Adani Enterprises- MDO pipeline grows, wins 4th contract :JPMorgan

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Adani Enterprises Ltd Neutral
ADEL.BO, ADE IN
MDO pipeline grows, wins 4th domestic contract



• Contract to develop and operate a 1.6BT coal block in Orissa. ADE
won another MDO contract in Orissa from 3 SEBs for 1.6B tonnes of
coal reserves. The Chendipada block will have a mining capacity of
40MTPA. Mgmt. expects to secure all clearances, complete land
acquisition and commence production within 4 years. The washed coal
will be supplied to the power plants in UP, Rajasthan, Chhattisgarh and
Maharashtra.
• 200MTPA by 2020. With the addition of the Chendipada coal block,
ADE’s peak production of domestic coal from current MDO agreements
should touch 110MTPA. Adani Enterprises is targeting 200MTPA of
coal production within India itself by 2020. The company has also bid
for another block (Mahanadi, next to the Machhakatta coal block) in
Chhattisgarh with a production capacity of 30MTPA.
• Current 3 mines to hit 70MTPA of peak production by FY18: As yet,
the company has been allocated three mines in India based on a
competitive bidding process totaling 1.8BT in reserves and peak
production capacity of 70MTPA (pre washing) by FY18 in our estimate
including Machhakatta 50MTPA, Parsa Kente 15MTPA and Parsa
5MTPA. According to mgmt., the PK block will be the first to
commence production (Jun 2011); while all other clearances have sorted,
land acquisition and forest clearance in pending. For the Machhakatta
block, we expect production to commence in FY13 – land acquisition is
still in progress while the mine plan has been approved, financial closure
is complete and exploratory stage is over. The Parsa block is still at a
very nascent stage, we estimate production to commence in FY14.
• More pipeline for Adani Power. In addition the Adani Group will be
setting up a 2GW thermal power plant utilizing the rejects from the coal
washery. Adani will have an 89% stake in the project and the balance
11% will be owned by JV formed by the three SEBs. In our view, this
would most likely be developed by Adani Power which currently has
~1GW of operating capacity, 5.6GW under construction and 6GW at the
development stage.
• Potential accretion to SOTP. Our Mar-11 SOTP PT of Rs640 includes
Rs69 for MDO operations. The addition of the Chendipada coal block
could lead to a potential accretion of Rs40-45/share. We await details on
realizations and margins. Key risks to our PT: commissioning delays and
lower merchant prices for Adani Power; slower traffic growth and SEZ
development for Mundra Port and higher than estimated mining costs
and production delays for the MDO business.