Equity Research

March 31, 2008 INDIA

BSE Sensex: 15644
Adani Enterprises BUY
Morphing to excel Rs601
Diversified Reason for report: Initiating coverage
Adani Enterprises (AEL) is set to ride the Indian Infrastructure growth wave by
transitioning from being a leading trading house to a diversified infrastructure
Shareholding pattern player. Aggressive plans in power generation and real estate (supported by other
Jun Sep Dec
'07 '07 '07 expanding businesses) would result in 26% revenue CAGR and ~900bps EBITDA
Promoters 66.9 75.0 75.0 margin expansion, implying 92% earnings CAGR over FY08E-11E. Huge capex
Institutional
investors 16.6 11.9 14.9 outlay of ~Rs510bn in the next four years would entail ~28% equity dilution. Our
MFs and UTI 1.8 1.8 1.9 sum-of-the-parts (SOTP) based valuation suggests 12-month target price of
Insurance Cos. - - 0.0
FIIs 14.7 10.1 12.9 Rs908/share. Material upside could accrue from better yields and new projects in
Others 16.5 13.1 10.2 power/real-estate, coal mining & oil exploration. Initiate coverage with BUY.
Source: NSE
f Riding the infrastructure growth wave. AEL is undergoing a transition from being
a pure trading house to diversified infrastructure play, focussing on fast growing
segments such as power & real estate. In the next 4-5 years, it plans to set up
9,900MW power generation capacity, develop ~105mn sqft residential/commercial
Price chart property and townships, engage in coal mining with 440MMT available reserves, set
up oil & gas exploration units and introduce new agri storage & transportation
1400
1200
options apart from expanding its existing trading business.
1000 f 9,900MW capacity valued at Rs256bn, aided by access to low cost fuel. 80% of
800 the 9,900MW capacity is likely to be sold on merchant basis as of now. Access to
(Rs)

600 low cost coal from owned mines in Indonesia and Maharashtra would aid the power
400 business equity value at Rs256bn translating into Rs623/share for AEL’s stake.
200
f Real estate development of 105mn sqft to add Rs79bn. AEL is developing two
0
integrated townships in Gujarat (Ahmedabad and Mundra) spanning ~96mn sqft
Jun-07
Jul-07

Nov-07
Jan-08
Mar-08
Sep-07
Apr-07

combined. Balance is split across three projects in prime locations at Mumbai, Kochi
and Surat with residential, commercial and retail spaces. We estimate an equity
value of Rs79bn (Rs191/share for AEL stake) for this segment.
f Existing trading and other businesses valued at Rs75bn. AEL’s existing trading
business is expected to post 18% CAGR over FY08E-11E, led by robust growth in
agri and coal trading. We have valued this segment at Rs43bn. Coal mining for
Rajasthan state electricity board, stake in the JV with the Wilmar Group, city gas
distribution and other agri-related businesses are valued at Rs32bn.
f SOTP valuation suggests Rs908 fair value post 10% corporate discount and 28%
dilution (without any contribution from the oil & gas business). Upside to emerge
from: i) higher yields in power tariffs or property prices, ii) acquisition of more mining
assets, iii) successful venture in oil exploration and iv) lower equity dilution through
funding at subsidiary level. Initiate coverage with a BUY.
Market Cap Rs148bn/US$3.7bn Year to March FY08E FY09E FY10E FY11E
Reuters/Bloomberg ADEL.BO/ADE IN Revenue (Rs mn) 197,444 247,687 323,268 397,934
Shares Outstanding (mn) 246.5 Net Income (Rs mn) 3,141 3,042 9,952 23,826
52-week Range (Rs) 1,274/205 EPS (Rs) 12.0 9.1 29.7 71.0
Free Float (%) 25.0 % Chg YoY 66.3 (24.4) 227.1 139.4
FII (%) 12.9 P/E (x) 50.0 66.2 20.2 8.5
Daily Volume (US$'000) 11,000 CEPS (Rs) 16.2 18.2 49.9 107.4
Absolute Return 3m (%) (50.2) EV/E (x) 29.9 21.3 12.0 9.0
Poonam Nishal Absolute Return 12m (%) 193.4 Dividend Yield 0.1 0.1 0.1 0.1
[email protected]
Sensex Return 3m (%) (22.9) RoCE (%) 7.6 5.1 6.6 8.1
+91 22 6637 7443
Sensex Return 12m (%) 25.6 RoE (%) 20.9 5.9 10.0 18.2

Please refer to important disclosures at the end of this report

Adani Enterprises, March 31, 2008 ICICI Securities
TABLE OF CONTENTS

SOTP valuation suggests 51% upside...........................................................................3

