Adani Enterprises Report Decline In Profits, Interest Cost Jumps 50%

Marred by the disappointing performance of the power business, Adani group's flagship company Adani Enterprises has reported a 38% decline in its net profit to Rs 229 crore. Its topline, however, witnessed a growth of 51% to Rs 13,649 crore on a YoY basis.

The performance is stark contrast to its topline growth as all its key business segments have seen strong momentum during the quarter. Its largest business segment - trading - reported a growth of 29% on a YoY basis during the quarter. The Power business grew by 56% on a YoY basis, largely due to the huge capacity additions in the quarter. In its ports business, it reported a 75% growth, while in the Agro business, growth was at 17%. Other categories of the business reported a 13% growth.

Though all its businesses have shown a robust growth, the Profit Before Interest and Tax (PBIT) margins in each of them have come down heavily. In its Trading business, PBIT margins have dropped from 23.69% a year ago to a mere 8.50% in the Dec quarter. The Power business, which is also listed on the bourses, has reported losses at the operating level due to the higher coal prices in the international markets. Margins of the Ports business, another listed entity, have also halved from Dec 2011 quarter level of 27% to 11.18% in the quarter under review.

A significant erosion of margins in each of the business is a great concern, considering the fact that the three listed entities of the Adani group together have a market cap of nearly Rs 71,500 crore of which nearly Rs 16,500 crore is held by the public.

Besides having seen margins pressure in each of its business, its interest cost has also surged to Rs 1,068 crore from Rs 708 crore a year earlier. Its interest cover ratio has also come down significantly from 2.2x in the Sep 2012 quarter to 1.4x in the Dec 2012 quarter. The lower interest cover ratio is a worrying factor, considering the Profit before tax, in case the cash flows don’t improve going ahead.

The management of Adani Enterprise, however, seems very optimistic on its power business as it is set to add huge capacities in the next two months. This will take its capacity to 10,000 MW. The power business, however, has shown an absolute dismal performance during the first three quarters and new capacity addition due to higher coal prices is likely to erode the performance of Adani Enterprises.

As the outlook still remains grim on each of its business, we would advise our readers to give a skip to the Adani enterprises.