Annual report analysis of Adani Enterprises (AEL) for FY12 highlights a significant increase in net debt to INR627bn, primarily to finance capex requirements of the port and power business (part of which is currently under CWIP). However, the operating cash flow for FY12 remains subdued at INR4.4bn. We believe that unless the situation in power business improves, operating cash flow at current levels may be vexing. Interest charged to P&L has been contained due to capitalisation and financing via unhedged forex loans wherein exchange losses are being capitalised.
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Net debt at INR 627 bn as on FY12 against INR 303 bn in FY11….
Net debt has increased from INR302.5bn in FY11 to INR626.8bn in FY12. Net D/E adjusted for acceptances and creditors for capex has increased from 1.9x in FY11 to 3.5x in FY12. Capex for FY12 stood at INR314.1bn.
…. INR 104 bn capex in the pipeline (excl Australian coal mines)
Estimated amount of capital commitments and other contracts remaining to be executed (net of advances) stood at INR103.8bn (INR506.1bn in FY11).
Further, AEL plans to incur a capex of ~USD4.5bn to develop an Australian coal mine (over the next 7-8 years), of which, ~USD700mn has been spent so far towards mining rights and pre-operating expenses.
Interest expenses lower due to LC based financing, may surge soon
Loans include long term LC based USD loans of INR167.6bn (at low costs) which will mature in the next three years. Additionally, INR74.4bn has been availed via short term LC based loans and buyers/suppliers credit. The company plans to refinance a portion of the loans through ECBs which is likely to spike interest costs.
Significant unhedged forex borrowing, MTM losses capitalised
Unhedged payable position stood at INR357.4bn even as INR depreciated by ~14.6% in FY12 and further by ~10% in Q1FY13. Exchange losses on long term loans pertaining to asset acquisition are being capitalised with the carrying cost of fixed assets. Considering the nil natural hedges available in power business, depreciating INR will further increase debt servicing obligations.
Cash flow a concern unless power business turns around
Cash flow got stretched due to an increase in working capital requirements coupled with a deteriorating performance in the power business. We believe that unless the financial performance of power assets improves, the cash generation at the operating level may not be sufficient to service the interest cost over next 2/3 years.
Regards,
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