Power generation, largest asset creator forming 62% of value ......................................3
Real estate – Creating real value with 19% contribution ................................................4
Trading & others – constituting 16% of the total value ...................................................5
AEL valued at Rs304bn post 10% corporate discount ...................................................6
Upside to our fair value could emerge from:...................................................................6
Expanding horizons.........................................................................................................7
Pipeline of 9,900MW capacity, valued at Rs256bn, aided by access to low cost fuel ...8
Real estate – Blend of residential & commercial projects, valued at Rs79bn ..............14
Trading – Providing the necessary initial capital, valued at Rs127/share ....................19
Other segments adding another Rs18bn ......................................................................24
Key risks .........................................................................................................................27
Changing face of AEL’s financials ...............................................................................28
Shift from trading to infra = move from current to fixed assets… .................................28
… supported by increasing financial leverage ..............................................................28
Equity dilution of 28% expected to bridge funding gap.................................................29
Expected earnings CAGR of >96% over FY08E-11E...................................................29
Financials........................................................................................................................31
Annexure 1: Power sector – Economic growth to lead demand...............................35
Power demand to continue outstripping supply ............................................................35
Continued investment required even beyond XI Plan… ...............................................36
…but power deficit may still continue… ........................................................................36
…and per capita consumption may increase................................................................37
Opportunity for the private sector..................................................................................38
Few concerns remain… ................................................................................................38
Annexure 2: Indian real estate – proxy on growing economy ..................................40
Foundations still good ...................................................................................................41
Annexure 3: Company background .............................................................................48
Key management profile ...............................................................................................49
Annexure 4: Index of Tables and Charts .....................................................................52

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Adani Enterprises, March 31, 2008 ICICI Securities

SOTP valuation suggests 51% upside

AEL’s traditional business of trading would act as a cash cow and provide necessary
equity for new projects in the beginning; however, to fully fund the capex for all
projects across business segments (power, real estate, oil & gas, trading etc), AEL
requires Rs510bn over the next 4-5 years, of which 59% is expected to be raised as
debt. Of the balance 41% (Rs210bn), we believe Rs60bn is the funding gap which
would need to be bridged with additional equity. We have assumed the equity infusion
at a price of Rs815 (average of past six months), implying a dilution of 28% (excluding
that on account of FCCB conversion).

We have used the SOTP methodology for valuing the company owing to various
earnings streams and each stream being valued differently.

We present below key assumptions and valuation methodology used for valuing each
business segment and sensitivity to key variables.

Power generation, largest asset creator forming 62% of value

All power projects are being developed under APL, which is 86% owned by AEL. We
have valued the projects on FCFE basis with conservative assumptions (Table 1).

Table 1: Valuation for power projects

Projects AEL Stake (%) Equity value (Rs mn) Capacity (MW) Rs mn/MW
Under construction
Mundra 86 110,097 2,640 41.70
Maharashtra 64 52,247 1,980 26.39
162,344 4,620
Recent Projects
Mundra 86 38,770 1,980 19.58
Rajasthan 86 21,692 1,320 16.43
Dahej 86 33,476 1,980 16.91
93,938 5,280
Total 256,282 9,900 25.9
Source: I-Sec Research, Company

Almost two quarters back, 3i Group plc had picked minority stake in APL valuing it at
Rs100bn (the Group’s largest investment in India) for two projects announced till then
– Mundra (2,640MW) and Maharashtra (1,980MW). We have further included the
value of other projects announced by the company over subsequent period. We
estimate the power business value to be ~Rs256bn, i.e. Rs25.9/MW (FY11E P/BV of
4x), higher than the implied valuation for peers owing to higher expected returns in the
range of 15-35% over next 3-4 years (Table 2).

Table 2: Relative valuations for power companies

CMP Mkt. cap RoE EPS (Rs) P/E (x) P/BV (x)
Company name (Rs) (Rs bn) (%) FY08E FY09E FY08E FY09E FY08E FY09E
NTPC 197 1,624 15.0 9.4 10.3 21.0 19.1 3.1 2.8
Reliance Energy 1,251 296 10.2 40.4 46.5 31.0 26.9 2.8 2.6
Reliance Power* 318 476 0.8 0.2 (1.7) NM NM 3.4 3.4
Tata Power 1,172 258 11.4 32.6 33.5 35.9 35.0 3.5 3.1
CESC 412 51 12.9 28.0 30.1 14.7 13.7 1.5 1.4
* Adjusted for the bonus announced
Source: I-Sec Research, Bloomberg

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Adani Enterprises, March 31, 2008 ICICI Securities
We have been conservative in terms of key assumptions such as tariffs, project
execution, fuel prices and discount rates. We present below the sensitivity of power
business value to variation in discount rates and tariffs (Table 3).

Table 3: Power generation valuation sensitivity to tariffs and discount rates

Tariff variation (%)
(Rs bn) -5.0 0.0 5.0
14.0 213 244 275
Cost of equity (%) 13.5 224 256 288
13.0 236 269 302
Source: I-Sec Research

We have not factored in potential upside (in the form of terminal value) from new
projects APL might bag in the future and valued only the present pipeline. APL has
been participating and focussing on multiple new projects, success in which would
provide scope for further upside.

Real estate – Creating real value with 19% contribution

Each real estate project is owned by a separate SPV/subsidiary of AIDPL in
collaboration with local real estate developers. AIDPL in turn is 95% owned by AEL;
though retains the liberty for making critical business decisions.

We have used FCFE method for valuing these projects and taken a high discount rate
to reflect the level of uncertainty associated with respective projects. Our key
assumptions for all the projects are tabulated (Table 4).

Table 4: Valuation summary of real estate

Projects Holding (%) Equity mn sqft Rs/sqft
BKC 85 37,306 2.18 17,113
Khatau 57 8,312 1.90 4,375
Shantigram 71 18,180 41.50 438
Surat 95 4,614 5.65 817
Cochin 95 1,490 3.24 459
Mundra 95 9,338 49.99 187
Weighted sum 79,240 104.46 725
Source: I-Sec Research, Company

Based on these assumptions, we have valued the existing projects at Rs79bn.

