­Acuité has considered consolidated financial and business risk profile of AEL to arrive at the rating. The entities consolidated include AEL (standalone) along-with all its subsidiaries & step-down subsidiaries and JVs as per the published results. The segments currently reported under AEL include IRM, mining services, commercial mining and other businesses mostly undertaken through subsidiaries (which includes Shipping, Bunkering, Agro- edible oil , airports, roads, water treatment plants and Solar PV manufacturing) among others. List of consolidated entities given in the annexures below.

­Vast experience of promoters and established track record over diverse business segments of AEL:
AEL is the flagship company of the Adani Group. The group is a diversified conglomerate with varied interests. The major companies of the group are Adani Enterprises Limited (engaged in IRM, power trading, MDO, agri-processing & storage and Bunkering & Shipping among others), Adani Ports and SEZ Limited (engaged in port operations and logistics) Adani Power Limited (holds Group’s thermal and solar power projects), Adani Energy Solutions Limited erstwhile Adani Transmission Limited (holds group’s transmission and distribution assets), Adani Total Gas Limited (engaged in city gas distribution, Adani Green Energy Limited (engaged in renewable energy generation), Adani Airport Holding Limited (engaged in managing airports various states) Adani Road Transport Limited, Adani New Industries Limited (engaged in solar module manufacturing, wind turbine and electrolysers), Adani Wilmar Limited (AWL) among others. AEL is listed on the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE).
AEL is promoted by Mr. Gautam Adani, the Chairman and Founder of the Adani Group. Under his leadership, the Group has emerged as a global integrated infrastructure player with interest across resources, logistics and energy verticals. The promoters are well supported by well qualified and experienced management team. The Group has consistently demonstrated the ability to nurture new businesses under the flagship company i.e. AEL and scale them to a level so that they can be spun off into separate entities to create value for stakeholders. Acuite believes AEL will continue to operate as Flagship Company of the group and play a leading role in incubating new businesses for the group. The Adani group entities have demonstrated their ability to raise short term and long-term funding through various capital market instruments in Indian as well as in foreign currency. The diversified lender and investor profile augments the resource raising ability of the company/group.

Apart from the back-to-back supply contracts, AEL maintains around 20-30 days inventory to meet the spot demand from its customers. Hence, it is exposed to short-term variation in imported coal prices under its stock-and-sale coal trading business. The regulatory change in India or other countries impacts the demand-supply dynamics of the coal trading segment resulting in volatility in volumes and price variations. However, AEL has developed strong business relationships with miners in Indonesia, Australia, and South Africa, thus Acuité believes that extensive experience of the group in coal trading and established market presence will help the group manage the commodity risk, forex risk and counterparty risk efficiently.

Healthy revenue growth in FY2023; expected decline in the revenues in the current fiscal, though operating margins likely to improve:
 AEL has been amongst the leading importer of non-coking coal catering to the requirements of both private clients and public-sector undertakings for over two decades. AEL imports coal from Indonesia, Australia and South Africa and sells across major power producers including sale to group company Adani Power Limited. The consolidated revenues for the AEL grew to Rs. 137291.76 crore in FY2023 from Rs. 69,603 crore, registering a 98% growth mainly driven by a robust increase in the IRM division’s revenues primarily on account of sharp increase in international coal prices coupled with increased sales volumes.  In the current fiscal, the company reported revenues of Rs. 77,702 crore in 9MFY2024 as against Rs. 1,06,459 crore in the corresponding period during the previous year mainly with decline in the IRM volumes and decline in the realisations. However, the group’s incubating businesses like Roads, solar manufacturing, wind turbine, airports have exhibited growth and, the other businesses like shipping, bunkering, power trading have shown steady performance. Acuite believes the company will report an annual revenue of ~Rs. 97000 crore in FY2024.
Despite a decline in the revenues in the current fiscal, the company has reported an improvement in EBDITA to Rs. 8093.43 crore in 9M FY2024 as against Rs. 3296.54 crore in 9MFY2023 mainly led by the increase share of revenues from the higher margin industries such as Airports, solar manufacturing, roads etc.  Acuite believes, AEL despite an expected decline in the revenues, will report healthy margins and cash accruals in FY2024.

­High debt levels due to huge capex plans mitigated by need based financial support to AEL being part of Adani Group
The total debt as on March 31, 2023 stood at around Rs. 51,246.12 crore (including the lease liability to the tune of Rs. 14,880 crore). Of the total debt, majority of the debt is for Australia project (~Rs. 10,019 crore) and for the Airport segment (~Rs. 15,337 crore). Although going forward additional debt requirement is expected to remain low for established businesses, AEL’s newly incubated businesses such as green hydrogen, copper, roads and airports has significant capex is planned. The company has planned capex of ~Rs. 25,000-30,000 Cr. in FY2024 and Rs. 50,000- 57000 crore in FY2025 at an aggregate level. Hence, the additional debt of is expected to be added over the next three years.
Furthermore, the management has stated its goal to maintain its external debt to EBITDA around 6 times. This is expected to achieve through two key streams. Continued profitability from the established IRM, Mining and Solar Businesses (Australia project has started commercial operations and ongoing capacity addition in mining and solar business) and increased contribution through the developing businesses especially the airport segment, where the performance has been subdued on account of spread of covid disruptions to travel.
Furthermore, the management has stated its goal to maintain its external debt to EBITDA around 6 times. The improvement in EBDITA would be mainly through Roads, Airports (mainly non-aero businesses), Green Hydrogen and Australian mine. AEL has followed an aggressive leverage policy, with high debt to EBITDA (excluding other income) of 5.9 times in FY2023 (though improved from 7.75 times for FY2022). In the current fiscal, the debt: EBDITA is expected to increase with the debt from the planned capex.  The above risk of high gearing due to upcoming capex plans is partially mitigated as AEL can receive need-based funding support being a part of Adani Group. The promoters of Adani group hold over 68.82 per cent of shares in the Group's listed companies as on December 31 2023 i.e. AEL (72.6 per cent), Adani Power Limited (APL – 71.8 per cent), Adani Ports and Special Economic Zone Limited (APSEZL – 65.9 per cent), Adani Enery solutions Limited (ATL - 73.2 per cent), Adani Total Gas Limited (ATGL- 37.40 per cent), Adani Green Energy Limited (AGEL- 56.4 per cent) and Adani Wilmar Limited (AWL – 44 percent).
The aggregate market cap of all these listed entities as on Jan 31, 2024 was over Rs. 13.77 lakh Cr. The Adani group entities have demonstrated their ability to raise short term and long-term funding through various capital market instruments in Indian as well as in foreign currency. The diversified lender and investor profile augments the resource raising ability of the company/group. Acuité believes any higher-than-expected debt funded capex and subsequently debt addition will lead to breach of debt to EBITDA above 6 times thus imparting a negative bias to the rating. AEL demonstrated propensity towards incubating businesses by significantly leveraging its balance sheet.