Fitch Affirms Adani Energy At BBB-; Expects Net Leverage To Rise

Fitch Ratings affirmed Adani Energy Solutions Ltd.’s (AESL) long-term foreign- and local-currency issuer default ratings at BBB-, with a stable outlook.

The rating agency also affirmed the AESL-guaranteed 4% $500 million senior secured notes due 2026 and 4.25% $500 million senior secured notes due 2036 at BBB-. The notes were issued by AESL's subsidiary Adani Transmission Step-One Ltd., it said.

The affirmation reflects AESL's business profile, which is supported by a regulated asset base, a payment pooling mechanism for transmission assets, diversified counterparty exposure and established record in executing and operating transmission projects, Fitch said in a statement.

NET LEVERAGE

Fitch, however, said it expects AESL's net leverage to rise to 6.9x in FY25 from an estimated 5.9x in FY24 and 5.4x in FY23, and for net coverage to dip below 2x in FY25 from an estimated 2.1x in FY24 due to higher capital expenditure.

However, net leverage should fall below, and net coverage rise above Fitch’s downgrade rating triggers of 6x and 2x, respectively, by FY26, the rating agency said.

This should be supported by higher EBITDA from the commission of under-construction transmission lines and a faster cash conversion cycle in the smart metering business, it added.

CAPEX BOOST

Fitch expects the company’s capex to almost double to 155 billion rupees a year in FY25 and FY26 from 80 billion rupees estimated in FY24, driven by its smart metering business.

The rating agency said AESL, formerly known as Adani Transmission Ltd., has won the bid to install more than 20 million smart meters across four Indian states, under a design, build, finance, own, operate and transfer structure.

These projects have 10-year contract periods, including around two years for meter installation and cost and return recovery over the balance period, it noted.

EBITDA CONTRIBUTION

Fitch said it expect the EBITDA contribution from smart metering business to reach around 20% in FY25, compared with nil in FY24, considering the fast cash conversion cycle, as cash generation starts once 5% of contracted metre capacity is installed.

The EBITDA contribution from the central transmission utility is likely to exceed 50% in FY24 versus 45% in FY23, with four state transmission utilities contributing the balance, it said.

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