Jefferies: Financials | Adani Group’s Debt Levels & Linkage For Indian Banking Sector

Following recent concerns, Adani Group has shared details of debit & leverage levels. Consol debt is at Rs1.6tn (ex shareholder sub-debt) & Debt/Ebitda is down from 4.3x in FY16 to 3.2x in FY22. Acquisition of cement business may add c.Rs600bn to debt, but also lift cashflow. Diversification of borrowing-mix, has cut share of Indian banks to 33% of debt & 0.5% of sector loans; rest with bonds/foreign banks. We watch for progress, but see low risks for banks.

Debt levels at the group. Adani group has a consolidated gross debt of Rs1.9tn and net debt of Rs1.6tn, which is spread across group companies. The top-3 companies by net debt levels are Adani Green Energy (AGEL), Adani Power (APL) and Adani Ports and SEZ (APSEZ) with Rs300-400bn in net debt each. We understand with the acquisition of cement business of Rs600bn (including preferential allotment of Rs200bn), but this company also generates reasonable cashflow. Over FY16-22, we estimate that net debt levels have risen from Rs0.7tn to Rs1.6tn reflecting capex in group companies.

Cashflow positions & share pledges. Cashflows of the group have been improving at a faster pace that has helped to bring down Net Debt / EBIDTA (on run rate basis) from 7.6x in 2013 to 4.3x in 2016 and 3.2x in 2022. As per management, EBITDA includes other income. Most companies have 2.5x-3x Net Debt / EBITDA (on run-rate basis) ex of Adani Green Energy (AGEL) and Adani Transmission (ATL). Deleveraging of the promoter level debt also reflects in reduction in promoter stake pledge in the listed companies.

Links to Indian banks. Over the past 5-6 years, group has diversified its borrowing mix and reduced the share of Indian banks (PSU and private) in their borrowings from 86% in FY16 to 33% in FY22. The share of bonds as well as foreign banks in total debt have risen to 37% and 18% now. From banking sector’s perspective, debt to this group forms 0.5% of total loans – 0.7% for PSU banks and 0.3% for private banks. Our recent conversation with industry participants also indicated that cash-flows and repayment timelines of debt have been conservatively planned. Hence, DSCR could be even better. While we watch for developments here, we don’t see material risk arising to the Indian banking sector.

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