ADANI ENTERPRISES

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INSTITUTONAL EQUITY RESEARCH

JANUARY 2016
Adani Enterprises
Research Report_______________________ BUY

Coal trading margin, exceptional gains drive Q3

Quick Stats
Coal trading profitability rose sharply to ~USD 1.9/t, ahead of recent track
record of USD 1.3/t in previous 4 quarters. However, this is still much below CMP 77
historical margin (USD 6-7/t). Volume was strong at 21.8 MT (up 13% YoY).
There have been significant exceptional gains in Q3. ADE received AUD 46 mn TARGET PRICE 155
(Rs 2.3 bn) from Rio Tinto and will receive another AUD 92 mn (Rs 4.6) over 6
months. Rio Tinto had earlier signed a deal with ADE to use Abbot Point Coal
MARKET CAP Rs 100 Bn
Terminal to export coal (~9.3 MT pa) on take or pay terms. As mining
operations by Rio has not taken off yet, Rio and ADE came to an agreement
that Rio would pay AUD 138 mn to ADE. Further, in its India MDO business, No. Of Shares 1100 mil
ADE won arbitration of Rs 2.3 bn in 9MFY17 (Rs 0.2 bn in Q3) regarding non-
lifting of contractual coal. 52 WEEK HIGH 100
Concerns
 Slowdown in real estate sector 52 WEEK LOW 58
 Regulatory changes
 Rising competition from banks and peer companies
 Asset quality might worsen
 Property investment could dilute returns
 Auditors not from top tier firms

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Company Overview
Adani Enterprises Limited is the flagship entity of the Adani group which was the erstwhile adani Exports Limited and was the first of
the listed companies. Adani Enterprises started as a trading firm dealing in myriad commodities. Over a period of time, coal became
its main stay and after it emerged as India’s leading coal importer, it made forays into multiple sectors as forward and backward
integration. The companies that emerged hence were Adani Ports and special Economic Zone Limited and Adani Power and recently
Adani Transmission Limited.

Among other businesses, this led Adani Enterprises into City Gas distribution through the supply of PNG and CNG, Bunkering
business at various ports in the East and West coasts, Coal mining and pioneering as Mine Developers and Operators (MDO) for
many state electricity public sector units who were allocated captive coal blocks; and last but not the least, Solar Energy generation
through large solar power plants. The Main business segments are
 Renewable Energy
 Trading
 Mining
 Gas Distribution
 Agro

RENEWABLE ENERGY

With depleting fossil fuel reserves and environmental concerns, renewable energy appears to be the long-term sustainable solution.
Indian Govt. has set a target to install 175GW of Renewable power capacity by 2022. Out of that, 100 GW will be Solar PV and 60 GW
will be Wind power.

In line with this, the Company invested in a 40 MW solar power plant in Bitta (Gujarat) marking Adani Enterprises’ major extension
into the renewable energy sector (December 2011).

The Company has since raised its benchmark: its 648 MW solar power plant in Tamil Nadu is the largest single location solar power
plant in the world, commissioned in September 2016.

The Company has also forayed into Wind Power and has commissioned 12MW of Wind Power in Madhya Pradesh by March 31,
2016. Incremental 100MW of Wind Power projects are under various stages of construction in high wind states of Andhra Pradesh
and Rajasthan.

The Company has set a target to install 10,000 MW of Renewable Power capacity by 2022.

TRADING

Adani Ent are India’s largest and one of the world’s largest coal suppliers. They supply to all major SEB’s and private business houses
in India. They have consistent market share of 34% in India and have grown at CAGR of 28% in the last 7 years. They are the largest
coal importer from Indonesia and have a strong supplier base in South Africa, Australia, USA and Russia. They have now spread our
wings to several new countries, with a dream to replicate our achievements in global arena.

MINING

They are developing and operating mines in India, Indonesia and Australia. Apart from India, They supply coal to China and we aim
to spread our wings to Taiwan, Vietnam, Korea etc. Our extractive capacity of thermal coal has increased threefolds to 4 MMT in
2014 and we aim to extract 200 MMT per annum by 2020, making Adani one of the largest mining groups in the world.

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GAS DISTRIBUTION

Adani Gas a subsidiary of Adani Enterprises Ltd., is developing City Gas Distribution (CGD) Networks to supply the Piped Natural Gas
(PNG) to the Industrial, Commercial, Domestic (residential) and Compressed Natural Gas (CNG) to the transport sector. Natural Gas
is a convenient, reliable and environment friendly fuel that allows consumers to enjoy a high level of safety, convenience and
economic efficiency.

AGRO

Adani’s Agro businesses entails modernizing the agriculture sector and bringing food security with self-reliance through its three
main agro verticals - Adani Wilmar Limited (AWL), Adani Agri Logistics Limited (AALL) and Adani Agri Fresh Limited (AAFL).

Adani Wilmar Limited is one of the largest food company in India with the flagship brand Fortune cooking oils, the number one
edible oil brand in India. With a superior product range including edible oil, Basmati rice, pulses, soya chunks and besan, AWL leaves
no stone unturned to deliver products that contribute towards a healthier India.

Adani Agri Logistics is proud to have established India’s first integrated bulk handling, storage & logistics system for food grains. It
provides seamless end-to-end bulk supply chain to Food Corporation of India. With state-of-the-art silo and rail terminals in major
cities, Adani is changing the future of food security in India

Further, with ‘Farm-Pik’, Adani Agri Fresh Limited AAFL has instituted the largest integrated apple supply chain initiative with ultra-
modern storage infrastructure in the country to provide fresh farm products to its consumers and improve the livelihood of the
farmers across the nation.

Investment Thesis

 Adani Green Energy Ltd (51% subsidiary) executed the largest single-location solar project of 648 MW in Tamil Nadu at a
cost of Rs 45 bn. Currently, it has operating capacity of 734 MW of renewable energy. Management has plans to ramp up
renewable capacity to ~2 GW in future
 9MFY17 mining performance: Domestic coal mining rose 38% YoY to 5.12 MT, while Indonesian Bunyu mine output was
3.11 MT. Indonesia mine faced abnormal rains in Q3; ADE mentioned that there could be some shortfall in its target of ~5.5
MT (FY17). MDO is a key focus area going forward. ADE is confident about opportunities, as private power generation
companies and some state enterprises are likely to outsource coal mining
 Depreciation rose sharply to Rs 2.1 bn (Rs 1 bn in Q2) as ADE has moved to WDV method (higher depreciation rate) from
Q3, vs. SLM earlier
 We revise our estimates to factor in exceptional gains (Q3 and money receivable from Rio Tinto over next 6 months) and
higher coal trading profitability. Maintain HOLD with revised TP of Rs 83 (Rs 72 earlier)

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Financial Summary

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