Adani Enterprises’ Profits Jump On Divestment Income

Adani Enterprises, the flagship company of Adani Group, posted 8% growth in its topline to Rs 11513 crore in the fourth quarter of FY13. The net profit for the quarter also rose sharply by 51% to Rs 458.67 crore due to the divestment income of Rs 444.70 crore.

Trading is the largest business of the company which contributes more than half of the group revenues. During the quarter, the company has reported a 52% rise in its trading business, which touched Rs 5156 crore. Its Agro business, the second largest segment, has reported a huge jump in revenues to touch Rs 2626 crore in Q4FY13 from Rs 697 crore in the previous year same quarter. Its ports business, which brings in around 7% of the total revenues, has risen by 76% to Rs 489 crore. The power business, which accounts for 16% of the revenues, has seen its revenues going up by 80% to Rs 1924 crore during the quarter on the back of new capacities being commissioned.

During the quarter, the EBITDA margins of the company expanded by 364 basis points thanks to the huge decline in material costs. The employee expenses and other expenses have increased by more than 40% on a year-on-year basis.

The margins of the individual businesses have shown an inconsistent performance. The trading business has disappointed, as its PBIT margins have declined by 400 basis points from more than 10% a year ago to 6% in the quarter in review. The power business is already a drag, with its margins continuously running in the negatives for many quarters in row. The ports business has reported a drop in margins on a sequential basis, but has expanded on a year-on-year basis. The Agro business, whose margins remained below 2% in the corresponding quarter last year, has registered a margins expansion of 3.3%. The high revenue growth has also translated into profits for the company.

Adani Enterprises has also reported an exceptional gain of Rs 444 crore, which is on account of its divestment in the Abbott terminal in Australia. The interest expenses more than doubled to Rs 987 crore during the quarter. The tax rate remained at 34%, which was a little higher than the year ago tax rate of 29%.

In the said period, the company has started delivery of coal from the Parsa-Kante coal block in Chhattisgarh to its Rajasthan utility. It has also said that both the ports (Dahej and Mundra) have performed well during the quarter.

The Central Electricity Regulatory Commission (CERC) has recently ruled in favour of Adani Power in connection with its Mundra power project, allowing it to recover higher fuel costs in its projects from state electricity boards. The company, however, needs to contest the case further before the Appellate Tribunal for Electricity (Aptel) to be able to raise the tariffs. The power business may eventually provide a fillip, but one has to wait for some time until a final decision comes in.

The huge debt of the company remains a concern. For FY13, the short-term and long-term debt of the company is more than Rs 60000 crore. The poor cash flow from the businesses has added to the bearish sentiment. We are not positive on this counter and hence advise investors to avoid the stock.