently, India’s stock market offers plenty of choices.
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