Adani is once again focusing on big growth

Rs90,000 crore EBITDA in 2-3 years

For a group that has been attuned to laying grand plans and executing them, the Adani group had been eerily silent about its future plans in the last few months. Obviously, it was still recovering from the massive value loss post the Hindenburg report. The report had raised major questions about corporate governance and the quality of institutional investment in the Adani group. While none of the allegations were backed by evidence, the questions raised were sufficient to create panic in the markets. To an extent, Hindenburg and other short side funds also fanned this panic with their short sales. Now, that has been put behind. Adani group has announced grand plans to grow its EBITDA by 20% to Rs90,000 crore by FY 25 or latest by FY26.

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EBTIDA growth assumption is not too aggressive

For the recently concluded year FY23, the listed companies in the Adani group reported EBITDA (earnings before interest, tax, depreciation, and amortization) at Rs57,219 crore. In FY23, the group had grown EBITDA by 36% yoy and so growing another 20% in the next couple of years should not be too tough, albeit on a much higher base. What is more interesting is the mix of this EBITDA generation. Out of the total EBITDA of Rs57,219 crore in FY23, the Adani group generated Rs47,386 crore from infrastructure related verticals like energy, transport, and logistics. This includes its power, ports, and airport business. In short, infrastructure accounted for 82.8% of the EBITDA of the group in FY23. That is going to drive profits in the year ahead.

Where will the profit growth come from?

The group is looking at some of its core holdings in airports, cement, renewables, solar panels, transport, and logistics to generate the EBITDA growth in the coming years. Also, some of the new ventures like data centres are likely to fructify in a big way in the coming couple of years. In the last few years, the group has made substantial investments in ports, renewables, and transport. Additionally, the acquisition of ACC and Ambuja Cements is likely to be a big cash cow for the Adani group. The group is also seeing a lot of positive cash flows from the airports and renewables business, which had been guzzling a lot of cash in the last few years. But profitable growth at the group will also be accompanied by a very strong deleveraging strategy under implementation.

Debt management will hold the key to the future

It must be said that the group has taken a lot of initiatives to boost its image by aggressively cutting down on debt. That is also likely to keep the cash flows healthy in the coming quarters. It completed a prepayment of $2.65 billion, or nearly Rs21,700 crore of debt. This has been largely instrumental in winning back the trust of the investors. Most of these loans had been backed by promoter shares and to that extent, these shares have been released and risk reduced. The group has also expanded its funding sources. From being purely dependent on banks, the Adani group now has a combined debt portfolio comprising of bonds, global borrowings, and borrowings from banks and NBFCs. This diversifies their borrowings and reduces refinancing risk.

But, challenges remain

However, the challenges for the group are far from over. Even after the prepayment, the net debt is still 3.27 times the EBITDA, which is fairly high. For the latest year, the combination of cash in hand and flows from operations (FFO) is Rs78,000 crore. That is a comfortable scenario as it covers the debt payouts till FY26. However, this is net debt and not gross debt ratio that we are talking about and also, funds from operations can be quite elusive at times. Above all, the overhang of Hindenburg still remains and it is not clear how the company will fare when it comes to refinancing its loans. For now, the group is back to its aggressive ways; and that is the good news.

Content Source: Financial Express