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India's Adani Group has funded its recent aggressive expansion largely by debt funding, putting pressure on its credit metrics and cash flows, according to a report by independent credit research firm CreditSights.
Excessive debt and overleveraging by the group could have a cascading negative effect on the credit quality of the bond issuing entities within the group and heightens contagion risk in case any entity falls into distress, CreditSights, which is owned by Fitch Group, said.
Adani Group is increasingly venturing into new and/or unrelated businesses, which are highly capital intensive and raises concerns regarding spreading execution oversight too thin, analysts said.
The Adani Group is the third largest conglomerate (after Reliance Industries and the Tata Group) in India based on total market capitalization of over $200 billion as of 18 August 2022.
Potential strong competition with Reliance Industries (RIL) to achieve market dominance could lead to the group making imprudent financial decisions. RIL, which has been on a
deleveraging trend over the past few years, boasts robust credit metrics.
The enterprise is also exposed to "moderate levels of governance and ESG risks".
“However, there are policy tailwinds supporting the development of such infrastructure assets, and note that founder Gautam Adani enjoys a strong relationship with the ruling Modi administration,” the report said.
"Overall, we remain cautiously watchful of the Group’s growing expansion appetite, which is largely debt-funded."
(Writing by Brinda Darasha; editing by Seban Scaria)
