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Richest Indian Gautam Adani's group, which has grown on acquisitions, has fairly solid fundamentals but debt-funded future acquisitions can start putting pressure on ratings, S&P Global Ratings said on Thursday.
Starting out as a commodities trader in 1988, the Adani group has diversified from mines, ports and power plants into airports, data centres and defence.
It recently forayed into the cement sector with a $10.5 billion acquisition of Holcim's India units and is also looking to set up an aluminium factory.
Most of this expansion has been funded by debt.
S&P Global Ratings senior director (Infrastructure Ratings) Abhishek Dangra said the growth ambitions for most of the group entities are fairly high and they have also grown through acquisitions across multiple entities.
"If you look at the rated entities (of Adani group), like Adani Ports, their business fundamental is fairly solid.
"Port business is generating healthy cash flows.
"Where, probably, the risk could lie for the group is, some of the acquisitions it is doing.
"Some of the recent acquisitions that we are seeing are largely debt-funded and that is taking away the headroom," Dangra said at a webinar.
He said any future acquisition that the group does at the current pace can start putting pressure on its ratings.
"Currently we see that the risks can be managed if the group manages the growth ambitions or the fundings," he said, adding that the growth that the Group is doing in other business segments does not necessarily have a direct impact on the ratings right now.
"...The domestic banking system, as well as some international capital bond market investors, do look at Adani Group entities as a group and many of them, because the group has been raising funds for growth, are looking at a certain kind of group limit or limiting their exposure to one group which can become a challenge at a time when the group continues to keep growing capacity," Dangra said.
He said the group is growing in multiple segments, some of which are unrated, like cement, data warehousing and airports.
"If you look at the group as a whole, promoter control on all entities is significant and growth ambition is fairly high," Dangra said, replying to a question on S&P's views on leverage in the Adani group.
On Tuesday, an Adani group company AMG Media Networks Ltd bought 100 per cent of the equity stakes in Vishvapradhan Commercial Pvt Ltd (VCPL) for Rs 114 crore.
This acquisition also gives Adani group a 29.18 per cent stake in NDTV.
Subsequently, the group also made an open offer to buy another 26 per cent stake in the news channel company for Rs 493 crore.
On the same day, a Fitch Group unit CreditSights had flagged concerns over the group predominantly using debt to invest aggressively across existing as well as new businesses, and said that the conglomerate is "deeply overleveraged".