The Adani Group has currently made elaborate plans to venture into the Indian petrochemical sector by making an investment of 4 billion USD in the PVC project. The conglomerate plans to make a presence in this sector to address the supply-demand gap that exists in the country. The first phase of this project will be completed by December 2026. It is going to have a capacity of 1 million tons per annum. The project will be funded by the Adani SBI-led consortium of banks.
Why Venture into The Petrochemical Sector?
The Gautam Adani-led global conglomerate has plans to commission the first phase of its 4 billion USD PVC project by December 2026. With this project, the Adani Group will enter into the petrochemical sector. This sector is marked by a huge gap between domestic demand and supply. With Adani Group’s venture into the sector, this gap will be mitigated. The global conglomerate will also be able to further diversify its portfolio and build an excellent presence for itself in the sector. It will also be able to recover from the losses that it suffered during the Hindenburg crisis.
PVC, or polyvinyl chloride, is the third most common synthetic plastic polymer. After polypropylene and polyethene, PVC sector is the third most produced synthetic plastic polymer. It is used to make different products like shower curtains, raincoats, window frames, medical equipment, etc. PVC is also used quite frequently for plumbing and flooring purposes. India’s annual demand for PVC is around 4 million tons. However, the domestic production is only 1.5 million tons. This has created a gap between supply and demand. This mismatch between domestic output and consumption will grow in the upcoming years. So, the Adani Group is looking forward to tapping into this growth market and enhancing its business profitability.
The Challenges Faced During the Project Execution
Adani Enterprises is currently in the process of setting up its petrochemical cluster in Mundra in Gujarat. Through this cluster, the company aims to set up a PVC plant with a capacity of 2 million tons per annum. This project will be executed in different phases. The initial phase will have a capacity of 1 million tons. The second phase will also have a similar capacity, and the commencement of that phase will begin after the initial phase is commissioned. The group had halted the operations of the project in March last year stating that it had decided to hold procurement and construction site activities pending financial closure.
After this, the Adani Group had to face the Hindenburg challenge because of which its financial status was affected considerably. The group, however, denied all these allegations. Its stock values came down considerably and it had to hold a lot of project operations. The investigations continued for over a year after which the Supreme Court gave the verdict in favour of the Adani Group. After that, the Adani Group was once again back to its business. It brought its focus on all those projects that earlier had to be discontinued.
The Project Execution Strategy
The Adani Group referred to state resources as one of its core competencies. It designed a comeback strategy that involved spending over 5 billion USD in equity and double that amount in debt. It also started repaying some debt and fully repaying all the share-backed financing. As the investors started regaining confidence in Adani Group, it started work on its petrochemical project. Adani SBI, along with other lenders, will be financing this project. The Adani Group plans to implement acetylene and carbide-based PVC production processes for this particular project. It has already received the environmental clearance and the consent to establish the project.
Conclusion
By 2027, India is expected to increase the PVC capacity of the world. The construction and agricultural sectors are largely dependent on the use of PVC sector. The government is also increasing its investment in sectors like housing, sanitation, and irrigation through programs like PMKSY, AMRUT and Housing for All. Because of these projects, the demand for PVC tubes and pipes will also increase. The PVC demand is expected to grow at a CAGR of 8 to 10% between FY23 and FY26. This will turn out to be an opportune market for the Adani Group to tap into. Its business profitability will increase. The Adani SBI relation will strengthen. The Adani Group will also be able to gain the interest of other foreign investors.
