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Adani Enterprises Ltd
Neutral
ADEL.BO, ADE IN
4Q results strong, but emerging concerns on new
borrowings and large overseas capex plans
• Mundra Port and coal trading lead to strong numbers: ADE reported
PAT of Rs9.3B (vs JPME Rs7.4B, consensus Rs6.8B). Mundra and Power
results were known earlier this week, so new info includes: (1) Coal trading
vol. growth of 16% yoy in FY11 and EBITDA margin expansion by 100bps
to 10.1% (JPM est 8.5%). 2) Turnaround of agro segment PBIT in 4Q, after
YTD loss, and topline growth of 16% yoy. Of course, MSEZ 4Q PAT had
sharply beaten estimates due to an accounting change and strong operational
performance. We increase our FY12 est by 5% on the back of coal
trading/Adani Power and reduce FY13 est. by 8% given the recent
housekeeping related cuts in Adani Power.
• Sharp increase in debt a bit puzzling. As of FY11 ADE’s consol debt
increased by almost 2x yoy or by Rs154B. Of this, incremental debt at
power and port businesses account for ~70%, while Rs28B of standalone
debt was repaid. Even after assuming debt at Linc Energy, we are not able
to explain Rs60B of new debt, which seems to arise from some other sub.
Currently, this debt is not in our SOP or estimates, but factoring it in would
increase our FY12 Net D/E to 2.1x from 1.4x, and reduce FY12 EPS by
15% (assuming 10% coupon).
• Large capex plans could be a potential overhang. The Adani Group has
overseas projects with a capex outlay of ~$9B on the anvil (Galilee coal
mine and its associated railway line which is still uner feasibility study, the
Bukit Asam project in Indonesia and the Abbot Point coal terminal).
Inclusion of these in numbers would result in Net D/E increasing >2x in
FY12/13, but cost escalation could pose further risk. On a BAU basis
though, ADE turns FCF +ve in FY13E, with ports and power turning +ve in
FY12E and FY14E, respectively.
• ADE has outperformed markets, but we think visible catalysts and
clarity on capex needed for stronger performance. ADE has
outperformed its listed subs and other conglomerates due tio: 1) A simpler
business model with value being discovered, 2) Lesser regulatory hurdles
and 3) A change in earnings profile as it becomes an asset owner. We think
ADE does not have compelling near-term triggers of its own besides the
listing of its MDO biz which is still a couple of years away. Also it is
exposed to higher capex risk and valuations are less attractive, in our view.
• We maintain Neutral and PT of Rs665. Our SOTP includes lower
contribution from power (31% vs 36%) and ports (33% vs 34%) to account
for their lower PTs. Coal mining is stable at 13%, while contribution from
coal trading increased to 27% vs. 21% due to increased margin ests. Our PT
includes a 10% conglomerate discount.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Adani Enterprises Ltd
Neutral
ADEL.BO, ADE IN
4Q results strong, but emerging concerns on new
borrowings and large overseas capex plans
• Mundra Port and coal trading lead to strong numbers: ADE reported
PAT of Rs9.3B (vs JPME Rs7.4B, consensus Rs6.8B). Mundra and Power
results were known earlier this week, so new info includes: (1) Coal trading
vol. growth of 16% yoy in FY11 and EBITDA margin expansion by 100bps
to 10.1% (JPM est 8.5%). 2) Turnaround of agro segment PBIT in 4Q, after
YTD loss, and topline growth of 16% yoy. Of course, MSEZ 4Q PAT had
sharply beaten estimates due to an accounting change and strong operational
performance. We increase our FY12 est by 5% on the back of coal
trading/Adani Power and reduce FY13 est. by 8% given the recent
housekeeping related cuts in Adani Power.
• Sharp increase in debt a bit puzzling. As of FY11 ADE’s consol debt
increased by almost 2x yoy or by Rs154B. Of this, incremental debt at
power and port businesses account for ~70%, while Rs28B of standalone
debt was repaid. Even after assuming debt at Linc Energy, we are not able
to explain Rs60B of new debt, which seems to arise from some other sub.
Currently, this debt is not in our SOP or estimates, but factoring it in would
increase our FY12 Net D/E to 2.1x from 1.4x, and reduce FY12 EPS by
15% (assuming 10% coupon).
• Large capex plans could be a potential overhang. The Adani Group has
overseas projects with a capex outlay of ~$9B on the anvil (Galilee coal
mine and its associated railway line which is still uner feasibility study, the
Bukit Asam project in Indonesia and the Abbot Point coal terminal).
Inclusion of these in numbers would result in Net D/E increasing >2x in
FY12/13, but cost escalation could pose further risk. On a BAU basis
though, ADE turns FCF +ve in FY13E, with ports and power turning +ve in
FY12E and FY14E, respectively.
• ADE has outperformed markets, but we think visible catalysts and
clarity on capex needed for stronger performance. ADE has
outperformed its listed subs and other conglomerates due tio: 1) A simpler
business model with value being discovered, 2) Lesser regulatory hurdles
and 3) A change in earnings profile as it becomes an asset owner. We think
ADE does not have compelling near-term triggers of its own besides the
listing of its MDO biz which is still a couple of years away. Also it is
exposed to higher capex risk and valuations are less attractive, in our view.
• We maintain Neutral and PT of Rs665. Our SOTP includes lower
contribution from power (31% vs 36%) and ports (33% vs 34%) to account
for their lower PTs. Coal mining is stable at 13%, while contribution from
coal trading increased to 27% vs. 21% due to increased margin ests. Our PT
includes a 10% conglomerate discount.
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