Richest Indian Gautam Adani's ports-to-power-to-cement conglomerate is "deeply overleveraged" with the group predominantly using debt to invest aggressively across existing as well as new businesses, CreditSights, a Fitch Group unit, said.
In a report titled 'Adani Group: Deeply Overleveraged', CreditSights said, "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."
Starting out as a commodities trader in the late 1980s, the Adani group has diversified from mines, ports and power plants into airports, data centres and defence. Recently, it forayed into the cement sector with acquisition of Holcim's India units as well as into alumina manufacturing. Most of this expansion has been funded by debt.
"Over the past few years, the Adani Group has pursued an aggressive expansion plan that has pressurised its credit metrics and cash flows," CreditSights said.
"The 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," it added.
While there is evidence of promoter equity capital injection into group companies, the Adani Group is exposed to moderate levels of governance and environmental, social, and governance (ESG) risks. "The Adani Group has a strong track record of churning out strong and stable companies through its Adani Enterprises arm, and boasts a portfolio of stable infrastructure assets tied to the healthy functioning of the Indian economy," the report said.
"In general, the Group has been investing aggressively across both existing and new businesses, predominantly funded with debt, resulting in elevated leverage and solvency ratios," it said.