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Adani Enterprises Ltd.
Weak 3Q as Power & Agri cloud coal & port
„Weak 3Q Cons. Rec. PAT +56%YoY on weak power
ADE 3Q Cons. Rec. PAT Rs4.7bn +56%YoY on weak Agri, city gas, IPP (higher
tax) and 125%YoY higher interest, which cloud robust coal margins @ $520/tn. We
cut FY11-13E EPS by 5-23% to factor in a) 41-23% cut in Adani Power (APL) EPS
on higher deferred tax (non cash) and one more month of delay in the start of first
660MW unit supplied by Harbin/Dongfang and b) cut in profit of agro and city gas
distribution on delay in scale-up. We cut PO to Rs725 (from Rs745) to factor in cut
in EPS and potential delay in obtaining environment clearance at its first coal block
(Parsa Kente). Buy ADE on EPS CAGR of 60% over FY11-13E. Potential catalysts:
1) 4.7x scale-up in its IPP to 9.2GW by FY14E, 2) 2.7x revenues at MPSEZ on
doubling of port traffic & pick-up in SEZ sales and 3) execution of 200mtpa mining
contracts, makes ADE one of the few large coal plays in India.
3Q: Coal & port deliver but Power, Agri faulter
ADE's transformation in its business model to annuities with high-margin / RoE
(27.8% / 24.4% by FY12E), is visible in 3Q with EBITDA +87%YoY on margin
+879bps aided by 1) scale up of high margin IPP business, 2) consolidation of
port and 3) robust 3Q coal margins @Rs520/tn ($11/tn) +6%YoY despite
disappointing volume at 6.4mn T (flat) on Ausi floods. However, higher interest
cost +125%YoY, weak Agri (EBIT -22%YoY despite Revenue +56%YoY) and
higher deferred tax (non cash) at APL and delay of 4th 330MW unit of Mundra
power led a weak Rec. PAT growth.
Rs725 PO implies scale-up across verticals; execution key
Our PO of Rs725 (revised down from Rs745) comprises 35% from coal
businesses, 28% from Port & SEZ and 25% from IPP. As ADE enters new areas
to create scale, risk is execution as funding risk has reduced post-QIP. However,
we take comfort in its track record (6x revenues over FY03-09), decent execution
at Mundra Port and power plants, pre-sales of power, leadership in coal trade and
promoters’ entrepreneurial acumen.
Price objective basis & risk
Adani Enterprises Ltd. (ANIEF)
Our PO of Rs725 for ADE is based on SOTP valuation. We have valued ADE 60-
77.5% stake in Port and SEZ business at Rs206/share at 15% discount to our
DCF (CoE 12.5-15.2%) / Book value. We have valued ADE 52-70.3% stake in
Power Generation business at Rs181/share at 15% discount to our DCF value
(CoE of 13.2-14.3%). The 100% stake in Coal mining business is valued at
Rs152/share based on DCF (CoE of 17.1%). The 100% stake in Trading
business is valued at Rs112/share based on DCF. The 57-100% stake in Real
Estate business is valued at Rs32/share based on DCF (CoE 14.6-15.8%) / Book
value. The 50-100% stake in Agro business is valued at Rs10 per share based on
DCF. The 50-100% stake in Oil & Gas business is valued at Rs9 per share based
on DCF (CoE 15.2%) / Book value. This sum upto Rs699/share. Adding Parent
Net Cash of Rs25 per share we arrive our SOTP value of Rs724 per share. Risk:
Project execution risks, Financial risks, global recession impacting traffic at ports,
slow private capex at SEZs, Imported coal exposes it to potential country,
currency and freight risks and fall in power rates on potential match of demandsupply of power in India.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Adani Enterprises Ltd.
Weak 3Q as Power & Agri cloud coal & port
„Weak 3Q Cons. Rec. PAT +56%YoY on weak power
ADE 3Q Cons. Rec. PAT Rs4.7bn +56%YoY on weak Agri, city gas, IPP (higher
tax) and 125%YoY higher interest, which cloud robust coal margins @ $520/tn. We
cut FY11-13E EPS by 5-23% to factor in a) 41-23% cut in Adani Power (APL) EPS
on higher deferred tax (non cash) and one more month of delay in the start of first
660MW unit supplied by Harbin/Dongfang and b) cut in profit of agro and city gas
distribution on delay in scale-up. We cut PO to Rs725 (from Rs745) to factor in cut
in EPS and potential delay in obtaining environment clearance at its first coal block
(Parsa Kente). Buy ADE on EPS CAGR of 60% over FY11-13E. Potential catalysts:
1) 4.7x scale-up in its IPP to 9.2GW by FY14E, 2) 2.7x revenues at MPSEZ on
doubling of port traffic & pick-up in SEZ sales and 3) execution of 200mtpa mining
contracts, makes ADE one of the few large coal plays in India.
3Q: Coal & port deliver but Power, Agri faulter
ADE's transformation in its business model to annuities with high-margin / RoE
(27.8% / 24.4% by FY12E), is visible in 3Q with EBITDA +87%YoY on margin
+879bps aided by 1) scale up of high margin IPP business, 2) consolidation of
port and 3) robust 3Q coal margins @Rs520/tn ($11/tn) +6%YoY despite
disappointing volume at 6.4mn T (flat) on Ausi floods. However, higher interest
cost +125%YoY, weak Agri (EBIT -22%YoY despite Revenue +56%YoY) and
higher deferred tax (non cash) at APL and delay of 4th 330MW unit of Mundra
power led a weak Rec. PAT growth.
Rs725 PO implies scale-up across verticals; execution key
Our PO of Rs725 (revised down from Rs745) comprises 35% from coal
businesses, 28% from Port & SEZ and 25% from IPP. As ADE enters new areas
to create scale, risk is execution as funding risk has reduced post-QIP. However,
we take comfort in its track record (6x revenues over FY03-09), decent execution
at Mundra Port and power plants, pre-sales of power, leadership in coal trade and
promoters’ entrepreneurial acumen.
Price objective basis & risk
Adani Enterprises Ltd. (ANIEF)
Our PO of Rs725 for ADE is based on SOTP valuation. We have valued ADE 60-
77.5% stake in Port and SEZ business at Rs206/share at 15% discount to our
DCF (CoE 12.5-15.2%) / Book value. We have valued ADE 52-70.3% stake in
Power Generation business at Rs181/share at 15% discount to our DCF value
(CoE of 13.2-14.3%). The 100% stake in Coal mining business is valued at
Rs152/share based on DCF (CoE of 17.1%). The 100% stake in Trading
business is valued at Rs112/share based on DCF. The 57-100% stake in Real
Estate business is valued at Rs32/share based on DCF (CoE 14.6-15.8%) / Book
value. The 50-100% stake in Agro business is valued at Rs10 per share based on
DCF. The 50-100% stake in Oil & Gas business is valued at Rs9 per share based
on DCF (CoE 15.2%) / Book value. This sum upto Rs699/share. Adding Parent
Net Cash of Rs25 per share we arrive our SOTP value of Rs724 per share. Risk:
Project execution risks, Financial risks, global recession impacting traffic at ports,
slow private capex at SEZs, Imported coal exposes it to potential country,
currency and freight risks and fall in power rates on potential match of demandsupply of power in India.
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