Adani Enterprises' Q3FY20 results (Neutral) - Coal trading volume grew by 24% yoy
Q3FY20 result highlights
- Coal trading volume grew by 24% yoy to 20.4mt while MDO volume came in at 4.8mt, a growth of 28% yoy. Besides, solar volume also grew by 102% to 283MW. As a result, revenue grew by 5% yoy to Rs109bn in Q3FY20 (offset by decline in International coal prices).
- EBITDA for the quarter grew by 71% yoy to Rs7.6bn (vs est of Rs7.3bn). Increase in volumes was primarily on account of strong volume growth in trading (ICM), MDO and solar business.
- Adani Wilmar JV reported EBITDA of Rs3.5bn/Rs9.6bn in Q3FY20/9mFY20. Other income for the quarter was Rs1.3bn (vs Rs1.2bn in Q3FY19). As a result, adjusted PAT came in at Rs4.3bn (vs est: Rs3.0bn) in Q3FY20.
- Australian 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
- MDO Business: MDO business continues to see traction with opening of two mines during 9mFY20. Guidance of MDO business volume for FY21E is 30mt.
- Airport and road business: Airports - AEL had won six airport bids that were invited by the Airports Authority of India. During Q2FY20, Cabinet has approved the leasing of three airports to company for 50 years. The airports are likely to be transferred to company by Q1FY21.
Key positives: Start in production in Gare Pelma I, II and III mines; strong coal trading volumes
Impact on financials: Upgrade our estimate for FY20E/FY20E to account for increase in ICM volume. Increase our target price to Rs240; introduce our FY22E estimates.
Valuations & view
AEL 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 a higher valuation (19xFY20E), we maintain Neutral with revised SOTP based price target of Rs240/share.
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.
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