About 40% of their spending will be on new businesses, such as green hydrogen, clean energy, semiconductors, electric vehicles (EVs), and aviation, S&P Global said in a report on Monday. India’s largest business houses, including the Adani Group, Reliance Industries Ltd and Tata Group, are set to spend about US$350 billion in these sectors, analysts led by Neel Gopalakrishnan wrote.
The likely investments dovetail with a broader vision of India’s political leadership to wean the economy from its dependence on fossil fuels to power economy growth. The South Asian nation — the world’s third-largest carbon emitter — needs US$12.4 trillion in investment to achieve its goal of reaching net zero by 2070.
Other conglomerates — such as the Birla, Mahindra, Hinduja, Bajaj and the Murugappa groups — will focus on their established businesses to “boost scale and profitability,” the report said, adding that about US$400 billion-US$500 billion of all investments are expected to go into existing businesses.
While countries like the US and South Korea have a history of family-owned large business groups with outsized capital concentration holding sway over the local economy, conglomerates such as those led by Mukesh Ambani and Gautam Adani, Asia’s two richest men, continue to be very powerful in India, and their growth has mirrored the Indian government’s policy priorities.
These groups will boost their market share over the next few years, S&P Global estimates, and have substantial advantage over single-business focused rivals in capital intensive sectors.
Conglomerates will be boosting their market share over the next few years, S&P Global estimates, with these groups having a substantial advantage over their non-conglomerated rivals in capital intensive sectors.
That path to growth isn’t free of risks. It’s likely the businesses will face execution risk and rely heavily on borrowing, with little promise that the new technology will payoff, the report noted.
As absolute debt levels rise, firms will need to continuously strengthen their core businesses to maintain their credit profiles, Gopalakrishnan said, adding that any underperformance during the investment phase would likely hit credit metrics.
More excerpts from the report:
- S&P sees a large part of Indian conglomerates’ investments in new business areas to be funded externally, with the existing businesses set to likely grow without much additional debt.
- The Tata Group, which plans on spending on expanding Air India’s fleet, could use a “sale-and-leaseback arrangement” with lessors for its planes to reduce debt, S&P estimates. Its large orders would likely come at 20%-30% discounts, and selling the planes to the lessors would result in profits.
- S&P expects entities monetising their legacy investments, such as: Adani Enterprises Ltd hiving off Adani Airports, potential listings of Reliance Jio and Reliance Retail, a Tata Capital IPO, and further monetisation of Tata Motors Ltd’s EV business.
- The firm estimates that the Adani, JSW and Birla groups will collectively control about 80% of the domestic cement market over the next three- to five years.
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