CLSA, Jefferies, InGovern downplay Hindenburg Research findings on Adani

Even as a report by short-sellerHindenburg Research dragged down the share price of Adani Group stocks, brokerage firms CLSA and Jefferies separately said the Indian banking sector’s exposure to the group is within manageable limits. 

Analysts at CLSA, in a report, estimated that on an absolute level, exposure of banks to top-5 Adani group companies —Adani Enterprises, Adani Ports, Adani Power, Adani Green and Adani Transmission — is ₹70,000-80,000 crore of the group’s consolidated debt of ₹2-lakh crore in FY22.

“While debt levels have doubled from ₹1-lakh crore to ₹2-lakh crore in the past three years, bank debt has increased by more than 25 per cent.

“The share of bank debt in overall group debt has reduced materially and we estimate that incrementally banks have only lent ₹15,000 crore, or 15 per cent of the ₹1-lakh crore the group companies have borrowed over the past three years,” said the analysts.

CLSA assessed that private banks’ exposure is below 10 per cent of total group debt, indicating that they have largely financed assets with strong cashflows such as airports/ports.

According to Jefferies, the group’s debt accounts for 0.5 per cent of total loans across the Indian banking sector. For public sector banks (PSU), the debt is at 0.7 per cent of total loans and for private banks, it is at 0.3 per cent.

“Our recent conversation with industry participants also indicated that cash-flows and repayment timelines of debt have been conservatively planned,” Jefferies said.

According to proxy advisory firm InGovern Research, the report released by Hindenburg Research serves as an opportunity for Adani group to deepen its relationships with long-term institutional investors.

Four of Adani’s listed companies are on the brink of the delisting threshold due to high promoter ownership, said a report released by Hindenburg Research, an investment research firm with a focus on activist short-selling.

The report also said that five companies in the group (all but Adani Ports and Adani Wilmar) have current ratios below 1.0, suggesting a heightened short-term liquidity risk.

“Though the Hindenburg report talks of high valuations and over leverage by the Adani group, the nature of the industries in which Adani group companies operate and data on debt holding in Adani group companies indicate otherwise,” said InGovern.

The proxy advisory firm noted that Adani group companies are in the infrastructure businesses with monopolistic characteristics. Some of their infrastructure assets like ports are already generating huge cashflows, while some other infrastructure assets are in the gestation period and would be generating positive cashflows in coming years.

“Even slight increases in customer pricing would lead to greater cash inflows. Given the low free float of many of the listed Adani companies, the group can always sell down equity to pay off debt and reduce leverage. The FPO is the first instance from the group to get a greater float and pay debt,” it said. 

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