Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Adani Enterprises (ADEL.BO)
Maintain Hold (2L) – Target Price Cut to Rs661
3QFY11 PAT up 54% YoY, but well below CIRA expectations — ADE's 3QFY11
Recurring PAT at Rs4.74bn was up 54% YoY but below CIRA expectation of
Rs7bn on account of higher than expected interest costs and lower than expected
other income. The other key reasons for the operational variance were lower than
expected numbers in Adani Power because of (a) lower quantum of merchant
sales and (b) lower than expected merchant prices.
Coal trading update — We were also a tad disappointed by the lack of growth in
coal trading volume, which could be because of high international coal prices and
backing down by SEBs in India. Our coal team says that in 9mFY11 thermal coal
imports in India are down 13% YoY. However, vis-a-vis other coal traders, ADE
has done much better with coal trading volumes growing 13% YoY. In 9mFY11
management has done coal trading volumes of 21.42mn tons and expects to cross
30mn tons in FY11E.
EPS cut 2-15%; Target price cut to Rs661 — We revise down our target price to
Rs661 (from Rs706) to factor in (1) 2-15% EPS reduction over FY11E-15E (2)
Changes last week to our target prices for Adani Power (to Rs130, from Rs159
earlier) and for MPSEZ (adjusted to Rs163, from Rs164).
The single biggest downside risk — This is the risk that Adani Power’s plans for
pre PPA merchant up-fronting do not work. According to the management, almost
all their power plants would get comissioned 3-12 months before the start of the
PPA date. During this period the company expects to sell all the generated power
in the merchant market and get higher than PPA rates.
Impact of no pre PPA up-fronting — (1) ADE fair value would fall to Rs641 (from
Rs661), all else being equal, (2) FY12E-14E EPS would be lower by 3-26%, and
(3) the stock then would not look very cheap on P/E and EV/EBITDA multiples.
Target price cut to Rs661 (from Rs706 earlier)
We revise down our target price to Rs661 (from Rs706) to factor in (1) 2-15%
EPS reduction over FY11E-15E (2) Changes last week to our target prices for
Adani Power (to Rs130, from Rs159 earlier) and for MPSEZ (to Rs163, from
Rs164).
Single biggest downside risk emanates from Adani Power
The single biggest risk to our target price and EPS estimates is Adani
Power’s plans of pre PPA merchant up-fronting not working.
According to the management almost all their power plants would get
comissioned 3-12 months before the start of the PPA date. During this period
the company expects to sell all the generated power in the merchant market
and get higher than PPA rates.
We have not assumed delays in the commissioning schedule and factored in
the pre PPA merchant up-fronting. However, we have noticed that this has
not worked in the Mundra I & II of 1320MW as evident from the realizations
of only Rs3.56/kWh in FY10 and given that in 9mFY11 the company has sold
only 14% of total sales in the merchant market.
Management in our past interactions has mentioned that this would start
working from Mundra III onwards. However, if this does not work our (1) ADE
fair value would fall to Rs641 (from Rs661), all else being equal (2) FY12E-
14E EPS would be lower by 3-26% and (3) the stock then would not look
very cheap on P/E and EV/EBITDA multiples.
Earnings revised downwards
We revise down our EPS estimates by 2-15% over FY11E-15E to factor in
11-21% reduction in sales estimates and some amount of adjustments to our
EBITDA margin assumptions
Our estimates are 2-18% ahead of consensus over FY11E-12E but 8-20%
below consensus over FY13E-15E.
3QFY11 PAT up 54% YoY, but well below CIRA expectations
ADE's 3QFY11 Recurring PAT at Rs4.74bn was up 54% YoY but below
CIRA expectation of Rs7bn on account of higher than expected interest
costs and lower than expected other income. The other key reason for the
variance from an operational perspective were lower than expected numbers
in Adani Power because of (a) lower quantum of merchant sales and (b)
lower than expected merchant prices.
We are also a tad disappointed by the lack of growth in coal trading volume.
We believe this could be because of high international coal prices and
backing down by SEBs in India. Our coal team says that in 9mFY11 thermal
coal imports in India are down 13% YoY. However, vis-a-vis other coal
traders ADE has done much better with coal trading volumes growing 13%
YoY. In 9mFY11 management has done coal trading volumes of 21.42mn
tons and expects to cross 30mn tons in FY11E.
MPSEZ 3QFY11 sales at Rs4.2bn were in line with CIRA estimates of
Rs4.2bn. EBITDA margins at 66.5% were slightly lower than CIRA estimates
of 67%. Stronger-than-expected other income offset higher-than-expected
interest and depreciation costs. PAT at Rs2.28bn was in line with CIRA
estimates of Rs2.25bn.
