CreditSights tones down its comments on Adani Group’s debt position after a meeting with the company

• Earlier in August, CreditSights, a Fitch Group unit, came out with a report stating that the Adani Group is “deeply over-leveraged”.
  
• It added that this debt could unravel Adani’s vast business empire.
  
• Now, the research firm has dialed down some of its observations after a meeting with the Adani management.
  

Research firm CreditSights, a part of Fitch Group, has now toned down its comments on the Adani Group’s debt position after a meeting with the company, revising its estimates about the cash flows of two Adani companies.

Earlier in August, CreditSights came out with a report stating that the Adani Group is “deeply over-leveraged” – the stock market’s response was swift, with the seven listed Adani companies shedding ₹94,000 crore in market cap by the end of the day.

“Management explained their calculations of some of Adani’s key financial figures and ratios, and highlighted other factors that they believed investors should take into consideration when analyzing Adani’s credit profile,” the follow-up CreditSights report noted.

The research firm also seems to have dialed back on its analysis of the group’s debt position, with there being no references to “deeply over-leveraged”. The firm also found two calculation errors in its previous report – it corrected its calculation of Adani Transmission’s EBITDA figure from ₹4,200 crore to ₹5,200 crore, while Adani Power’s debt estimate was corrected from ₹58,200 crore to ₹48,900 crore.

“These corrections did not change our investment recommendations,” the firm noted in its report.

In some instances, the new research note also says that the group’s – more specifically, Adani Ports’ – acquisition appetite is somewhat mitigated by its “leading market position”.


CreditSights tones down, but remains cautious

Overall, though, CreditSights remains cautious about the Adani Group’s debt position.

It has noted in some instances that while the group has tried to reduce its reliance on debt by equity infusions from its joint venture partners and investments from companies like IHC, companies like Adani Enterprises are in the midst of a multi-year capex cycle, and therefore, a bulk of its fund requirements would be met with debt.

“Adani Enterprises has an elevated leverage at present, and is likely to remain so in the coming years, considering the entity is the incubator arm for the Group and is in the midst of a multi-year capex cycle,” the report said.

Despite this, the CreditSights report has continued with its “market perform” rating for both Adani Ports and Adani Green. It has not rated the rest of the five listed Adani Group companies yet.


The analysts’ meeting with the Adani management had some interesting revelations – in some cases, the difference of opinion was down to how the group management treated special/one-time incomes and expenses, while in other cases, it was about how it treated Gautam Adani and family’s debt infusion in the group as a form of equity, instead of debt.

Importantly, though, CreditSights and the Adani management continued to disagree on the core aspect of the report – that the group’s leverage is at “manageable levels”.

“Though we have taken cognizance of management’s viewpoints, we have a different opinion on the above,” the report said.

What did the previous report say?

To recap, the initial CreditSights report said that the Adani Group is “deeply over-leveraged” and said it could unravel Gautam Adani’s vast business empire, which is rooted primarily in energy, mining and infrastructure.

“In the worst-case scenario, overly ambitious debt-funded growth plans could eventually spiral into a massive debt trap, and possibly culminate into a distressed situation or default of one or more group companies,” the previous CreditSights report said.

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