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UBS Investment Research
Adani Enterprises
Prefer the subsidiaries, Downgrade to Sell
AEL has outperformed both its listed subsidiaries by ~25% in last 3m
During the last 3m, Adani Enterprises (AEL) has outperformed both its listed subs
(contributing ~60% of value) Mundra Port/Adani Power by 26% and the market by
10%. This has been on the back of robust news flow related to acquisitions/project
wins related to coal. We prefer Mundra Port (Buy) and Adani Power (Buy), given
relatively higher comfort on valuations. We like AEL for its presence in key
growth areas and upgrade our PT to Rs720; however we downgrade it to Sell as we
think further near-term upside may not be significant.
Overseas coal-related projects are a positive, though early to ascribe value
AEL over the last few months has 1) acquired a coal mine in Australia (peak
mining of 60mtpa), 2) contracted coal purchase rights of 35-60mt in Indonesia, and
3) won the 40mt Chendipada coal mining contract in India. Though the overseas
coal is a long-term positive (will benefit its power and coal trading businesses), we
believe it is too early to ascribe value (implementation timelines of ~4 years and
potential execution challenges in new geographies).
Revise earnings estimates, including Mundra Port
We revise our EPS estimates to Rs25.7/35.9/64.8 from Rs41.4/56.3/117.4 for
FY11/12/13E as we include Mundra Port in our earnings estimates (and issue of
shares due to the same) and additional shares due to FCCB conversion/rights issue.
Valuation: Revise SOTP-based PT to Rs720
We revise our PT to Rs720 from Rs630 factoring 1) increased price targets of
listed subsidiaries and 2) the recently won Chendipada mining contract.
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