Adani group’s refinancing needs are relatively low in near term: Jefferies

• Adani group has a consolidated gross debt of ₹2.3 trillion and net debt of ₹2 trillion.
  
  
• Net debt / EBIDTA has come down from 7.6x in 2013, to 4.0x in 2016, and 3.2x in September 2022 says the equity research report.
  

Adani group's details on debt and repayment schedule point that consolidated net debt is at ₹2 trillion, with relatively low refinancing needs in the near term, according to an equity research report by Jefferies, a New-York-based investment bank and financial services company.

While acquisition of cement business raises debt, it generates cash as well. “Indian banks' exposure is limited to 0.5% of loans (private banks lower at 0.3% and PSUs at 0.7%) and quality is better, as mostly to cash-making assets; tighter RBI rules also helped. So we see low risk to asset quality, but some delay in capex cycle,” the report says.

According to the report, Adani group has a consolidated gross debt of ₹2.3 trillion (+20% vs. Mar-22) and net debt of ₹2 trillion (+22% vs. Mar-22), spread across group companies as of September 2022. Excluding that of acquisition of cement business gross debt was flat versus March 2022 while net debt rose 5% during the same period.

However, the cement entity also generates reasonable cashflow. The top companies by net debt levels are Adani Green Energy (AGEL), Adani Ports and SEZ (APSEZ), Adani Power (APL) and Adani Transmission (ATL) with ₹300-400 billion in net debt each. However, the leverage is higher for AGEL & ATL.

Over FY16 to September 2022, we estimate that net debt levels rose from ₹ 0.7 trillion to ₹2 trillion reflecting capex in group companies.

Details on the debt repayment schedule reflects manageable refinancing needs.

“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 4x in 2016, and 3.2x in Sep-22,” says the report.

Net debt / EBIDTA ratio is higher for Adani Green Energy (AGEL) and Adani Transmission (ATL) but lower than portfolio level for other entities.

As per management, EBITDA includes other income. “Our recent conversation with industry participants also indicated that cashflows and repayment timelines of debt have been conservatively planned. Debt Service Coverage Ratio (DSCR) for most portfolio companies is in the range of 1.7-2.0x for FY23E, ex of ATGL,” the report adds.

A lower net debt / EBIDTA ratio is considered good as the lower the ratio, the higher the chances of paying off debt. A higher net debt / EBIDTA ratio means that the company may face financial problems going ahead.

Indian banks are better placed

“While we watch for developments here, we don't see material risk arising to the Indian banking sector as debt to this group forms 0.5% of total loans — 0.7% for PSU banks and 0.3% for private banks. Moreover, the quality of their exposure is better, with high exposure to cash-generating / operating asset,” the report says.

In fact, Indian banks haven't participated in loans on pledge of shares as well as acquisition financing, partly thanks to restrictions imposed by RBI on banks. In that segment, foreign banks could have 80-90% of the market share.

However, a realignment of the capex commitments from the group could affect the pipeline of the capex cycle as well as loan growth for banks, the report says.