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UBS Investment Research
Adani Enterprises
Robust margins in coal trading
„ PAT rises 7% YoY to Rs4.6bn, operating profit up 27% YoY
Adani Enterprises (AEL) reported Q3 FY11 revenue of Rs56.4bn (-16% YoY due
to the discontinuation of many non-coal trading businesses), operating profit of
Rs9.3bn (+27% YoY) and pre-ex PAT of Rs4.6bn (+7% YoY). In 9M FY11,
revenue at Rs173bn declined 9% YoY, operating profit at Rs25.2bn increased 36%
YoY and pre-ex PAT at Rs14.2bn increased 49% YoY (YoY numbers are not
comparable as the power business commenced operations in Q3 FY10). Interest
costs, at Rs2.3bn (+71% QoQ), were significantly higher than our estimates.
„ Coal trading EBITDA margin robust at 12%, though volumes remain flat
Q3 coal trading volumes remained flat YoY at 6.4mt (9M FY11 21.4mt, UBS-e
33mt in FY11). Q3 FY11 EBITDA margin would be approximately 11.8% in our
estimate (8.9% in 9M FY11, our FY11 assumption is 8.4%). EBITDA per tonne
for the quarter was Rs495/t, up 0.5% YoY and 123% QoQ. AEL seems to have
benefitted from the increase in coal prices during the quarter, while we think its
purchase cost might not have increased in proportion yet.
„ Weak performance from Agri and other segments
While revenue from agri increased 56% YoY, EBIT margin remained weak at
0.8% for the quarter (down 80bp). Revenue from the ‘Others’ segment increased
about 90% YoY, though the segment posted a negative EBIT of approximately
Rs180m (including real estate).
„ Valuation: maintain Neutral rating and Rs685.00 price target
Our sum-of-the-parts based price target comprises: 1) port: 35%; 2) power: 30%,
3) mining: 18%; 4) trading: 7%; 5) real estate: 3%; 6) agri: 1%; 7) others: 1% and
8) cash: 6%.
Valuation: price target of Rs685.00
We derive our SOTP-based price target on: 1) a 10% holding company discount
to our price target for listed subsidiaries; 2) a DCF valuation of individual assets
in different segments like mining, agri, real estate and others; and 3) 3.5x
EV/EBITDA for the trading business.
Q Adani Enterprises
Founded in 1988 by Gautam S Adani, Adani Enterprises is the flagship
company of the Adani Group. It has several businesses such as power generation
and trading, coal mining and trading, edible oil manufacturing, agri-logistics and
trading, real estate development, trading in metals, city gas distribution,
bunkering, and oil & gas.
Q Statement of Risk
In our view, the key risks that AEL is exposed to include: 1) fuel cost from
Indonesia might be higher or availability could be lower; 2) a sharp decline in
merchant tariffs; 3) lack of sufficient track record of Chinese power equipment
with Indian coal; 4) execution risks across businesses, especially power and
mining; and 5) lower-than-expected efficiencies in Indian coal mining
operations.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Adani Enterprises
Robust margins in coal trading
„ PAT rises 7% YoY to Rs4.6bn, operating profit up 27% YoY
Adani Enterprises (AEL) reported Q3 FY11 revenue of Rs56.4bn (-16% YoY due
to the discontinuation of many non-coal trading businesses), operating profit of
Rs9.3bn (+27% YoY) and pre-ex PAT of Rs4.6bn (+7% YoY). In 9M FY11,
revenue at Rs173bn declined 9% YoY, operating profit at Rs25.2bn increased 36%
YoY and pre-ex PAT at Rs14.2bn increased 49% YoY (YoY numbers are not
comparable as the power business commenced operations in Q3 FY10). Interest
costs, at Rs2.3bn (+71% QoQ), were significantly higher than our estimates.
„ Coal trading EBITDA margin robust at 12%, though volumes remain flat
Q3 coal trading volumes remained flat YoY at 6.4mt (9M FY11 21.4mt, UBS-e
33mt in FY11). Q3 FY11 EBITDA margin would be approximately 11.8% in our
estimate (8.9% in 9M FY11, our FY11 assumption is 8.4%). EBITDA per tonne
for the quarter was Rs495/t, up 0.5% YoY and 123% QoQ. AEL seems to have
benefitted from the increase in coal prices during the quarter, while we think its
purchase cost might not have increased in proportion yet.
„ Weak performance from Agri and other segments
While revenue from agri increased 56% YoY, EBIT margin remained weak at
0.8% for the quarter (down 80bp). Revenue from the ‘Others’ segment increased
about 90% YoY, though the segment posted a negative EBIT of approximately
Rs180m (including real estate).
„ Valuation: maintain Neutral rating and Rs685.00 price target
Our sum-of-the-parts based price target comprises: 1) port: 35%; 2) power: 30%,
3) mining: 18%; 4) trading: 7%; 5) real estate: 3%; 6) agri: 1%; 7) others: 1% and
8) cash: 6%.
Valuation: price target of Rs685.00
We derive our SOTP-based price target on: 1) a 10% holding company discount
to our price target for listed subsidiaries; 2) a DCF valuation of individual assets
in different segments like mining, agri, real estate and others; and 3) 3.5x
EV/EBITDA for the trading business.
Q Adani Enterprises
Founded in 1988 by Gautam S Adani, Adani Enterprises is the flagship
company of the Adani Group. It has several businesses such as power generation
and trading, coal mining and trading, edible oil manufacturing, agri-logistics and
trading, real estate development, trading in metals, city gas distribution,
bunkering, and oil & gas.
Q Statement of Risk
In our view, the key risks that AEL is exposed to include: 1) fuel cost from
Indonesia might be higher or availability could be lower; 2) a sharp decline in
merchant tariffs; 3) lack of sufficient track record of Chinese power equipment
with Indian coal; 4) execution risks across businesses, especially power and
mining; and 5) lower-than-expected efficiencies in Indian coal mining
operations.
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