Adani Power’s 3QFY11 was decent in an absolute sense with PBT growth of
89% YoY and 20% QoQ. However, PBT at Rs1.8bn was 22% below CIRA at
Rs2.3bn. PAT at Rs1.1bn was 39% below CIRA on the back of higher-thanexpected
deferred taxes.
Adani Enterprises
Valuation
We have a target price of Rs661 for Adani Enterprises, which is derived using a
sum of the parts (SOTP) methodology given the conglomerate nature of the
business. By far the biggest constituents of our fair value at 35% and 28% are
the group's ports and power divisions respectively, which we value using a DCF
model in which FCFE is discounted at a cost of equity of 12-13%. The next
biggest contributors to the "value pie" at respective weightings of 18% and 12%
are Coal Mining (valued using a DCF and CoE discount rate of 13%) and
Trading (FY12E EV/EBITDA of 6x). Real Estate (5%), Agri (1%) and City Gas
also contribute to an overall fair value of Rs661/share (excluding net debt).
Risks
Our quantitative risk-rating system, which tracks 260-day historical share price
volatility, assigns a Low Risk rating to Adani Enterprises.
Key downside risks to our target price lie in: (1) poor project execution; (2)
commodity trading; (3) financial closure; (4) environmental and legal clearance;
(5) coal license in Bunyu; (6) real estate volumes; (7) resource estimation risk;
and (8) inadequate coal in Bunyu to fire the Mundra project.
Key upside risks to our target price lie in: (1) better-than-expected project
execution; (2) more project wins in coal mining, ports and power; and (3) higher
cash generation in trading businesses.
Adani Power
(ADAN.BO; Rs122.10; 1L)
Valuation: Traditional valuation methodologies like P/E and EV/EBITDA
multiples can be misleading if used to value pure infrastructure asset holders,
as profitability of the projects can be lumpy, primarily on the basis of year of
commissioning and the life of the asset. In some years, when projects are
commissioned, the company may look attractive on a PE multiple basis, while
in another year, when the asset life ends, the stock may appear relatively
expensive. Infrastructure assets and more specifically Electric Utilities generate
regular and largely predictable cash flow streams for a fixed time period.
Therefore, discounted cash flow (DCF) is best-suited to value BOT projects.
While applying DCF one can choose free cash flow to the firm (FCF) or free
cash flow to equity (FCFE). We prefer FCFE as individual projects are highly
geared and gearing changes as debt is rapidly paid off. If we assume APL
executes all its projects flawlessly in line with our assumptions we would arrive
at a value of Rs130 for the stock (cost of equity of 13%).
Risks: Our quantitative risk-rating system, which tracks 260-day historical
share price volatility, assigns a Low Risk rating to Adani Power.
Downside risks include: 1) Insufficient quantity of coal in Bunyu to fire the
Mundra project; 2) The total reserves of 150mn tonnes have three licenses.
While the counterparties of 2 of the 3 mines have procured long-term
exploitation licenses the third license has not yet been granted to the
counterparty; 3) Regulatory risk in Indonesia; 4) Fuel supply to Mundra Phase
IV and Tiroda is contingent on AEL achieving certain milestones and finalizing
the coal supply agreements and timely mining; 5) Fuel pricing risk for the
Indonesian coal; 6) Merchant tariff risks; 7) Execution risks; 8) Chinese
equipment quality risks; and 8) Interest rate risk. Upside risks include: 1) Better
than expected operating parameters; 2) Faster than expected execution; 3)
Higher than expected merchant tariffs; and 4) Significant progress on 3300MW
of projects now in planning stages.
Mundra Port And Special Economic Zone
(MPSE.BO; Rs143.05; 1L)
Valuation: Our Rs163 target price for MPSEZ is based on a Sum of the Parts
(SOTP) methodology. We value Mundra Port at Rs130/share on a discounted
cash flow to equity basis, using a cost of equity of 13%. The SEZ is valued at
Rs13/share, using a cost of equity of 14% and assigning a 30% discount to the
calculated NAV (consistent with how we value the smaller Indian real estate
companies). We value Dahej Port at Rs8/share on a discounted cash flow to
equity basis, using a cost of equity of 13%. We value Hazira Port at Rs10/share
- on a discounted cash flow to equity basis, using a cost of equity of 14% and
Mormugao port at Rs1/share on a discounted cash flow to equity basis, using a
cost of equity of 14%. We value stakes in Adani Logistics (Rs2/share) and
Kutch railways at book value.
