Adani Enterprises Ltd (AEL) yesterday reported its 2015/16 financial year to March 2016 result.[i] Net profit was US$158m. Results are not comparable to the previous year given the deconsolidation of Adani Power, Adani Transmission and Adani Ports, which halved the book value of shareholders equity to US$2.0bn.
Adani Enterprises remains relatively heavily geared, with net debt of US$2.6bn representing 1.3x book value of shareholders equity (and double the market value of equity of just US$1.3bn). The earnings before interest and tax (EBIT) relative to net interest is a relatively skinny 1.8x (albeit better than Adani Power at just 1.1x). Given Adani is part way into a new US$5-10bn solar investment program. Going ahead full steam on solar (in our view) leaves AEL absolutely no financial capacity to concurrently undertake the high risk A$10bn Carmichael coal proposal.
Adani Enterprises massively stepped up its a new renewable energy division over FY2016. In June 2016 Adani Enterprises will fully commission its new 648MW solar project in Tamil Nadu (60% complete to-date) – which on commissioning will be the largest solar project in the world (to-date). Adani Enterprises reports it has established a further 700MW solar and wind project pipeline over the last 12 months. Additionally, Adani has recently signed a joint venture with the Rajasthan government to develop a 10,000MW solar park. Adani Enterprises has also started construction of a greenfield 1.2GW solar module manufacturing facility in Gujarat, due for completion by March 2017.
IEEFA would reference the world record low US$30/MWh (US$3c/kWh or Rs2.00/kWh) solar tariff announced in Dubai this week, down almost 50% year-on-year (yoy).[ii] This landmark transaction is below the cost of even new domestic coal-fired power generation anywhere in the world even before considering internalizing any price on carbon emissions or water wastage. While India is currently some way behind Dubai given solar PPAs in India are currently Rs4.34-5.00/kWh,[iii] the double digit annual solar cost reductions expected through to 2020 will soon rectify this. New solar in India is already lower cost that new imported coal fired power generation in India.
The Adani Enterprises result provided no new details about the Carmichael coal proposal. Analysts reported no material progress and some continue to speculate about the need for a write-off of the US$1bn book value of Carmichael given the collapse in coal export prices and dormant state of the project.
The historical mainstay of Adani Enterprises is its coal importation business. It is noteworthy that this division reported a 23% year on year decline in EBIT to US$145m for FY2016. The CEO forecast in February 2016 that Indian thermal coal imports into India peaked in FY2015 and are likely to decline at a 7% CAGR through to 2021. This is a major downward revision in AEL’s import forecasts.[iv]
In contrast, AEL reported its domestic Indian coal mining at Parsa Kente grew 85% yoy to 5.5Mt in FY2016, directionally consistent with AEL’s expectation that captive private coal mining across India should grow at an 18-20% CAGR through to 2021, consistent with Energy Minister Goyal’s targets. In contrast, AEL’s Indonesian coal mining unit produced 5.2Mt in FY2016, operating less than half expected capacity seven years into operation there. Not a great test case of AEL’s foreign coal mining capacity to deliver on targets.
The Adani Enterprise result appears to have failed to shed any light on the progress of the two multi-billion dollar fraud investigations reported to be underway by the Indian Government’s DRI into Adani Enterprises subsidiaries and officials.[v] [vi] [vii] IEEFA would think either or both would be of material relevance to AEL shareholders.
IEEFA would note that Adani Enterprises holds an analyst briefing, but the company has not yet made its disclosures there available to all shareholders. Should anything new emerge once this presentation is available, IEEFA will update our comments accordingly.
[iii] http://economictimes.indiatimes.com/industry/energy/power/solar-projects-continue-to-attract-bids-less-than-rs-5-per-unit/articleshow/52100359.cms
[vii] http://www.dnaindia.com/mumbai/report-20-power-c
Tim Buckley is IEEFA director of energy finance studies, Australasia.
