ADANI ENTERPRISES
•
Coal fired
Higher coal volume and stellar Mundra Port show boost earnings
May 12, 2011
Adani Enterprises’ (AEL) Q4FY11 consolidated earnings, at INR 9.28 bn,
surpassed our estimate (INR 5.2 bn) due to higher-than-expected coal volume
Reuters: ADEL.BO Bloomberg: ADE IN
traded during the quarter. The performance was further augmented by margin
improvement and higher profitability in Mundra Port. Tax writeback of ~INR 503
EDELWEISS 4D RATINGS
mn and interest income of ~INR 300 mn further catapulted earnings. HOLD
Absolute Rating
AEL is anticipating capex of ~USD 7–8 bn (to be funded via QIP funds, internal Share in issue (mn) : 1,099.8
M cap (INR bn/USD mn) : 701 /15,584
accruals and debt) for developing the Galilee coal mine, which is expected to Avg. Daily Vol. BSE/NSE (‘000): 992.8
commence operations from FY16. The agreement with PT Bukit Asam will also
SHARE HOLDING PATTERN (%)
entitle the company to transport and ship up to 60 MTPA of coal with an
investment of USD 1.65 bn for port and rail infrastructure. While these benefits Promoters* : 78.3
Others : 4.9
Subsidiaries, in full throttle, to maintain robust growth momentum * Promoters pledged shares
: 0.7
(% of share in issue)
During the year, AEL’s subsidiaries posted strong growth. For FY11, Mundra Port
PRICE PERFORMANCE (%)
handled 51.7 MT (up 28% Y-o-Y) cargo and is poised to touch the 100-MT mark
Stock Nifty EW Power
by FY13E. Adani Power, with current capacity of 1,980 MW, is on track to be a Index
6,600-MW company by FY13E with additional 2,640 MW already in advanced 1 month (3.4) (3.8) (4.1)
stage of development.
3 months 7.3 4.8 2.7
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Power
As % of net revenues
Raw material 79.5 88.8 74.5 78.8 68.7 68.8
Employee cost 1.3 0.4 1.6 1.5 1.9 1.8
Other expenditure 2.1 4.1 7.2 4.2 4.9 5.1
EBITDA 17.2 6.6 16.7 15.5 24.6 24.4
Reported net profit 10.2 4.3 8.4 9.4 12.5 10.3
Table 1: SOTP
Business Value Stake Value to AEL Value per Methodolgy
segment (INR mn) (%) (INR mn) share (INR)
Adani Power 209,545 70.5 147,729 134 NPV
MPSEZ 310,733 77.5 240,818 219 NPV
Real estate 11,008 100.0 11,008 10 NAV
Trading 58,960 100.0 58,960 54 6x FY13E PAT
Cash 40,000 40,000 36
SOTP 498,514 453
Source: Edelweiss research
Company Description
The Adani Group, founded in 1988, is one of the fastest growing business houses in
India. It has its roots in its flagship company, Adani Enterprises (erstwhile Adani
Exports), which was established by Mr. Gautam S. Adani in 1988 as a partnership firm
with an initial capital of INR 0.5 mn. The company is currently involved in multiple
business lines including trading, power generation coal mining and real estates.
Investment Theme
AEL has embarked on an ambitious business diversification and expansion plan. Its
business diversification, among various initiatives, includes entry into power generation,
infrastructure development, coal mining, and also developing and managing agro silos.
The company’s diversification plan is an initiative to enhance margins, profitability and
return on assets.
• The company is scaling up operations of and expanding its subsidiaries Adani Power
and Mundra Port with an intent to make them one of the leading players in their
respective sectors.
• The company is planning to leverage its success in India by pursuing port and
mining assets in Australia and Indonesia.
Recently, AEL was awarded the Preferred Proponent status for development of
port in Dudgeon, Queensland, Australia.
• These initiatives are part of vision 2020 wherein AEL will mine 200 mt of coal,
Mundra Port will handle 200 mt of cargo, and Adani Power will have a generation
capacity of 20 GW.
Key Risks
• Execution challenge
The biggest challenge for AEL is the execution risk of its projects in the pipeline. As
of now, it has only the trading business to fall back. The growth is coming from
projects that are in the pipeline.
Financial Statements
Operating ratios
Year to March FY09 FY10 FY11E FY12E FY13E
Total asset turnover 2.2 1.3 0.7 0.5 0.6
Fixed asset turnover 19.2 8.0 2.0 1.0 1.1
Equity turnover 10.2 5.7 2.0 1.3 1.5
Du pont analysis
Year to March FY09 FY10 FY11E FY12E FY13E
NP margin (%) 1.9 3.5 9.6 12.5 10.3
Total assets turnover 2.2 1.3 0.7 0.5 0.6
Leverage multiplier 4.8 4.5 3.0 2.7 2.7
ROAE (%) 19.9 20.3 18.7 16.1 15.8
Valuation parameters
Year to March FY09 FY10 FY11E FY12E FY13E
Diluted EPS (INR) 10.3 18.4 23.0 34.6 39.2
Y-o-Y growth (%) 35.1 78.5 25.0 50.5 13.6
CEPS (INR) 12.0 21.4 28.0 44.8 58.6
Diluted PE (x) 61.9 34.7 27.8 18.4 16.2
Price/BV (x) 10.4 5.3 3.3 2.7 2.5
EV/Sales (x) 1.5 1.8 3.5 3.3 2.4
EV/EBITDA (x) 40.9 28.1 23.3 14.1 10.2
Dividend yield (%) 0.2 0.1 0.2 0.1 0.1
ABSOLUTE RATING
Ratings Expected absolute returns over 12 months
Sector return is market cap weighted average return for the coverage universe
within the sector
SECTOR RATING
Ratings Criteria
Overweight (OW) Sector return > 1.25 x Nifty return
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Board: (91-22) 4009 4400, Email: research@edelcap.com
1,400
800
Hold
650 1,150
Hold
(INR)
Hold
500 Hold 900
350 650
200
400
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Edelweiss Research Coverage Universe Date Company Title Price (INR) Recos
Buy Hold Reduce Total 11-May-11 NTPC Tax grossing up saves the 177 Hold
day; Result Update
Rating Distribution* 118 51 17 189
* 3 stocks under review 10-May-11 PTC India Firing on all cylinders; 89 Buy
Result Update
> 50bn Between 10bn and 50 bn < 10bn
09-May-11 GVK Power Further strains on balance 24 Hold
Market Cap (INR) 111 61 17 & Infra. sheet;
Result Update
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