Risks: Our quantitative risk-rating system assigns a Low Risk rating to MPSEZ
shares, based on the stock's 260-day historical volatility. The key downside
risks to our Buy recommendation and target price include: 1) lower-thanexpected
traffic growth; 2) lower-than-expected demand for the land in the SEZ;
and 3) lower-than-expected lease income for the SEZ.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Adani Enterprises (ADEL.BO)
Maintain Hold (2L) – Target Price Cut to Rs661
3QFY11 PAT up 54% YoY, but well below CIRA expectations — ADE's 3QFY11
Recurring PAT at Rs4.74bn was up 54% YoY but below CIRA expectation of
Rs7bn on account of higher than expected interest costs and lower than expected
other income. The other key reasons for the operational variance were lower than
expected numbers in Adani Power because of (a) lower quantum of merchant
sales and (b) lower than expected merchant prices.
Coal trading update — We were also a tad disappointed by the lack of growth in
coal trading volume, which could be because of high international coal prices and
backing down by SEBs in India. Our coal team says that in 9mFY11 thermal coal
imports in India are down 13% YoY. However, vis-a-vis other coal traders, ADE
has done much better with coal trading volumes growing 13% YoY. In 9mFY11
management has done coal trading volumes of 21.42mn tons and expects to cross
30mn tons in FY11E.
EPS cut 2-15%; Target price cut to Rs661 — We revise down our target price to
Rs661 (from Rs706) to factor in (1) 2-15% EPS reduction over FY11E-15E (2)
Changes last week to our target prices for Adani Power (to Rs130, from Rs159
earlier) and for MPSEZ (adjusted to Rs163, from Rs164).
The single biggest downside risk — This is the risk that Adani Power’s plans for
pre PPA merchant up-fronting do not work. According to the management, almost
all their power plants would get comissioned 3-12 months before the start of the
PPA date. During this period the company expects to sell all the generated power
in the merchant market and get higher than PPA rates.
Impact of no pre PPA up-fronting — (1) ADE fair value would fall to Rs641 (from
Rs661), all else being equal, (2) FY12E-14E EPS would be lower by 3-26%, and
(3) the stock then would not look very cheap on P/E and EV/EBITDA multiples.
Target price cut to Rs661 (from Rs706 earlier)
We revise down our target price to Rs661 (from Rs706) to factor in (1) 2-15%
EPS reduction over FY11E-15E (2) Changes last week to our target prices for
Adani Power (to Rs130, from Rs159 earlier) and for MPSEZ (to Rs163, from
Rs164).
Single biggest downside risk emanates from Adani Power
The single biggest risk to our target price and EPS estimates is Adani
Power’s plans of pre PPA merchant up-fronting not working.
According to the management almost all their power plants would get
comissioned 3-12 months before the start of the PPA date. During this period
the company expects to sell all the generated power in the merchant market
and get higher than PPA rates.
We have not assumed delays in the commissioning schedule and factored in
the pre PPA merchant up-fronting. However, we have noticed that this has
not worked in the Mundra I & II of 1320MW as evident from the realizations
of only Rs3.56/kWh in FY10 and given that in 9mFY11 the company has sold
only 14% of total sales in the merchant market.
Management in our past interactions has mentioned that this would start
working from Mundra III onwards. However, if this does not work our (1) ADE
fair value would fall to Rs641 (from Rs661), all else being equal (2) FY12E-
14E EPS would be lower by 3-26% and (3) the stock then would not look
very cheap on P/E and EV/EBITDA multiples.
Earnings revised downwards
We revise down our EPS estimates by 2-15% over FY11E-15E to factor in
11-21% reduction in sales estimates and some amount of adjustments to our
EBITDA margin assumptions
Our estimates are 2-18% ahead of consensus over FY11E-12E but 8-20%
below consensus over FY13E-15E.
3QFY11 PAT up 54% YoY, but well below CIRA expectations
ADE's 3QFY11 Recurring PAT at Rs4.74bn was up 54% YoY but below
CIRA expectation of Rs7bn on account of higher than expected interest
costs and lower than expected other income. The other key reason for the
variance from an operational perspective were lower than expected numbers
in Adani Power because of (a) lower quantum of merchant sales and (b)
lower than expected merchant prices.
We are also a tad disappointed by the lack of growth in coal trading volume.
We believe this could be because of high international coal prices and
backing down by SEBs in India. Our coal team says that in 9mFY11 thermal
coal imports in India are down 13% YoY. However, vis-a-vis other coal
traders ADE has done much better with coal trading volumes growing 13%
YoY. In 9mFY11 management has done coal trading volumes of 21.42mn
tons and expects to cross 30mn tons in FY11E.
MPSEZ 3QFY11 sales at Rs4.2bn were in line with CIRA estimates of
Rs4.2bn. EBITDA margins at 66.5% were slightly lower than CIRA estimates
of 67%. Stronger-than-expected other income offset higher-than-expected
interest and depreciation costs. PAT at Rs2.28bn was in line with CIRA
estimates of Rs2.25bn.
