“The Adanis total debt reported by their own sources is roughly Rs 1.8-1.85 lakh crore and the majority of the debt has come for acquisitions. Lots of assets are in the pipeline and over the next three years, it could grow by 70-80% from this base. It is up to the investors to see a group which has the potential to make Rs 80,000 crore EBITDA and if it has got Rs 1.8-1.9 lakh crore of borrowing, whether it is an over leveraged,” says market veteran Madhu Kela
The Indian market has underperformed compared to global peers in January. What is your reading of January 2023 so far?
The India story is not based on three months’ performance of stock markets. It goes much beyond that and one needs to understand that last year because of the fall of Russia and because of Chinese markets going down significantly, the weightage of India arithmetically went up a lot and it was like an overweight stock in every one’s portfolio.
Hence people had to trim down to balance the portfolio and that is why you saw selling from foreign investors. Since Chinese markets had become so cheap because of their underperformance and because of the emerging market weightage of China, now when the markets do well, people will run to ensure that they have adequate weightage and that is what is happening. Money is going from India to China because of the weightage rebalancing that is happening.
I do not read too much into that because of these two-month outflows, there is no real big damage to India’s story. However, I would like to communicate that the India story is well on its path. It is a structural story over the next 5-10 years and situations and corrections like this give one an opportunity to enter a good company at good prices.
The latest word in the market has been what is happening with Adani Group. How are things moving over there? You always look at numbers, you always look at what is happening in. What are the hard facts about the numbers of the group as a whole? How do you look at the group?
I think people’s opinions have no value. Only facts have value. Let us look at the facts. As per my understanding, the Adani Group has spent Rs 1.55 lakh crore in acquisitions in the last three to four years including the Ambuja Cement acquisition which they have done. Their total debt reported today by their own sources is roughly Rs 1.8-1.85 lakh crore. One can say that the majority of the debt has come for acquisitions and now again it is not my opinion, it is a fact that these acquisitions were not very expensive as there were many bidders in all cases for these assets, including the Ambuja Cement acquisition which happened.
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I do not think that if an infrastructure company takes that for acquiring assets which are long term in nature, can be called over-leveraged. The other point, again going by the facts, is Adani Group has Rs 23,000 crore of reported EBITDA. I am not going on projection. It reported EBITDA in the first half and as they have disclosed and as the analysts are estimating that in a normal year, it should double up. So roughly it should be Rs 50,000 crore EBITDA for this year. right. It can grow because lots of assets are in the pipeline and so over the next three years it could grow by 70-80% from this base. It is up to the investors to see a group which has the potential to make Rs 80,000 crore EBITDA and if it has got Rs 1.8-1.9 lakh crore of borrowing, whether it is an over leverage.A lot of banks, PSU banks specifically have also seen a fall on the basis of Adani Group concern. You have liked this sector across the last couple of years. What do you make of it? Are you bullish after the recent correction still on PSU banking names?
The itself has come and clarified it. I do not think for PSU banks as a whole there is any need to worry whatsoever because all of these assets are infrastructure assets. The funding that has happened to Adani Group or to any other group, I do not think there is any reason to worry because these are asset-based transactions.
These are cash-flow based transactions. So none of them have lent money against shares so they need to be worried about the volatility in the stock prices. A lot of these assets have got executed and are in the process of getting executed and we have seen what kind of coverage ratios individual banks have reached even in the PSU fraternity.
After the credit cycle which they have gone through in the last 10 years between 2014 and 2022-23, any PSU banker will be in a mood to take any extraordinary risk when it comes to lending. I have been broadly positive for the last one-and-a-half years and from my instance, PSU banks are excellent investment opportunity in this fall. A disclaimer; one needs to verify your own facts before acting on my advice.