Importantly, yields assumed for respective projects are conservative considering
present market rates and that property sale would happen over subsequent quarters.
Also, we have not taken any upside from projects that AIDPL would take up beyond
the announced projects. Sensitivity to yields assumed is high and every 5% change in
yields changes the value 9-10% (Table 5).

Table 5: Real estate valuation sensitivity to property prices and discount rates
Property prices variation (%)
(Rs bn) -5.0 0.0 5.0
0.5 71.1 78.1 85.1
Cost of equity
0.0 72.2 79.2 86.3
variation (%)
-0.5 73.2 80.4 87.5
Source: I-Sec Research

This valuation translates into equity value/sq ft of Rs725, which fares at a premium to
the average of current valuations of peers (Table 6), primarily due to the sharp
correction in the real estate sector since February and ownership of prime properties
like BKC and Khatau.

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Adani Enterprises, March 31, 2008 ICICI Securities
Table 6: Relative valuation of real-estate companies
FY09E Market cap Land bank Value
Companies P/E (x) (Rs bn) (mn sqft) (Rs/sqft)
Unitech 12.6 448.3 689 651
Purvankara 11.4 51.4 110 468
Omaxe 6.4 36.1 170 213
Sobha 12.9 43.9 225 195
Parsvnath 8.2 38.8 125 310
Source: I-Sec Research

Trading & others – constituting 16% of the total value

As mentioned earlier, AEL has a diversified portfolio of products for trading and enjoys
leadership in most segments of its presence. We have valued this segment on the
basis of FY10E P/E multiple, with multiples in 6-9x range, depending on the traded
product (Table 7), suggesting a value of Rs127/share for AEL.

Table 7: Valuation of trading businesses

Holding FY10E P/E Equity value Remarks
Projects (%) (x) (Rs mn)
Agro Commodities 100 9 10,369 High growth, increasing market share
Coal Trading 100 9 15,533 High growth, increasing market share
Power Trading 100 9 339 High growth, increasing market share
POL 100 8 636 Moderate growth, high market share
Iron Ore 100 7 1,744 Decreasing market share
Precious Metals 100 8 8,713 Moderate growth, high market share
Dubai Scrap 100 7 2,137 Decreasing market share
Belekeri Port 100 8 1,919 Moderate growth, high market share
Freight Brokerage 100 6 Decreasing market share, shrinking
1,203 margins
Total 42,595
Source: I-Sec Research, Company

Apart from trading, AEL is also involved in coal mining, oil refining, agri-logistics, fruits
and vegetables storage and handling, city gas distribution and oil exploration. We are
assigning zero value to oil exploration as the business involves high uncertainity, long
gestation and the company lacks proven track record. We have arrived at a equity
value of Rs32.5bn for the rest of the businesses (including coal mining) based on
FCFE/relative valuation, depending on the type of the segment (Table 8), implying a
value of Rs22.7bn or Rs68/share for AEL’s share.

Table 8: Valuation of other businesses (including brief remarks)

Projects Holding (%) Basis Equity Remarks
Coal mining deal 76 FCFE 14,784 Volume build-up to maximum
with RRVUNL capacity over five years, 3%
escalation in service charges
and opex
Adani Wilmar 50 13x FY10E P/E 6,322 Volume led growth, operating
margins to shrink to 2%,
earnings to report over 15%
CAGR
Agri-logistics 100 FCFE 410 Cost of equity 18%, terminal
growth 3%
Agri-fresh 100 FCFE 2,239 Cost of equity 18%, terminal
growth 3%
Adani Energy 65 FCFE 5,676 Cost of equity 15%, terminal
growth 3%, with cues from
financials for GAIL and IGL
32,488
Source: I-Sec Research, Company

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Adani Enterprises, March 31, 2008 ICICI Securities
AEL valued at Rs304bn post 10% corporate discount
SOTP suggests a total value of Rs338bn for AEL, which we have adjusted further to
the extent of 10% for corporate discount to arrive at Rs304bn as the fair value,
translating into Rs908/share as the target price post the required equity infusion.

Table 9: SOTP valuation for AEL

Particulars Equity Value of AEL’s stake
Power Generation 208,908
Coal Mining 11,236
Real Estate 64,025
Trading 42,595
Other Ventures 11,486
Total 338,250
Post 10% corporate discount 304,425
Source: I-Sec Research

Table 10: Fair value of Rs926/share post dilution

Per Share Value Shares Equity Value Remarks
Current 261.8 1,163 Post FCCB conversion
Post dilution + FCCB 335.4 908 Post Rs60bn equity infusion
Source: I-Sec Research

Upside to our fair value could emerge from:

• Equity infusion at a price higher than Rs815 or equity raised at business subsidiary
level, which would limit the extent of dilution, thus increasing per share fair value
• Access to more mining assets
• Higher yields realised in terms of power tariffs or property prices
• Earlier-than-expected execution of power/real estate projects
• Additional projects (in power and real estate) bagged by AEL
• Any success achieved in oil exploration
Considering the upside to our fair value of ~51% and potential for further upsides, we
initiate coverage on AEL with BUY rating.

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Adani Enterprises, March 31, 2008 ICICI Securities
Expanding horizons
AEL has till date been a trading/export house (five star status), dealing in
commodities, coal, iron ore, power, agri produce etc, with leadership across trading
segments. Leveraging its presence in port development and power related (power &
coal) trading, the company has decided to spread its wings to other high-growth
potential business segments (Chart 1) such as power generation (Chart 2), real-estate
development (Table 11), coal mining (Chart 3), oil & gas exploration etc.

