Adani Group In Focus: S&P Global Revises Outlook To Positive; Should You Buy?

S&P Global Ratings has revised the outlook for Adani Ports and Special Economic Zone and Adani Electricity Mumbai, shifting it from negative to stable. The move comes in response to promising signs of robust cash flow expected in the next 12 to 24 months.

S&P Global Ratings has provided a positive outlook for Adani Ports, indicating a favourable trajectory for the ratio of adjusted net debt to earnings before interest, tax, depreciation, and amortization (EBITDA). The measure, crucial for assessing the ability to pay off liabilities, is anticipated to be in the range of 3 times to 4 times over the next two years. This suggests a financially stable period ahead for Adani Ports.

Similarly, for Adani Electricity Mumbai, S&P Global Ratings foresees an improvement in its ability to generate operating cash flow compared to its debt. The agency expects this metric to surpass 10% in fiscal 2024 and 2025. The recovery is attributed to the anticipated rise in power demand, consistent tariff collections, and the recuperation of revenue that faced setbacks in 2021 and 2022 due to regulatory measures.

Despite the positive outlook, S&P Global Ratings emphasizes the possibility of lowering the rating on Adani Ports if the company takes loans or advances outside normal business practices. Additionally, if the ratio of funds from operations to debt stays below 15%, the rating may be subject to revision.

Supreme Court recently declared that the Adani Group, which includes Adani Ports and Adani Electricity Mumbai, does not require further investigation. This comes as a relief to the conglomerate, which had faced allegations of wrongdoing from US short-seller Hindenburg Research in January of the previous year. The group vehemently denied the allegations, but the incident caused a substantial $150 billion dip in its stock market value.

While the group has managed to regain some investor confidence with the support of bankers and investors, the aftermath of the controversy and regulatory scrutiny continues to impact its business dealings and reputation. The Supreme Court's decision, stating that investigations found no evidence of wrongdoing, has alleviated some downside risks. However, S&P Global Ratings points out lingering governance concerns related to the Adani Group's ambitious growth plans and transactions outside the normal course of business.

The shares of Adani Ports experienced a dip of nearly 3%, trading at Rs 1,162 per share on the National Stock Exchange (NSE) as of 12:30 pm. Despite this, the shares have witnessed a surge of over 54% in the last one year.

The revised outlook from S&P Global Ratings positions Adani Ports and Adani Electricity Mumbai on a more stable financial path, projecting positive cash flow in the coming years. The Supreme Court's decision provides legal clarity and some relief to the Adani Group, yet governance concerns linger.