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Event update: Adani Enterprises (Outperformer) - Restructuring to create a pure-play renewable business

Adani Enterprises (AEL) has approved the de-merger of its Renewable Energy business and its transfer to Adani Green Energy (AGEL).

Details

AEL’s renewable energy business unit comprises (i) trading and supply of solar and wind energy equipment and (ii) 100% stake in Prayatna Developers Private Limited (PDPL), which is developing 220MW of solar power projects. AEL also owns a 47.2% stake in AGEL, which is a dedicated renewable power development arm of the group (balance 52.8% owned by the promoters and promoter group). The current scheme involves the transfer of the renewable energy business unit of AEL to AGEL.

As a consideration, AEL shareholders will get 761 shares of AGEL for every 1,000 shares held by them in AEL. (Promoters own 75% of AEL.) The current shareholding of AEL in AGEL will be cancelled. AGEL will be listed on the stock exchanges once the de-merger and transfer is complete. The appointed date for the scheme has been fixed as 1 April 2018. The transaction is likely to be completed by Q1FY19, subject to receiving necessary approvals. Post-transaction, the promoters will hold 86.6% in AGEL with the balance being held by public shareholders. AGEL will comply with the minimum 25% public shareholding norm within one year of listing of AGEL.

AGEL will have a combined renewable energy portfolio of 2,148MW, of which 1,118MW are operational. The remaining projects are under implementation and are likely to be commissioned by March 2018. The average tied-up tariff for the portfolio is Rs5.12/unit.

Our view – Positive for AEL

The de-merger and independent listing of AGEL is very positive for AEL for these reasons – a) it simplifies the shareholding structure wherein AGEL is directly held by the promoters and minority shareholders and unlocks value in the renewables business, b) it gives management greater focus on the renewable business, c) provides scope for collaboration and expansion, d) gives more financial flexibility to raise growth capital. In addition, an independent listing would attract those investors who may not have wanted exposure to AEL’s energy resources businesses like coal mining/coal trading. The transaction values AEL’s renewable energy business at Rs25/sh, significantly above our current estimate of Rs15/sh. We maintain our Outperformer rating on AEL with an SOTP-based price target of Rs132.