Alibaba eating into its large cash pie: S&P

HONG KONG -- S&P Global Ratings today said China's toughening operating environment is a modest credit negative for the country's largest e-retailer, Alibaba Group Holding Ltd. "We anticipate Alibaba's revenue growth will slow further over the next few quarters and its net cash position could shrink more than our earlier expectations." S&P said.

"Even so, Alibaba will remain in deep net cash of about RMB 250-RMB280 billion, down from RMB292 billion in fiscal 2021."

S&P revised its revenue growth forecast f/or the fiscal year ending March 31, 2022, to 20%-23%, in-line with the company's updated guidance and down from its previous 25%-35% forecast.

"Our new forecast also assumes lower EBITDA margins amid increased competition and a slower pace of GDP expansion in China." S&P said.

"The forecast also assumes larger share repurchases. Together these two factors will contribute to an RMB10 billion-RMB 20 billion decline in Alibaba's net cash balance.

"We estimate operating cash flow of RMB200 billion-RMB240 billion in fiscal 2022 and 2023, down from RMB237 billion in fiscal 2021. Our forecast puts free cash flow at RMB150 billion-RMB170 billion in fiscal 2022 and 2023 before investments, acquisitions, and share repurchases; this is down from RMB194 billion in fiscal 2021."

S&P says that, as the largest e-commerce platform in China, Alibaba is most exposed to slowing retail sales growth.

In October 2021, China's retail sales growth decelerated to 4.9% year-on-year, from low- to mid-teens growth during the first half of the year, with similar trends in online retail sales.

Consumption spending could remain weak for an extended period given rising fuel and material costs, S&P said.

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