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Adani Enterprises Ltd Neutral
ADEL.BO, ADE IN
Lower margins and higher capital costs result in earnings miss
ADE reported a disappointing Rs5.7B PAT vs our estimate of Rs8.6B. While
around an Rs600MM difference can be explained by misses by port and power
subs that reported last week, it appears a significant part of the miss is on account
of: 1) much higher capital costs; 2) a significant shortfall on coal trading margins
(6.8% vs. 10% in 1QFY11); 3) agro segment reporting an EBIT loss compared to a
turnaround posted last quarter; and 4) EBIT loss in some of smaller segments as
well. Consolidated EBITDA margin declined by ~250bp yoy.
High capital costs depress PAT: Interest expenses were up 84% qoq.
Consolidated interest cost of Rs2.2B included ~Rs1B of interest costs outside
of standalone Adani Power and Mundra Port, as both these companies
reported standalone results. Consolidated interest expenses included: 1)
Rs1.15B for Adani Power vs Rs886MM in standalone reported results
(accounted for by shipping subs, in our view); 2) Rs470MM for Mundra Port
vs Rs331MM in standalone reported results (accounted for by Dahej, logistics
and rail subs in our view); and 3) Rs610MM in Adani Enterprises including
interest on the ~$400MM Galilee acquisition loan. D/E increased to 2.1x as of
Jun-11 compared to 1.9x last quarter.
Key segments report decline in margins: Despite in-line volume growth of
23% yoy, coal trading that contributes 22% of our FY12E EBITDA, reported a
6.8% margin compared to its consistent 9-10% record in the past four quarters:
we learned from management that past margins were aided by inventory gains
as international benchmark prices were on the rise. They have now guided to
lower 7-8% sustainable margins. Similarly the agro segment, which posted a
positive EBIT in 4Q after 3Qs of losses slipped back into the red, possibly on
account of a hedging loss. Management guided margins to be in the 2-3%
range for the agri trading business. Some other segments also reported an
EBIT loss, contributing to the margin decline.
Maintain our Neutral rating: We think lower coal trading margins, delays in
coal production from the MDO business, and lower PLFs in the power
subsidiary could pose risks to our estimates for FY12/13. The recent bribery
allegations may have an impact on sentiment, in our view, until the company
is acquitted of all charges. With two of its key subs being already listed, we do
not see compelling near-term triggers for ADE besides the listing of its MDO
business, which is still a couple of years away.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Adani Enterprises Ltd Neutral
ADEL.BO, ADE IN
Lower margins and higher capital costs result in earnings miss
ADE reported a disappointing Rs5.7B PAT vs our estimate of Rs8.6B. While
around an Rs600MM difference can be explained by misses by port and power
subs that reported last week, it appears a significant part of the miss is on account
of: 1) much higher capital costs; 2) a significant shortfall on coal trading margins
(6.8% vs. 10% in 1QFY11); 3) agro segment reporting an EBIT loss compared to a
turnaround posted last quarter; and 4) EBIT loss in some of smaller segments as
well. Consolidated EBITDA margin declined by ~250bp yoy.
High capital costs depress PAT: Interest expenses were up 84% qoq.
Consolidated interest cost of Rs2.2B included ~Rs1B of interest costs outside
of standalone Adani Power and Mundra Port, as both these companies
reported standalone results. Consolidated interest expenses included: 1)
Rs1.15B for Adani Power vs Rs886MM in standalone reported results
(accounted for by shipping subs, in our view); 2) Rs470MM for Mundra Port
vs Rs331MM in standalone reported results (accounted for by Dahej, logistics
and rail subs in our view); and 3) Rs610MM in Adani Enterprises including
interest on the ~$400MM Galilee acquisition loan. D/E increased to 2.1x as of
Jun-11 compared to 1.9x last quarter.
Key segments report decline in margins: Despite in-line volume growth of
23% yoy, coal trading that contributes 22% of our FY12E EBITDA, reported a
6.8% margin compared to its consistent 9-10% record in the past four quarters:
we learned from management that past margins were aided by inventory gains
as international benchmark prices were on the rise. They have now guided to
lower 7-8% sustainable margins. Similarly the agro segment, which posted a
positive EBIT in 4Q after 3Qs of losses slipped back into the red, possibly on
account of a hedging loss. Management guided margins to be in the 2-3%
range for the agri trading business. Some other segments also reported an
EBIT loss, contributing to the margin decline.
Maintain our Neutral rating: We think lower coal trading margins, delays in
coal production from the MDO business, and lower PLFs in the power
subsidiary could pose risks to our estimates for FY12/13. The recent bribery
allegations may have an impact on sentiment, in our view, until the company
is acquitted of all charges. With two of its key subs being already listed, we do
not see compelling near-term triggers for ADE besides the listing of its MDO
business, which is still a couple of years away.
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