Adani Enterprises - Mixed Performance; Coal Mining Key; Result Update Q2FY15 :: Edelweiss, PDF link

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Adani Enterprises’ (AEL) reported consolidated Q2FY15 PAT of INR2.1bn, which was higher than estimated INR1.8bn despite higher-than-estimated loss in Adani Power (APL), partially aided by tax write-back. While the coal trading volumes were lower than estimated, higher trading margin of 8% versus 5.5% negated the impact. Management is hopeful that the Coal Mines Ordinance 2014 will ensure minimum impact of cancellation of coal blocks by the Supreme Court on the Mine Development Operator (MDO) business. We remain positive on domestic coal MDO opportunity with clarity set to emerge post coal block allocation/bidding.

Higher coal trading margins offset dip in volumes

AEL reported consolidated Q2FY15 PAT of INR2.1bn higher than our estimate of INR1.8bn despite higher-than-estimated loss of INR8bn reported by APL for the quarter, partially aided by tax write-back. Other businesses (primarily agro and city gas) contributed INR800mn to EBITDA also supported earnings. While the coal trading volume at 11.5MT was lower than estimated 15MT, higher trading margin of 8% versus 5.5% estimated ensured in-line EBTIDA contribution of INR4bn (est. of INR3.8bn). AEL is targeting 50MT plus volumes in FY15, while retaining its margin focus.

Minimal impact on domestic coal MDO business

On the coal block de-allocation by the Supreme Court, management maintained that they are confident the state government entities will be allotted back the de-allocated coal blocks albeit on payment of reserve price as outlined in the Coal Mines (Special Provisions) Ordinance, 2014. This will ensure impact on domestic coal MDO business is minimal (total investments till date is INR21bn, equity of INR9bn).

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