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Adani Enterprises Ltd
F2Q11 Numbers - Strong, but
Below Our High Expectations
Quick Comment - Mundra Inclusion Led to Strong
Margins and Net Income: The inclusion of Mundra
from F2Q11 helped AEL report an 8.4% YoY growth in
revenues (Rs 57.5 bn). Mundra’s greater profitability
(EBIDTA margins at 82.5% for the quarter) helped AEL
grow margins by 920 bps YoY to 12.6%, with EBIDTA
jumping 149% YoY (to Rs7.26 bn). Net income (after
minority, but before exceptional items) grew 234% YoY
to Rs 4.45 bn.
High Margin Businesses Grew Strongly, but not as
strongly as Expected: Power and Port revenues were
strong but disappointed vs. MSe, leading to overall
revenues coming in 7% below expectations. While the
coal trading business margins surprised on the upside
for the third quarter in a row, the comparatively lower
share of the higher margin power and port businesses
led to margins coming in 210 bps below our
expectations (Exhibit 1).
Organic Growth in the Bag, New Projects (organic
and Inorganic) Likely to Drive Future Performance:
Despite the negative surprise in F2Q11, over F1H11,
AEL has delivered 47% of our F11e net profits, thus
indicating that the company is well on track to deliver on
our full year numbers. However, we believe that stock
price performance will be driven more by profitability of
recently announced projects (none of which are included
in our current numbers) in Australia (Galilee coal
tenement and the coal terminal at Dudgeon Point,
Queensland), Indonesia (railroad and port infrastructure
in Sumatra) as well as India (Chhendipada coal block.)
Investment thesis: AEL’s business focus on the energy
deficit theme, the scale already attained by its various
businesses, and its cash flow and earnings-driven
business make it our top choice to play the infrastructure
developer space in India.
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