Chart 1: AEL in transition mode

Evolving business
From trading house to an asset intensive infrastructure play
model, focused on
high growth
segments like… Trading Business Power Generation Real Estate Oil & Gas
• AEL is a leading • Plans to set up • Plans to develop ~105mn sqft • City Gas Distribution
commodity trader in capacity to generate area in Mumbai (commercial), network, oil exploration
India ~10GW power by ’12 Ahmedabad (integrated business – JV with
township), Surat (commercial Welsupun, Ship Fuelling
• AEL has trading & residential), Cochin
capability in more than (commercial & retail), Mundra
70 commodities and (mass housing project)
products including
power, coal, metals,
minerals, agro based Coal Mining Food & Vegetable Processing Logistics
commodities etc
across 60 countries • Access to coal mining • Developed ultra modern • Shipping business aims to
via mines in India and controlled atmosphere storage capitalise on the Group’s
Indonesia facilities for processing of agri trading business
products

Source: Company

Chart 2: Power generation to grow at 10% CAGR

… Power: Greater
1,200
contribution
expected from 1,000 CAGR 10%
Energy supply (bn Kwh)

private players to
achieve this target… 800

600

400

200

0
FY08 FY09 FY10 FY11 FY12

Source: I-Sec Research; Report of the Working Group on Power for XI Plan

Table 11: Investments in Real estate expected to report 12.8% CAGR

… Real-estate: (US$ bn)
Demand in Demand in Average demand
presents compelling FY07 FY12E in next five years CAGR (%)
investment Residential 51.7 90.6 74.1 11.9
Office 3.0 7.7 5.7 20.9
opportunities… Retail 2.7 6.5 4.8 19.5
Total 57.3 104.9 84.7 12.8
Investments as a % of GDP 6.2 7.1 6.8
Source: I-Sec Research

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Adani Enterprises, March 31, 2008 ICICI Securities
Chart 3: Coal demand (from power and steel sectors) to grow at robust rates
… Coal 900
mining/trading: Fuel
800
supply remains one
700 7% CAGR
of the key hurdles for
various power and 600

(mn MT)
steel projects 500
13.4% CAGR
400
300
200
100
0
FY07 FY08E FY09E FY10E FY11E FY12E FY17E

Source: CEA, I-Sec Research

To realise this target, AEL has instituted various subsidiaries and formed JVs with
renowned players in each of the business segments. This completes the required skill-
set for new business lines, which the company intends to start.

Pipeline of 9,900MW capacity, valued at Rs256bn, aided by

access to low cost fuel
AEL has been trading in coal and power for over four years with leading market share
among private players and plans to enhance presence across the value chain by
venturing into coal mining and thermal power generation.

AEL has lined up thermal power generation projects totalling up to 9,900MW capacity
in Gujarat (6,600MW), Maharashtra (1,980MW) and Rajasthan (1,320 MW), to be set-
up over the next 4-5 years (Chart 4) through its 86% owned subsidiary Adani Power
(APL). Of this, the largest project at Mundra with 2,640MW capacity is already under
construction and the first phase with 1,320MW capacity will be operational by FY09E
end.

Chart 4: Planned projects with total of 9.9GW capacity

Rajasthan
(1.3 GW)

Mundra
(4.6GW)
Gujarat
Dahej
(2GW) Tiroda
(2GW)

Maharashtra

Source: Company

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Adani Enterprises, March 31, 2008 ICICI Securities
Mundra (2,640MW, extendable by 1,980MW)
Advanced stage of APL’s largest project is coming up in the Mundra special economic zone with initial
implementation… capacity of 2,640MW (two phases of 2x330MW sub-critical + one phase of 2x660MW
super-critical); the first unit is scheduled to be commissioned by March ’09. Financial
closure for this project is already achieved and EPC has been given to Chinese
companies - Sichuan Machinery and Equipment Corporation (SCMEC) for sub-critical
phase and SEPCO III Electric Power Construction Corporation for super-critical phase.

… coupled with AEL already controls coal block in the Bunyu Island with 140MMT estimated reserves
access to low cost in the central & northern part of the island covering 3,000 hectares of land. Coal mined
fuel… from here would be used for the Mundra project. The arrangement gives access to
coal at a price below US$25/te at the origin, much lower than the prevailing market
price in US$35-40/te range. This would support high returns for the Mundra project,
especially with merchant tariffs.

… and high tariffs APL has entered into a 25-year power purchase agreement (PPA) for 2,000MW
through 77% PPA capacity at Mundra with Gujarat Urja Vikas Nigam (GUVNL) at an average tariff of
(which is reasonably Rs2.62/unit (higher than the level 2 bid at Rs2.26/unit won by Tata Power in Mundra
high) and 23% ultra mega power project). Rest of the planned capacity is kept as merchant, though
merchant sales… the company plans to enter into short- and long-term PPAs with state utilities and
other Discoms to maintain the balance between assured and merchant off-take of the
power generated.

