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Adani Enterprises Ltd. — Factor in MSEZ and APL cut
Price Objective Change
Cut EPS and PO on MSEZ and APL cut; Growth still robust, Buy
We cut our ADE consolidated FY12-13E EPS by ~13% to factor in 1) our recent
cut in MSEZ EPS by 20-30% and 2) cut in Adani Power (APL) consolidated EPS
by 16-24% on changes in Budget 2012 and hike in coal prices. We also cut our
PO to Rs697 (Rs725) to factor in PO cut in MPSEZ (-7.6%) and APL (-8.5%).
Maintain Buy ADE on EPS CAGR of 48% over FY11-13E and catalysts: 1) 4.7x
scale-up in its IPP to 9.2GW by FY14E, 2) 1.8x revenues at MPSEZ on doubling
of port traffic & pick-up in SEZ and 3) execution of 200mtpa coal mining contracts,
makes ADE one of the few large coal plays in India.
Port holdco MSEZ hit by levy of MAT on SEZ; Down to Neutral
The levy of MAT @ 20% on SEZ developers to hit MPSEZ, a 77.5% subs. of
ADE, as it would lead to a cash outflow. Further, MAT on units operating in SEZs
could reduce attractiveness of its land-bank. We had cut MSEZ FY12-13E EPS
by 20-30% to factor in MAT and 29-59% cut in SEZ earnings due to delay in
monetization by 20-30% and price by ~3%. We had also cut MSEZ PO (-7.6%)
and downgraded it to Neutral (read our Mundra Port & SEZ Ltd., 01 March 2011).
Power holdco APL hit by coal price hike & MAT; Maintain Buy
We cut FY12-13E APL, a 70.3% subs of ADE, consolidated EPS by 16-24% to
factor in 28-29% earning cut in Mundra plant hit by MAT & MCL coal price hike.
An 18.8% coal price hike on MCL linkages impacts APL 4.6GW Mundra plant as
it hikes coal costs on ~30% of its requirement by 6% (6paise/kWh) especially
given Mundra’s PPA of 3.4GW (74% of capacity) doesn’t have pass-through, in
our view. Levy of MAT on SEZ units shall lead to cash outflow for Mundra plant.
We cut APL PO (-8.5%) (read our Adani Power Ltd., 07 March 2011).
Rs697 PO implies scale-up across verticals; execution key
Our PO comprises 37% from coal businesses, 28% from Port & SEZ and 24%
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, presales
of power, leadership in coal trade and promoters’ entrepreneurial acumen.
Adani Enterprises Ltd. (ANIEF)
Our PO of Rs697 for ADE is based on SOTP valuation at DCF (CoE 12.8-17.1%)
and Book value. We valued ADE 57.3-77.5% stake in Port and SEZ business at
Rs191/share at 15% discount to our DCF (CoE 13-15.8%) / Book value. We
valued ADE 52-70.3% stake in Power Generation business at Rs166/share at
15% discount to our DCF value (CoE of 13-14%). The 100% stake in Coal mining
business is valued at Rs154/share based on DCF (CoE of 17.1%). The 100%
stake in Trading business is valued at Rs112/share based on DCF at CoE of
16.4-17.1%. 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. They sum up to Rs672/share. Adding Parent Net Cash of Rs25 per share,
we arrive at our SOTP value of Rs697 per share.
Risks: 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. — Factor in MSEZ and APL cut
Price Objective Change
Cut EPS and PO on MSEZ and APL cut; Growth still robust, Buy
We cut our ADE consolidated FY12-13E EPS by ~13% to factor in 1) our recent
cut in MSEZ EPS by 20-30% and 2) cut in Adani Power (APL) consolidated EPS
by 16-24% on changes in Budget 2012 and hike in coal prices. We also cut our
PO to Rs697 (Rs725) to factor in PO cut in MPSEZ (-7.6%) and APL (-8.5%).
Maintain Buy ADE on EPS CAGR of 48% over FY11-13E and catalysts: 1) 4.7x
scale-up in its IPP to 9.2GW by FY14E, 2) 1.8x revenues at MPSEZ on doubling
of port traffic & pick-up in SEZ and 3) execution of 200mtpa coal mining contracts,
makes ADE one of the few large coal plays in India.
Port holdco MSEZ hit by levy of MAT on SEZ; Down to Neutral
The levy of MAT @ 20% on SEZ developers to hit MPSEZ, a 77.5% subs. of
ADE, as it would lead to a cash outflow. Further, MAT on units operating in SEZs
could reduce attractiveness of its land-bank. We had cut MSEZ FY12-13E EPS
by 20-30% to factor in MAT and 29-59% cut in SEZ earnings due to delay in
monetization by 20-30% and price by ~3%. We had also cut MSEZ PO (-7.6%)
and downgraded it to Neutral (read our Mundra Port & SEZ Ltd., 01 March 2011).
Power holdco APL hit by coal price hike & MAT; Maintain Buy
We cut FY12-13E APL, a 70.3% subs of ADE, consolidated EPS by 16-24% to
factor in 28-29% earning cut in Mundra plant hit by MAT & MCL coal price hike.
An 18.8% coal price hike on MCL linkages impacts APL 4.6GW Mundra plant as
it hikes coal costs on ~30% of its requirement by 6% (6paise/kWh) especially
given Mundra’s PPA of 3.4GW (74% of capacity) doesn’t have pass-through, in
our view. Levy of MAT on SEZ units shall lead to cash outflow for Mundra plant.
We cut APL PO (-8.5%) (read our Adani Power Ltd., 07 March 2011).
Rs697 PO implies scale-up across verticals; execution key
Our PO comprises 37% from coal businesses, 28% from Port & SEZ and 24%
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, presales
of power, leadership in coal trade and promoters’ entrepreneurial acumen.
Adani Enterprises Ltd. (ANIEF)
Our PO of Rs697 for ADE is based on SOTP valuation at DCF (CoE 12.8-17.1%)
and Book value. We valued ADE 57.3-77.5% stake in Port and SEZ business at
Rs191/share at 15% discount to our DCF (CoE 13-15.8%) / Book value. We
valued ADE 52-70.3% stake in Power Generation business at Rs166/share at
15% discount to our DCF value (CoE of 13-14%). The 100% stake in Coal mining
business is valued at Rs154/share based on DCF (CoE of 17.1%). The 100%
stake in Trading business is valued at Rs112/share based on DCF at CoE of
16.4-17.1%. 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. They sum up to Rs672/share. Adding Parent Net Cash of Rs25 per share,
we arrive at our SOTP value of Rs697 per share.
Risks: 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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