The Adani-Bangladesh saga: Should investors be concerned?

With news of Adani Power cutting the electricity it supplies to Bangladesh by half, one wonders how big of a hit this could be.

Adani’s Bangladesh revenues were Rs. 7370 Cr in FY24, or almost 15% of its total revenues. Surprisingly, Bangladesh’s unpaid dues stand at roughly $850 million, or a little over 7000 crores. That is as much as 96% of last year’s revenues from Bangladesh. 

A business adds more regions to diversify its revenue streams. Adani also perhaps added Bangladesh, hoping the same. In FY24, Adani Power’s revenues jumped almost 30%. While the Indian business grew only 11%, the newly introduced power supply contract to Bangladesh added another 19% to the business growth.

However, political instability in Bangladesh has made it difficult for its government to source more US Dollars, the currency that Adani Power was accepting for payments.

While this seems like a significant hit to Adani’s revenues, Bangladesh seems to be in a bigger soup as it was depending on Adani for 7-10% of its power needs.

Clearly, Bangladesh was already in a precarious situation, given that it was sourcing so much power from a supplier it signed up only last year.

But let’s look at Adani Power’s situation.

As a power generation company, Adani Power tends to have only a few customers. These customers are power distribution companies that supply power to end consumers like you and me.

So, by nature, power generation companies have concentration risk. A concentration risk in revenues is when your business depends on only a few customers. The business takes a hit upon losing just one or two customers. You could also run concentration risk if you rely on only one or very few vendors for raw materials or inputs.

In Adani Power’s particular case, the impact could be limited. Bangladesh’s revenues are halved. But India’s energy consumption is expected to grow by 8%. Let’s hope that Adani Power’s India business will also grow at 8%. In total, the lost business in Bangladesh could be recovered in India.

The real impact could be on cash flows. Recorded revenues and profits are meaningless if the business does not receive cash inflows against those revenues. Adani Power’s operating cash flow was very close to operating profit at the end of September 2024, so that is not much of a worry yet. 

How about trade receivables? All unpaid dues are recorded under Trade receivables.

Trade receivables remained flat between FY23 and FY24 but jumped 26% by September 2024. This growth in unpaid dues is still lower than the 30% revenue growth, which is a relief but significant nonetheless.

While closer monitoring of the situation is warranted, it does not seem to be an alarming situation.