Reliance rivalry can lead Adani Group to make ‘imprudent financial decisions’: CreditSights

CreditSights, in a credit note on the Adani Group, has made several damning points with regard to the conglomerate’s business. Among other things it has said that its strong competition with Mukesh Ambani-helmed Reliance Industries could push Adani Group to make some imprudent financial decisions. It also said that Adani Group has pursued an aggressive expansion plan in the past few years that has pressurised its credit metrics and cash flows. The credit note stated that the Adani Group is venturing into new and/or unrelated businesses, raising concerns regarding spreading execution oversight too thin. 

The rating agency stated, “As the two mega conglomerates in the Indian corporate sector compete for market share in a few new economy businesses (e.g., renewable power, telecom), it could lead to some imprudent financial decisions from both sides, such as higher capex spends, aggressive bidding, and overleveraging. On the whole, RIL has been on a deleveraging trend over the past few years, and boasts robust credit metrics (gross and net leverage at 2.6x and 2.2x as at end-FY22) and interest cover (7.8x at FY22),” further adding that Adani has elevated leverage and poor interest cover and cash outflows in almost all its entities and is at greater financial risk.

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Recently, Gautam Adani surpassed Mukesh Ambani as India’s richest individual. It also pointed out the companies are up against each other in the same sectors. It stated that Adani Green Energy forayed into the renewable generation business in 2015, and Reliance followed in October 2021, while Reliance entered the telecom sector with Jio in 2015, and Adani followed into the sector in 2022 by successfully bidding for spectrum in the recently-held 5G auctions. 

CreditSights further pointed out that Adani Group is exposed to moderate levels of governance and ESH risks. “In the Adani Group's favor, we take comfort in its solid banking relationships with both domestic and international banks, which have been willing to lend the group large amounts for both its existing businesses and new ventures,” it said. 

It also added that the company has a strong record of churning strong and stable companies, and there are policy tailwinds supporting the development of its infrastructure assets. Gautam Adani enjoys a strong relationship with the Modi government too, it pointed out. 

“Overall, we remain cautiously watchful of the Group’s growing expansion appetite, which is largely debt-funded. We retain our existing market perform recommendations on the two Adani entities under our coverage, Adani Green Energy (AGEL) and Adani Ports and Special Economic Zone (APSEZ),” it said.

Business Today has reached out to the company for a comment on the credit note and this article will be updated accordingly. 

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