CreditSights softens its comments on Adani Group’s debt position after meeting with the company

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

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

Earlier in August, CreditSights released a report saying that the Adani Group is “deeply overloaded” – the stock market reacted quickly, with the seven publicly traded Adani companies losing 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, highlighting other factors they thought investors should consider when analyzing Adani’s credit profile,” the CreditSights follow-up report said.

The research firm also appears to have backtracked on its analysis of the group’s debt position, with no references to “deeply overburdened”. The company 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 have not changed our investment recommendations,” the company noted in its report.

In some cases, the new research note also says that the group – more specifically, Adani Gates‘ – acquisition appetite is somewhat dampened by its “market-leading position”.

CreditSights weakens, but remains cautious

Overall, however, CreditSights remains cautious about the debt position of the Adani Group.

It has noted in some instances that while the group has sought to reduce its reliance on debt through capital injections from its joint venture partners and investments from companies such as IHC, companies such as Adani Enterprises are in the midst of a multi-year investment cycle and therefore much of the fund’s requirements would be covered by debt.

“Adani Enterprises currently has increased leverage and will likely remain so for years to come as the entity is the incubator arm for the Group and is in the midst of a multi-year investment cycle,” the report said.

Despite this, the CreditSights report has continued with its “market performance” assessment for both Adani Ports and Adani Green. It has not yet assessed the rest of the Adani Group’s five publicly traded companies.

The analyst meeting with Adani management produced some interesting revelations – in some cases the disagreement was due to the way the group management handled special/one-off income and expenses, while in others it was about how it handled Gautam Adani and the family’s debt infusion into the group as a form of equity, rather than debt.

Importantly, however, CreditSights and Adani management disagreed on the core aspect of the report – that the group’s influence is at “manageable levels.”

“While we have taken note of management’s views, we have a different view on the above,” the report said.

What was in the previous report?

To sum up, the first CreditSights report said the Adani Group is “deeply overburdened” and said it could unravel Gautam Adani’s vast business empire, which is mainly rooted in energy, mining and infrastructure.

“In the worst case scenario, over-ambitious debt-funded growth plans could end up in a massive debt trap and potentially lead to the plight or bankruptcy of one or more group companies,” according to the previous CreditSights report.

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