Adani -Solid PAT Growth … But Boosted by Other Income :: Citi

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Adani Enterprises (ADEL.BO)
Alert: Solid PAT Growth … But Boosted by Other Income
 Solid growth….but boosted by other income – ADE’s 2QFY11 Recurring PAT at
Rs5.6bn was up 320% YoY led by 9% YoY growth in sales and 554bps margin
expansion. Recurring PAT was boosted by Rs2.2bn of other income. The company
also had exceptional items of Rs434mn on QIP expenses and Rs129.9mn of
amalgamation expenses.
 ….and below CIRA expectations – Recurring PAT was 7% below CIRA expectations
of Rs6bn at the PAT level and 27% below CIRA expectations of Rs8.3bn at the
EBIT level. EBIT margins at 10.4% were below CIRA expectations of 12.2% on
account of slippages in power, ports and EBIT losses in agro/ real estate.
 Adani Power’s 2QFY11 PAT was 17% below estimates – 2QFY11 PAT at Rs1.26bn
was 17% below CIRA estimate due to strong monsoons which led to lower
realizations in merchant market/ lower generation/ higher fuel costs.
 Maintain Hold (2L) with a target price of Rs706 – When we initiated coverage on
ADE in October 2009 there was a clear valuation gap between market
capitalization of ADE and the value of the company’s stake in Adani Power,
trading, coal mining, real estate and agri business. However, post significant
outperformance over the last year, we believe the easy money is off the table and
hence we maintain our Hold (2L) rating on the stock. One can argue that the stock
trades at inexpensive valuations of 12.8x P/E FY12E. However, one has to
remember that to be trading at those multiples ADE has to multiply FY10 PAT 6x
over the next 2 years and we believe there are more downside risks to our FY12E
estimates than upside risks. Further, cash flow and asset based valuations look
stretched.