Table 12: Mundra project details

…would boost Generation capacity (MW) 2640
returns Composition (2x330) + (2x330) + (2x660)
Expected CoD Jul-11
Land and water linkage Achieved
Fuel linkage Achieved – from coal block in Bunyu Island, Indonesia
Financial closure Achieved
Project cost (Rs bn) 101.5
Implied per MW cost (Rs mn/MW) 38.4
Funding (D:E) 80:20
PPA with GUVNL for 2000MW
PPA tariff (Rs/Kwh) average Rs2.62
Merchant sales 640MW
Merchant tariff (Rs/Kwh) Rs2.75/unit
Fuel cost (Rs/Kwh) Rs0.67/unit
AEL stake (%) 86.0
IRR (%) 62.0
Source: company, I-Sec Research

APL has received approval from the State government to extend the capacity further
by 1,980MW (3x660MW), which is expected to be operational by FY13E. APL is also
setting up 400kv 425km transmission line – the largest being set up by any power
player – to connect the plant with the western grid.

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Adani Enterprises, March 31, 2008 ICICI Securities
Tiroda (1,980MW)
Higher tariffs owing APL has taken up this project keeping in view the acute power shortage faced by the
to power supplied to state of Maharashtra. The project is split into two phases (2x660MW + 1x660MW)
high power deficit based on super critical technology and has made decent progress till now. APL has
western and northern already secured 200 hectares land in Gondia district, near the eastern border of
regions… Maharashtra and water linkage from the water resources department. Power off-take
would be secured by setting up 400KV 365km transmission line connecting it to
western grid.

… coupled with low Fuel linkage is being provided from the coal mines allotted in Lohara West & Lohara
cost of fuel… (Ext) with reserves of ~100MMT. APL intends to place 26% stake in this project with
strategic investors, restricting exposure in the project to 74%.

Table 13: Tiroda project details

… would boost Generation capacity (MW) 1980
returns Composition (3x660)
Expected CoD April-12
Land and water linkage Achieved
Fuel linkage Achieved
Financial closure Yet to be achieved
Project cost (Rs bn) 92.47
Implied per MW cost (Rs mn/MW) 46.7
Funding (D:E) 80:20
PPA Nil
PPA tariff (Rs/Kwh) NA
Merchant sales 1980 MW
Merchant tariff (Rs/Kwh) 2.75
Fuel cost/unit (Rs/Kwh) 0.57
AEL stake (%) 64.0
IRR (%) 50.7
Source: Company, I-Sec Research

Dahej (1,980MW) and Rajasthan (1,320MW)

APL has announced two more projects – one each in Dahej (1,980MW) and Rajasthan
(1,320MW). Both the projects would be based on super-critical technology with
composition of 3x660MW and 2x660MW respectively.

Dahej would likely be based on imported coal, while Rajasthan would be indigenous
coal based, though the fuel linkage is yet to be established. Since these are new
projects, APL has not made any significant progress. The company expects the
projects to be on-stream by FY12, though we are factoring in operational benefits
FY13 onwards.

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Adani Enterprises, March 31, 2008 ICICI Securities
Table 14: Dahej and Rajasthan projects
In the pipeline, fuel Dahej Rajasthan
Generation capacity (MW) 1980 1320
linkage likely to be Composition (3x660) (2x660)
provided from mining Expected CoD September-12 July-12
assets sought in Land and water linkage Yet to be achieved Yet to be achieved
Fuel linkage Yet to be achieved Yet to be achieved
Sumatra Financial closure Yet to be achieved Yet to be achieved
Project cost (Rs bn) 89.1 59.4
Implied per MW cost (Rs mn/MW) 45.0 45.0
Funding (D:E) 80:20 0
PPA Nil Nil
PPA tariff (Rs/Kwh) NA NA
Merchant sales 1980 MW 1320 MW
Merchant tariff (Rs/Kwh) 2.75 2.75
Fuel cost/unit (Rs/Kwh) 0.81 0.88
AEL stake (%) 86.0 86.0
IRR (%) 38.6 30.9
Source: Company, I-Sec Research

Factoring in the above mentioned assumptions, free cashflow-to-equity (FCFE)-based

valuation of these projects suggests a value of Rs256bn, translating into Rs623/share
value for AEL’s stake.

Table 15: FCFE based valuation of power projects

Projects Holding (%) Equity value (Rs mn) Capacity (MW) Rs mn/MW
Mundra 86 110,097 2,640 41.70
Maharashtra 64 52,247 1,980 26.39
162,344 4,620
Under Planning
Mundra 86 38,770 1,980 19.58
Rajasthan 86 21,692 1,320 16.43
Dahej 86 33,476 1,980 16.91
93,938 5,280
Total 256,282 9,900 25.9
Source: Company, I-Sec Research

Coal mining, providing the necessary access to fuel and boosting

value
AEL has bagged mining rights for two coal mines – one as a part of the 74:26 JV with
Rajasthan Rajya Vidyut Utpadan Nigam (RRVUNL) and other for mining a large block
in Bunyu Island, Indonesia.

RRUVNL – High pricing to provide impressive returns

The deal with RRVUNL involves mining 200MMT coal over ~30 years (starting FY11)
and selling it to Rajasthan state electricity board (RSEB) at a predetermined price
(Rs958/MT) agreed upon by the concerned parties. The work is under progress and
the mining is expected to start in FY11E with annual volumes reaching 8MMT after it
becomes fully operational. Based on FCFE, we have valued the deal at Rs33/share
(Table 16). AEL is also pursuing such deals further with other states.

