With Adani deals, Gautam Adani’s relative turns bankrupt firm into $1 bn company

Bengaluru: Two years after a small Ahmedabad-based firm that makes electric cables and transmission towers emerged from bankruptcy, it now enjoys a market cap of almost $1 billion.

The change in the fortunes of Diamond Power Infrastructure Ltd—it ended 2023-24 with a revenue of about ₹344.1 crore after having not handled any business in 2022—chiefly on account of getting more business from the Adani conglomerate.

Incidentally, Rakesh Ramanlal Shah, chairman and managing director of Diamond Power Infrastructure, is the brother-in-law of Gautam Adani, India’s second-richest person.

Shah, 71, is married to Priti, sister of Gautam Adani.

But in recent announcements of contracts secured from Adani group companies, Diamond Power specifies in exchange filings that the work did not fall under the ambit of related-party transactions.

To be sure, transactions with a company owned by a brother-in-law do not fall under the category of related-party deals. But industry experts say that in the spirit of the law, companies should disclose such relations. The annual reports of the Adani group’s 10 publicly listed companies and Diamond Power do not disclose any relationship between Rakesh Shah and Gautam Adani.

Driven by Adani group

Gautam Adani’s ownership in 10 public companies was worth $81.2 billion at the end of trading hours on 6 September, according to Forbes, making him the country’s second-richest person, behind Reliance Industries Ltd’s owner Mukesh Ambani, whose wealth is estimated at $113.7 billion.

Diamond Power Infrastructure acknowledged the growth of its business from Adani group entities in its latest annual report.

“In FY 2023-24, company’s revenue was 100% domestic. This growth was driven by strong orders from key markets players Adani Group," Diamond Power said in its annual report published on 4 September.

The company’s annual report also mentions that Rakesh Shah “stepped foot into the manufacturing industry in 2019, as the director of Smart Meters Technologies Pvt. Ltd., a joint venture with Adani Total Gas Limited".

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Diamond Power Infrastructure and the Adani group companies, however, do not disclose the quantum of business between the two groups. However, a Mint review of orders disclosed by Diamond Power Infrastructure over the last 12 months shows that three-fourths of Diamond Power Infrastructure’s ₹1,505 crore order book as of 2 August came from the Adani conglomerate.

This includes a ₹900 crore order from Adani Energy Solutions Ltd for the supply of aluminium alloy power conductors, a ₹222 crore order from Adani Green Energy Ltd for power cables and conductors, and ₹30.5 crore from Adani Electricity Mumbai Ltd for power cables.

A call for wider disclosures

Related party disclosures often serve as a guidepost for investors to evaluate a company’s financials, and understand whether its decision-making or performance could be influenced by relatives in another business.

At least one chartered accountant suggested that regulatory bodies need to expand the existing classification of related parties.

“Under Indian accounting and (ministry of corporate affairs) rules, brother-in-law does not come under related-party transactions. But it’s time Sebi and MCA re-look at the current definition and expand the definition of relatives," said Amarjit Chopra, senior partner at GSA & Associates LLP, a New Delhi-based firm with expertise in taxation and corporate governance.

“Because if you can define sister as a related party, why would you not club brother-in-law as a related party because the influence of relatives is not any less."

Sebi, or the Securities and Exchange Board of India, currently requires only business dealings between immediate blood relatives and spouses to be classified as related-party transactions.

Emerging from bankruptcy

Diamond Power Infrastructure ended 2023-24 with a profit of ₹17.02 crore, swinging from a loss of ₹42.9 crore in the year ended March 2023.

The company was started in 1979 by Vadodara-based businessman Suresh Narain Bhatnagar. However, its inability to pay its bankers forced its creditors to take the company to bankruptcy court in August 2018. The Central Bureau of Investigation arrested Bhatnagar and his two sons, with the federal agency alleging that the former promoters had cheated the company’s creditors.

Shah took control of Diamond Power Infrastructure in June 2022 when he agreed to pay ₹501 crore to the lenders over five years. Subsequently, on 17 September 2022, the company’s board was reconstituted and Shah got control of 90% of Diamond Power Infra’s shares. At the time, the company’s market cap totalled about ₹1,000 crore.

In afternoon trading on Monday, shares of Diamond Power Infrastructure were at ₹1,460 each, giving the company a valuation of ₹7,626 crore (about $908 million).

An “aristocratic business family"

Shah is an Ahmedabad businessman who owns GSEC, a privately held firm that trades in agricultural commodities and fuel oil and also runs an air cargo business. GSEC was formerly called Gujarat State Export Corporation, a firm set up by the Gujarat government in 1965. The state government sold its stake and Shah took control of the company in 2004.

GSEC’s website describes Shah as belonging to an “aristocratic business family". Shah’s son, Shaishav Shah, is the joint managing director of GSEC, while his daughter-in-law, Raji, is on the board.

GSEC’s standalone financials for the year ended March 2023 show that the privately held company recorded ₹430.26 crore in revenue and ₹36.7 crore in profit.

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Significantly, until December 2016, Shah and Priti Shah, Gautam Adani's sister, were classified among promoters of four Adani group firms. Shah and Priti owned 0.08% of Adani Enterprises Ltd and Adani Energy Solutions Ltd, 0.06% of Adani Ports and Special Economic Zone Ltd, and 0.04% of Adani Power Ltd, according to aMint review of the ownership of the Adani group firms.

Beginning March 2017, Rakesh and Priti Shah were not included in the list of promoters after Adani Ports disclosed to the exchanges on 27 February 2017 that Sebi had approved their reclassification from promoter to public shareholders. Priti Shah is also not on the board of Diamond Power Infrastructure.

For now, neither Adani group nor Diamond Power and Infrastructure classify business between the two firms as related-party transactions.

Multiple calls, text messages and emails sent to Shah seeking a comment went unanswered. An email sent to Adani Group also did not elicit a response.

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