There is no material risk arising in the banking sector as a fallout of the concerns about the Adani Group, analysts at Jefferies wrote on Friday. They pointed out that the share of Indian banks in the total borrowings of the group stood at 33% in FY22, down from 86% in FY16.
“While we watch for developments here, we don’t see material risk arising to the Indian banking sector,” they observed.
The analysts pointed out that over the past five-six years, the group had diversified its borrowing mix. The share of bonds as well as foreign banks in total debt has risen to 37% and 18%, respectively. From the perspective of the banking sector, the debt to this group forms 0.5% of total loans — 0.7% for PSBs and 0.3% for private banks.
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“Our recent conversation with industry participants also indicated that cash-flows and repayment timelines of debt have been conservatively planned,” they noted, adding the debt service coverage ratio could be ‘even better’.
Jefferies has pegged the group’s consolidated gross debt at Rs 1.9 trillion and net debt at Rs 1.6 trillion across group companies. The debt to EBITDA, they said, is down from 4.3x in FY16 to 3.2x in FY22. The acquisition of the cement business may add approximately Rs 60,000 crore to the debt, they said, but it would also lift cash flows. “Over FY16-22, we estimate that net debt levels have risen from Rs 0.7 trillion to Rs 1.6 trillion, reflecting capex in group companies.”
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The group’s cash flows have been improving at a fast pace, helping bring down the net debt/EBIDTA (on a run-rate basis) from 7.6x in 2013 to 4.3x in 2016 and 3.2x in 2022. According to the per management, EBITDA includes other income.