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Adani Enterprises Ltd.
Visibility 100mtpa of India coal
production improve
Wins coal MDO contract of 40mtpa / 1.6bt mine; Buy
After winning rights to mine 100mtpa of coal globally, ADE has won a MDO
contract to mine coal from Chhendipada coal blocks in Orissa with mineable
reserves of 1.6bt, which will take the group to 110mtpa domestic coal production.
ADE has won MDO contract from UCM Coal Co. (3 states) to mine 40mtpa @
tariff of Rs1038/tn, which could potentially add ~7-8% to SOTP and also create
value in its power business. Buy ADE on EPS CAGR of 61% over FY10-12E.
Catalysts: 1) 14x scale-up in its IPP to 9.2GW by FY14E, 2) 2.7x revenues at
MPSEZ on doubling of port traffic & pick-up in SEZ sales and 3) winning of new
mining contracts & multifold rise in coal mining output above 110mtpa by FY18E,
makes ADE one of the few large coal play in India.
An attractive MDO to reach 110mtpa with power upsides
ADE control over coal mine to power value chain is the key drver of its superior
RoE. Its Chhendipada Mine Developer cum Operator (MDO – see Exhibit 1 & 2)
contract will drive economies of scale as this block is not only close to its 50mtpa
(of the 70mtpa MDO – see table 1) mine at Machhakata but ADE also has right to
use the 11-12 million coal rejects from the washery to fire the 2GW power plant.
Mine development will take 4 years and our initial analysis point to ~7-8% addition
to SOTP plus option value in IPP. Adani is likely own an 89% stake and UCM
11% in the power JV.
MDO to supply coal to UP, Chattisgarh & Mahagenco
ADE has won MDO contract from UCM Coal Company (UCM) to mine coal from
the Chhendipada and Chhendipada II coal block in Orissa. UCM is a JV company
of UP Rajya Vidyut Utpadan Nigam, Chhatisgarh Mineral Development Corp.
(CMDC) and MAHAGENCO. The scope of work envisages acquiring land, design,
engineer, develop, operate, maintain the mine, supply to wash coal to UPRVUNL,
CMDC and MAHAGENCO. The peak production of the mine is 40 million tpa.
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