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Adani Enterprises, March 31, 2008 ICICI Securities
Table 16: Key assumptions and valuation of mining deal with RRVUNL
Total mineable reserves (MMT) 200
Mining starts FY11
Annual volumes starting with 2MMT, going up to 8MMT over next 4-5
years
Services charges levied on RRUVNL Rs 958/MT
Escalation assumed in service charges and operating 3%
expenses
Capex involved (Rs mn) 4,834
Cost of equity 15%
FCFE value 14,784
Source: Company, I-Sec Research

Indonesian mine – Access to good quality fuel at low cost

Coal availability at very attractive prices has been the key value creator for AEL. As
regards the Indonesian mine, the coal block is situated in the island of Bunyu (in E.
Kalimantan near the border of Malaysia to the North and 33kms off the island of
Tarakan). The reserve size is expected to be ~140MMT with favourable strip ratio of
1:3.5 located in Central and Northern part of island covering 3,000 hectares land.
Commercial operations have already started for phase I (Chart 5) of the project (of the
total four phases). The coal produce would be used for captive requirement arising
from Mundra project and thus we have not valued this asset separately. The cost at
the Indian port works out to be ~US$22-25/te (mining cost ~US$12-15 and balance
shipping cost), which is quite low as compared to the prevailing market rate of US$30-
35/te. We have taken the cost at US$28/te in our estimates to keep cushion for any
cost overruns or re-negotiations.

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Adani Enterprises, March 31, 2008 ICICI Securities
Chart 5: Progress made in Bunyu Island for coal mining
Mining at work coal stacks

Coal loading on the ship

Source: Company

Any new mining asset to be a bonanza

We have not taken into account the value of any other mining asset for AEL despite
the company processing other deals at different stages at various locations in Sumatra
Kalimantan. The company has received the preliminary survey licence and is
preparing the exploration & exploitation report for the allotted ~250,000 hectares land
in Sumatra and Kalimantan regions (believed to be having mineable reserves of over
300MMT).

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Adani Enterprises, March 31, 2008 ICICI Securities
It has also bid for some coal mines in India and could emerge as the winner. We have
assumed that the company would have access to adequate coal reserves by FY12 to
serve the requirement of its planned thermal plants, though at prevailing market prices
(to maintain our conservative approach).

Real estate – Blend of residential & commercial projects, valued

at Rs79bn
Size remains the key for AEL in all business segments. It is a leading name in
commodities trading registering the highest (and increasing) volumes. The ~10GW
planned power capacity puts it in the league of Tata Power, JP Power Ventures etc.
And, so are its real estate plans. With a total saleable area of ~105mn sqft, AEL
compares with established players such as Purvankara, Parsvnath, Omaxe and Marg.

AEL operates real estate development business via its 95% owned subsidiary Adani
Infrastructure Developers Private (AIDPL), which in turn has varying stake in each of
the real estate projects. AIDPL has raked in renowned local real estate players as
partners to lend experience and to gain visibility among potential buyers. The
company is developing three properties – two in Mumbai and the third in Ahmadabad
– totalling 46mn sqft of commercial, retail and residential space. It is also developing
three more properties in Surat, Cochin and Mundra – totalling 59mn sqft of space
which are at nascent stages of development.

Table 17: Real estate space – Break-up

AIDPL Saleable Area Commercial Residential
Project City Partner
Stake (%) (mn sqft) (%) (%)
Shantigram Ahmedabad Saumya 75 41.6 55 37
Construction
(25%)
BKC Mumbai Mayfair housing 89 2.2 100
(11%)
Khatau Mumbai- 1.2 80 20
Borivali Marathon Group
60
Mumbai- (40%) 0.8 100
Byculla
Surat Surat NA 100 5.6 65 35
Cochin Cochin NA 100 3.2 15 85
Mundra Mundra NA 100 50.0 100
Source: Company, I-Sec Research

The real estate portfolio is well diversified in terms of the type of construction –
residential, retail and commercial, and geography – Mumbai, Ahmadabad, Surat,
Mundra and Cochin. The first three projects are joint ventures with local developers,
which allows AEL to leverage local expertise and knowledge of the real estate market.
The company is further planning to sell 5% stake in AIDPL to part fund the planned
capex.

The portfolio of real estate consists of properties such as Bandra-Kurla Complex

(BKC) and Khatau in Mumbai on one hand (which are relatively smaller in size but
offer high value) and Shantigram and Mundra in Gujarat on the other (which are large
scale projects but offer low returns due to high risk). Thus, we have used lower
discount rate for the former but higher for larger projects.

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Adani Enterprises, March 31, 2008 ICICI Securities
Chart 6: Prime location properties fetch higher value
25
BKC
20

NAV/sq ft (Rs '000)

15

10
Khatau
5 Shantigram Mundra
Surat
-
Cochin
(5)
(5) 5 15 25 35 45 55
Saleable area (mn sq ft)

Size of bubble represents contribution to total real estate valuation

Source: I-Sec Research, Company

Bandra-Kurla Complex – forming largest chunk of value for AIDPL

Adani is developing 2.2mn sqft office and retail space in Bandra-Kurla Complex – one
of the first planned commercial hubs in Mumbai, opposite the already existing offices
of ICICI Bank and IL&FS.

It is a slum rehabilitation project, wherein AIDPL is buying land and development rights
in phases from Housing Development & Infrastructure Ltd at pre-negotiated rates.
Hafeez contractor has been roped in as the architect and Sterling Engineering is
providing the structural design consultancy for the project. Thus, the execution risk for
this project is low and so far the progress is going as per schedule. The first phase of
the land transfer is through and AIDPL has taken charge of ~0.5mn sqft of land, which
is being developed.

