Business goals

CreditSights: Gautam Adani’s Extremely Ambitious Business Goals Could Lead To A Terrible Financial Mess

The fourth richest man in the world, billionaire Gautam Adanihas recently entered the cement, airport and data center industries. CreditSightsan organization of Fitch Ratings, is “cautiously vigilant” due to the group’s aggressive targets, the majority of which have been fueled by debt.

Adani Group and CreditSights

Fitch said the majority of the Adani Group’s expansion ambition is funded by debt in existing and future businesses in a report titled “Adani Group: Deeply Overleveraged.”

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The worst-case scenario, according to the report, contained overambitious debt-financed expansion plans that could possibly lead to a major debt trap, a distressed situation or the failure of one or more companies in the world. band. The two Adani Group companies covered by their coverage, Adani Green Energy and Adani Ports and SEZ, have retained the “Market Perform” recommendations.

The Adani company has just spent 10.5 billion dollars to buy out the cement activities of Holcim, which overnight makes it the second largest cement operator. It recently paid $1.18 billion to acquire the Israeli port of Haifa.

In addition to investing in green hydrogen, airports, highways, alumina, copper refining, data centers and expanding its coal and PVC activities, the Adani Group aims to increase its renewable energy portfolio.

There is not much evidence that equity was added; instead, the company depends on bank loans, internal accruals (i.e. operating cash flow), and debt capital market financing.

One thinks of “a few” cases where it has attracted equity injections from other strategic or financial partners, such as TotalEnergies’ 20% stake in Adani Green Energy and the 25% stake in Adani New Industries.

CreditSights: Gautam Adani's Extremely Ambitious Business Goals Could Lead To A Terrible Financial Mess
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These, however, are insignificant in light of the overall capital expenditure needs of the entity concerned, according to the research. The personal fortune of the president of the company is also no consolation for the agency.

Bill Gates has been succeeded by Gautam Adani as the fourth richest person in the world. According to the article, they saw that this is mainly related to the value of his interests in Adani Group shares, which have increased significantly in recent years, and that it is paper wealth.

It is difficult to estimate the capacity of the family to contribute its capital if one of the companies of the Group needs capital injections from the promoter.

About the Ambani Effect

Even though Mukesh Ambani has been replaced as the richest Indian by Gautam Adani, his company is still in direct competition with Ambani in several sectors including green energy, green hydrogen and even telecommunications. The research does not completely rule out Adani Group’s entry into the consumer telecom market, even though it has only secured 5G spectrum for its private network.

CreditSights: Gautam Adani's Extremely Ambitious Business Goals Could Lead To A Terrible Financial Mess
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India’s two corporate sector mega-conglomerates could make imprudent financial decisions as they vie for market dominance in a few new economy ventures, including increased CAPEX spending, auctions, report says aggressive behavior and over-indebtedness.

Unlike Adanis, Ambani’s Reliance Industries has deleveraged over the past few years. According to CreditSights, Gautam Adani is more at risk financially due to its high levels of debt, low interest coverage and cash outflows in almost all of its subsidiaries.

Adani and Modi relationship

Despite all the drawbacks, the group still has some positive aspects. The group has good relations with the country’s governing party. According to sources, Mr. Gautam Adani and Mr. Narendra Modi, India’s Prime Minister, know each other well and date back to when the latter was Prime Minister of Gujarat State. This ensures, at the very least, that the growth ambition of the Adani Group will not be hindered.

CreditSights: Gautam Adani's Extremely Ambitious Business Goals Could Lead To A Terrible Financial Mess
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In addition, infrastructure activity is supported by favorable political developments. In FY23, the Indian government increased its infrastructure spending by more than 35%, including investments in affordable housing, trains, roads, power and telecommunications. All of these are served by the Adani Group, which will result in more favorable growth prospects.

The Adani Group has not only proven its ability to raise funds inside and outside India through the spectacular performance of all its shares in the group, which has elevated it to third place in terms of value behind Reliance and Tatas.

They find comfort in the Group’s strong access to a variety of funding channels (onshore and offshore banks and capital markets), infrastructure assets generating relatively stable recurring revenues, a presence in important economic sectors and the context infrastructure-friendly macroeconomics in the nation, according to the report. The group runs the risk of exceeding the “single borrower limits” set by the various banks.

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