Adani group firms' gross debt rises to Rs 2.2 trillion, shows data

The Adani group continues to use debt financing to grow its existing businesses and enter new industries. The combined gross debt of the group companies reached a new high of Rs 2.22 trillion at the end of March this year, up 42 per cent from Rs 1.57 trillion a year ago, according to data from Capitaline. As a result, the group’s gross debt-to-equity ratio was at a four-year high of 2.36 at the end of March, up from 2.02 a year ago and a low of 1.98 at the end of FY19.

Adjusted for cash and bank balance available with various group companies, the group’s net debt-to-equity ratio rose to 2.07 at the end of FY22, the highest since FY18. As of March-end, the Adani group companies were sitting on cash and bank balance worth Rs 26,989 crore.

This makes the Adani group one of the most indebted among India’s top business groups.

For example, the listed Tata group companies reported a combined gross debt of Rs 3.35 trillion at the end of March this year, down 1.3 per cent year-on-year. The group’s gross debt-to-equity ratio improved to 1.01 in FY22 from 1.2 a year ago.

The analysis is based on the combined finances of the seven listed Adani group companies -- Adani Enterprises, Adani Ports & SEZ, Adani Power, Adani Transmission, Adani Green, Adani Total Gas, and Adani Wilmar. Adani Ports is yet to declare its financial results for the fourth quarter for FY22 and FY22. Given this, Adani Ports’ latest balance sheet is for the period ended September 2021 (H1FY22) in the sample, while its latest profit and loss numbers are for trailing 12 months ended December 2021.

Reliance Industries’ gross debt on a consolidated basis was up 4.2 per cent Y-o-Y in FY22 to Rs 2.82 trillion at the end of March this year. The company's gross debt-to-equity ratio, however, improved to 0.36 in FY22 due to double-digit growth in its net worth last fiscal.
 

Similarly, AV Birla companies deleveraged their balance sheet last fiscal. The combined gross debt of the group listed companies was down 6.1 per cent year-on-year during H1FY22 to Rs 1.43 trillion from Rs 1.49 trillion a year ago. As a result, the group’s average debt-to-equity ratio improved to 0.99 at the end of H1FY22 from 1.1 at the end of H1FY21. Key AV Birla group companies -- Grasim, Hindalco, and AV Birla Fashion -- are yet to declare their results for FY22. The group numbers don't include Vodafone Idea.

Analysts, however, say the Adani group's headline debt may seem high but there has been a big improvement in the group debt-servicing capacity in recent years due to a jump in group earnings. Besides, a general decline in interest rate in the economy in the last two years has resulted in muted growth in interest cost despite faster growth in borrowings.

For example, the Adani group companies’ combined interest cost was up 10.7 per cent year-on-year in FY22 against a 22.5 per cent jump in their combined operating profit last fiscal.

As a result, the group interest coverage ratio (ICR) improved to a decade high of 2.85 in FY22 from 2.57 in FY21 and a low of 1.51 in FY17.
 

On the flip side, the group's ICR is still the lowest among the country's top business groups. There is a risk of a much faster rise in Adani group's interest cost in FY23 and beyond to the recent rise in interest rates.

The group companies, however, have the flexibility to raise additional equity from the secondary market given the group’s combined market capitalisation of Rs 14.27 trillion on Monday, nearly 6.4 the group’s gross debt.

The Adani group companies remained some of the most richly valued stocks on the bourses.

The group companies are currently trading at 107 times their trailing 12-months (TTM) earnings on average. The group had a combined market cap of Rs 14.73 trillion on Tuesday against TTM net profit of Rs 13,715.5 crore.

The group is trading at a price to book value ratio of 15.6X, which is again the highest in the listed space. Individual Adani companies are even more pricey. Adani Total Gas for example has a P/E of 540X while Adani Green has P/E of 731.5X while Adani Enterprises has a P/E of 309.4X.

In comparison, Nestle India is trading at a P/E of 68X and P/B ratio of 75.5X, while Hindustan Unilever is trading at a P/E of 60X and P/B ratio of 10.8X. But these pricey MNCs stocks are debt-free and have some of the highest return on equity in India Inc unlike Adani group companies.