Prime location and BKC is emerging as a strong commercial hub and as an alternative to Nariman Point
attractive cost (the biggest commercial area housing headquarters of many companies); especially
proposition would aid with the apparent supply constraints and as property prices have sky rocketed for
value commercial property in South Bombay (Chart 7). The area has strong growth potential
because of its central location between South Mumbai and Mumbai suburbs, and
proximity to Santa Cruz Export Zone and the domestic airport (Chart 8). It already
houses offices of Wockhardt, the National Stock Exchange, Citibank and Reliance
Telecom.

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Adani Enterprises, March 31, 2008 ICICI Securities
Chart 7: Commercial property prices in South Bombay
Rising commercial 30 450
Nariman Point - comm sale
property prices and 400
Nariman Point - comm rental (RHS)
supply constraints in 25
350
South Mumbai have

(Rs/sq ft/month)
20 300

(Rs '000/sq ft)

led to suburbs
250
emerging as strong 15
alternatives for office 200
spaces 10 150
100
5
50
0 0
Mar-04

Jun-04

Dec-04

Mar-05

Jun-05

Dec-05

Mar-06

Jun-06

Dec-06

Mar-07

Jun-07
Sep-04

Sep-05

Sep-06

Sep-07
Source: Bloomberg, Cushman & Wakefield

Chart 8: Location map of BKC

Borivali

North Mumbai

Khar Bandra-Kurla Complex

Bandra

Cental Mumbai

Worli

Mahalaxmi

Byculla
South Mumbai

P D’Mello

Colaba
Nariman Point

Source: I-Sec Research, Maps of India

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Adani Enterprises, March 31, 2008 ICICI Securities
Khatau – robust returns expected from properties in Byculla and
Borivali
AEL is also building a residential complex in Borivali (over 1.2mn sqft area) and a
commercial complex in Byculla (~0.7mn sqft area), both of which are part of the Mill
Land Development programme (MLDP). AEL has partnered with Marathon Group in a
60:40 JV to develop this land, thus bringing local expertise and knowledge of MLDP.
The land has been acquired through BIFR process, ensuring clean title and no legal
issues. Factory closure permission & environment clearances have also been
received.

Borivali, a Mumbai suburb is facing increasing demand as a residential area because

of supply constraints in the southern suburbs of Mumbai. AIDPL plans to set up a
high-end residential complex with five towers of 20 storeys each. Property in Byculla is
being developed as a complete commercial space. Byculla is very close to the
commercial hub of Mumbai and would provide good alternative to companies seeking
office space in Southern Mumbai. While property prices across the region have been
soaring, we have been conservative on property yield assumptions on account of
upcoming projects over the next 3-5 years.

Shantigram – integrated township project spanning over 578 acres

Shantigram is an integrated township project being developed by AEL spanning an
area of over 578 acres (over 41mn sqft saleable area at 1.65x FSI). Located on the
Sarkhej-Gandhinagar Highway, very close to Ahmedabad, the township is being
developed at a cost of Rs46.5bn and will include residential and retail property along
with commercial space (Chart 9).

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Adani Enterprises, March 31, 2008 ICICI Securities
Chart 9: Shantigram – proposed plan

Source: Company

Ahmedabad is the third most prosperous city with the third highest per capita income
in India and receives interest from players involved in trading and infrastructure
development, being close to the west coast – predominantly used for trading purposes
relating to capital & engineering goods, coal, oil & gas etc.

Others – Mundra (township project), Surat and Kochi

Apart from the projects mentioned above, AIDPL is also developing a township at
Mundra, Mundra Ports and SEZ (MPSEZ) spanning over 600 acres of land for the
group company. The work for this project has already started, which would primarily
be a mass housing project, building initial infrastructure support for families involved in
developing MPSEZ over the next 5-10 years. Total saleable area is expected to be
~50mn sqft, providing low income housing to start with.

AIDPL is also working on developing 5.6mn sqft of commercial and residential

property in Surat. Land acquisition of 57 acres is going on and sale is expected to start
from FY10.

AIDPL has tapped the southern region with a project spanning 27 acres of land in the
prime location in Kochi. The plan involves developing 3.2mn sqft of saleable area with
85% high-end residential and 15% commercial/retail space.

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Adani Enterprises, March 31, 2008 ICICI Securities
Real estate valuation
We have valued these projects on FCFE basis with varying cost of equity to reflect
suitable risk involved.