Adani Power’s 3QFY11 was decent in an absolute sense with PBT growth of
89% YoY and 20% QoQ. However, PBT at Rs1.8bn was 22% below CIRA at
Rs2.3bn. PAT at Rs1.1bn was 39% below CIRA on the back of higher-thanexpected
deferred taxes.
Adani Enterprises
Valuation
We have a target price of Rs661 for Adani Enterprises, which is derived using a
sum of the parts (SOTP) methodology given the conglomerate nature of the
business. By far the biggest constituents of our fair value at 35% and 28% are
the group's ports and power divisions respectively, which we value using a DCF
model in which FCFE is discounted at a cost of equity of 12-13%. The next
biggest contributors to the "value pie" at respective weightings of 18% and 12%
are Coal Mining (valued using a DCF and CoE discount rate of 13%) and
Trading (FY12E EV/EBITDA of 6x). Real Estate (5%), Agri (1%) and City Gas
also contribute to an overall fair value of Rs661/share (excluding net debt).
Risks
Our quantitative risk-rating system, which tracks 260-day historical share price
volatility, assigns a Low Risk rating to Adani Enterprises.
Key downside risks to our target price lie in: (1) poor project execution; (2)
commodity trading; (3) financial closure; (4) environmental and legal clearance;
(5) coal license in Bunyu; (6) real estate volumes; (7) resource estimation risk;
and (8) inadequate coal in Bunyu to fire the Mundra project.
Key upside risks to our target price lie in: (1) better-than-expected project
execution; (2) more project wins in coal mining, ports and power; and (3) higher
cash generation in trading businesses.
Adani Power
(ADAN.BO; Rs122.10; 1L)
Valuation: Traditional valuation methodologies like P/E and EV/EBITDA
multiples can be misleading if used to value pure infrastructure asset holders,
as profitability of the projects can be lumpy, primarily on the basis of year of
commissioning and the life of the asset. In some years, when projects are
commissioned, the company may look attractive on a PE multiple basis, while
in another year, when the asset life ends, the stock may appear relatively
expensive. Infrastructure assets and more specifically Electric Utilities generate
regular and largely predictable cash flow streams for a fixed time period.
Therefore, discounted cash flow (DCF) is best-suited to value BOT projects.
While applying DCF one can choose free cash flow to the firm (FCF) or free
cash flow to equity (FCFE). We prefer FCFE as individual projects are highly
geared and gearing changes as debt is rapidly paid off. If we assume APL
executes all its projects flawlessly in line with our assumptions we would arrive
at a value of Rs130 for the stock (cost of equity of 13%).
Risks: Our quantitative risk-rating system, which tracks 260-day historical
share price volatility, assigns a Low Risk rating to Adani Power.
Downside risks include: 1) Insufficient quantity of coal in Bunyu to fire the
Mundra project; 2) The total reserves of 150mn tonnes have three licenses.
While the counterparties of 2 of the 3 mines have procured long-term
exploitation licenses the third license has not yet been granted to the
counterparty; 3) Regulatory risk in Indonesia; 4) Fuel supply to Mundra Phase
IV and Tiroda is contingent on AEL achieving certain milestones and finalizing
the coal supply agreements and timely mining; 5) Fuel pricing risk for the
Indonesian coal; 6) Merchant tariff risks; 7) Execution risks; 8) Chinese
equipment quality risks; and 8) Interest rate risk. Upside risks include: 1) Better
than expected operating parameters; 2) Faster than expected execution; 3)
Higher than expected merchant tariffs; and 4) Significant progress on 3300MW
of projects now in planning stages.
Mundra Port And Special Economic Zone
(MPSE.BO; Rs143.05; 1L)
Valuation: Our Rs163 target price for MPSEZ is based on a Sum of the Parts
(SOTP) methodology. We value Mundra Port at Rs130/share on a discounted
cash flow to equity basis, using a cost of equity of 13%. The SEZ is valued at
Rs13/share, using a cost of equity of 14% and assigning a 30% discount to the
calculated NAV (consistent with how we value the smaller Indian real estate
companies). We value Dahej Port at Rs8/share on a discounted cash flow to
equity basis, using a cost of equity of 13%. We value Hazira Port at Rs10/share
- on a discounted cash flow to equity basis, using a cost of equity of 14% and
Mormugao port at Rs1/share on a discounted cash flow to equity basis, using a
cost of equity of 14%. We value stakes in Adani Logistics (Rs2/share) and
Kutch railways at book value.
Risks: Our quantitative risk-rating system assigns a Low Risk rating to MPSEZ
shares, based on the stock's 260-day historical volatility. The key downside
risks to our Buy recommendation and target price include: 1) lower-thanexpected
traffic growth; 2) lower-than-expected demand for the land in the SEZ;
and 3) lower-than-expected lease income for the SEZ.
No comments:
Post a Comment