Adani Enterprises' Q2FY20 results (Neutral) - Weak MDO volumes
Q2FY20 result highlights
- Adani Enterprises (ADE) reported revenue of Rs85bn in Q2FY20, a decline of 7.5% yoy led by decline in sales in ICM (-22% yoy to Rs55bn due to decline in International coal prices) and Mining & Services business (-25% yoy to Rs3.4bn led by decline in MDO volumes due to monsoons). Solar Module business grew by 59% yoy to Rs5.9bn
- EBITDA for the quarter declined by 14.5% yoy to Rs3.8bn (vs est of Rs7.6bn) with the EBITDA margin at 80.7% (vs 82% in Q2FY19). Decline was primarily due to decline in volumes in trading (ICM) and MDO volumes.
- Adani Wilmar JV reported EBITDA of Rs2.4bn (vs NIL in Q2FY19) in Q2FY20. Other income for the quarter was Rs1.6bn (vs Rs1.1bn in Q2FY19). As a result, adjusted PAT grew by 34% yoy to Rs1.9bn (est: Rs2.6bn) in Q2FY20. Reported PAT was Rs495m due to one-time write off of Rs1.3bn (expenses incurred in exploration of an unviable oil block).
- Airport and road business: Airports - AEL had won six airport bids that were invited by the Airports Authority of India. During the quarter, Cabinet has approved the leasing of three airports to company for 50 years. The airports are likely to transferred to company by Q1FY21. Besides, it has also technically qualified to bid for Noida Airport.
- Mining business: During Q1FY20, AEL had received final approval for Carmichael mine. Initial estimates of equity requirement are pegged at USD75m (balance will be funded by debt of USD400m and equipment lease of USD95m; capacity to be 15mt). Production is likely to start from June 2021. MDO operations are likely to pick up in FY21E with opening of Gare Pelma I, II and III and Talabrira Mines.
Key positives: ADE qualified to bid for Noida Airport; opening of Gare Pelma I, II and III mines and Talabira 2&3 mines
Key negatives: Decline in EBITDA for trading business
Impact on financials: Maintain our earnings estimates
Valuations & view
ADE offers a unique combination of coal mining and coal logistics businesses. The domestic coal MDO business offers good growth potential with a large number of captive coal mines having been auctioned / allocated. AEL has won a number of bids in long gestation roads and airports business. Considering strong performance in mining and MDO business, final approval for Carmichael mine and cheap valuation (9.7xFY20E), we maintain Neutral with revised SOTP based PT of Rs220.
Adani Enterprises is a global integrated infrastructure player with businesses spanning coal trading, coal mining, oil & gas exploration, ports, multi-modal logistics, power generation & transmission, gas distribution and edible oil & agro commodities. Co.'s business has three components: resources, logistics and energy. Resources means obtaining coal from mines and trading; in future it will also include oil and gas production. Logistics denotes a network of ports, SEZ and multi-modal logistics - railways and ships. Energy involves power generation & transmission and gas distribution.
IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.
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