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Research
Adani Enterprises - Lower coal trading dents business - Edelweiss
Posted On : 2012-05-23 11:07:53( TIMEZONE : IST )
Adani Enterprises (AEL) reported INR3.1bn PAT lower than our (INR5.8bn) and consensus (INR8bn) estimates. Apart from losses in Adani Power, earnings dipped largely due to only 6.5MT of coal trading against the 9mFY12 average of ~9MT. EBIT margins were maintained at 8.2% as agro and other businesses offset decline in coal trading margins. With domestic coal mining operations being the next trigger, we maintain 'BUY' with a target price of INR398/share.
Robust other businesses offset coal trading earning decline
AEL reported coal trading volume of 6.5MT with ~8% EBITDA margin (~USD8/tonne), lower than ~9-11% reported during earlier quarters of FY12. Agro and other businesses reported INR3.2bn EBITDA, which cushioned AEL's earnings (excluding power+port) at ~INR3bn against our estimate of INR3.5bn. Management indicated that due to high imported coal prices, SEBs resorted to lower imports and this is expected to continue for a couple of quarters more. However, with scaling up of Adani Power capacity, management is targeting ~45MT coal trading in FY13.
Real estate sale to reflect in H1FY13; gross debt at INR680bn
Sale of the real estate business is expected to be concluded in the medium term at par, yielding ~INR3bn (post debt repayment). The gross debt at ~INR680bn (~INR600bn net) comprises power (INR360bn), port (INR170bn), real estate (INR20bn) working capital (INR55bn), mining business (INR33bn) and other businesses (INR30bn).
Outlook and valuations: Attractive; maintain 'BUY'
Management expects to commence MDO operations in one of the three mines shortly and also to conclude financial closure for Australian mines by FY13 end. AEL is now focussing on infrastructure-related businesses and its core expertise areas of coal, power and ports. We have lowered coal trading estimates as well as margins in line with stable/decline coal price environment. Further, adjusting for revised Adani Power fair value we have cut our SOTP-based target price to INR398/share (earlier INR435) excluding the option value for the domestic coal mining business of ~INR121/share. With domestic coal mining operations being the next earnings trigger we maintain 'BUY/Sector Performer'.