Table 18: Real estate: assumptions and valuation details

Khatau
Project BKC Borivali Byculla Shantigram Surat Kochi Mundra
Assumptions
AEL stake (%) 85 57 71 95 95 95
Saleable area (mn sqft) 2.18 1.15 0.75 41.50 5.65 49.99 49.99
Plotted:residential:commercial 0:0:100 0:100:0 0:0:100 8:37:55 0:35:65 0:100:0 0:100:0
Project completion Dec-11 Mar-10 Mar-10 Jun-12 Dec-13 Dec-16 Dec-16
Land cost (Rs mn) 25,202 2,325 7,440 2,200 891 4,999
Sale rates (Rs/sqft)
Base Sale Rate Residential NA 4,000 NA 1,500 2,200 1,600 1,600
Max Sale Rate Residential NA 4,840 NA 2,083 3,100 2,606 2,606
Base Sale Rate Commercial NA NA NA NA 3,400 NA NA
Max Sale Rate Commercial NA NA NA NA 3,400 NA NA
Base Lease Rate 300 NA 200 15 NA NA NA
Max Lease Rate 350 NA 231 21 NA NA NA
Avg. Lease Rate 345 NA 226 18 NA NA NA
Base Construction Rate - Residential NA 1,800 NA 650 1,600 1,000 1,000
Base Construction Rate - Commercial 3,930 NA 3,200 800 1,600 NA NA
Max Construction Rate - Residential NA 1,800 NA 800 1,600 1,000 1,000
Max Construction Rate - Commercial 4,520 NA 3,200 925 1,600 NA NA
FCFE based valuation
Cost of Equity (%) 18 18 19 19 19 17
Capital yield for commercial lease properties (%) 10 NA 10 10 NA NA NA
Total value (Rs mn) 37,306 8,312 18,180 4,614 1,490 9,338
Implied NAV/sq ft 17,113 4,375 438 817 459 187
Value of AEL's stake 31,710 4,738 12,908 4,384 1,415 8,871
Source: Company, I-Sec Research

Trading – Providing the necessary initial capital, valued at

Rs127/share
Adani started as a trading house and now plans to diversify into power and real estate
over the next few years. We believe that trading will continue to be the major cash cow
for AEL, especially in the short-to-medium term because of its experience and
expansion plans in this area. The company is currently trading in agri-commodities
such as maize, wheat, de-oiled cakes (DOC) and non-agri commodities such as coal,
iron ore, precious metals and power.

While agri-commodities will continue to yield stable cashflows, the growth is likely to
be driven by coal and power in the long run. As such we have valued both these
businesses separately, while other trading desks, including high growth areas such as
iron ore, precious metals etc have been clubbed together.

Table 19: Assumptions and valuation for trading

Coal trading Agri-trading Others
Current volumes (mnte) 11.1 2.2 NM
Volume CAGR over FY08-FY11E (%) 23.6 17.6 NM
Yields CAGR over FY08-FY11E (%) 7.9 7.0 NM
Revenue CAGR over FY08-FY11E (%) 33.4 25.9 8.7
Current operating margins (%) 4.0 2.8 2.7
Earnings CAGR over FY08-FY11E 26.3 38.4 5.8
FY10E P/E multiple assumed (x) 9.0 9.0 7.6
Implied value of business (Rs mn) 15,533 10,369 16,692
AEL's stake (%) 100.0 100.0 100.0
Value of AEL's stake (Rs mn) 15,533 10,369 16,692
Source: Company, I-Sec Research

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Adani Enterprises, March 31, 2008 ICICI Securities
Coal to drive growth in trading segment
Demand for coal set to rise
In India, coal is the primary source of energy and is used mainly for power production
and making steel.

Chart 10: Key uses of coal

Others
Steel & Coke
Cement 11%
Ovens
5%
9%
Fertilizer
1%

Pow er
74%

Source: Ministry of Coal Report for Coal Sector Reforms

At the end of the X five year plan, India’s coal-based power generation capacity was
71,121MW of the total capacity of 132,329MW. The XI five year plan targets a further
addition of 54,355MW in coal, of the total addition of 78,577MW.

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Adani Enterprises, March 31, 2008 ICICI Securities
Chart 11: Region-wise coal based power generation capacity and planned addition

Jammu & Kashmir

Total Capacity: MW 18194 Capacity Himachal

Addition in XIth Plan: MW 12930 Pradesh
Punjab

Haryana Uttranchal
Arunachal Pradesh
Total Capacity: MW 385 Capacity
Sikkim
Addition in XIth Plan: MW 750
Rajasthan
Uttar Pradesh Assam Nagaland

Bihar Meghalaya
Manipur

Tripura
Gujarat Jharkhand West Bengal Mizoram
Madhya Pradesh

Chhattisgarh
Orissa Total Capacity: MW 13996 Capacity
Maharashtra Addition in XIth Plan: MW 15190

Total Capacity: MW 22574 Capacity

Addition in XIth Plan: MW 16125
Andhra Pradesh

Very high power deficit

Goa
High power deficit
Karnataka
Medium power deficit

Low power deficit

Tamil Nadu
Kerala

Total Capacity: MW 15973 Capacity

Addition in XIth Plan: MW 9360
Source: Ministry of Power, CEA, I-Sec Research

While in the past, plan targets have usually not been met but we believe that this five
year plan may be able to meet its target as more than 76% of coal-based power plants
are already in different stages of construction. Considering that most of the coal in
India is consumed by the power sector (nearly 75%), we foresee strong growth in coal
consumption.

Increased opportunity for coal trading…

While coal consumption is expected to rise significantly, we do not see coal production
to rise proportionally. Thus, we believe India’s dependence on imported coal is likely to
increase in the future, especially because many private power producers entering the
industry are setting up plants on imported coal. These plants are likely to source fuel
either directly from mines in Indonesia and South Africa or buy fuel from coal traders
who import it for them (Chart 12).

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Adani Enterprises, March 31, 2008 ICICI Securities
Chart 12: Major seaborne coal trade routes

Source: World Coal Institute, I-Sec Research

We believe that coal demand may increase to 509 MT by ’11-12, which will require
import of more than 159 MT, most of which will be for power plants and is likely to be
imported by them via direct linkages with coal mines outside India (Chart 13).
Nevertheless, this represents a huge opportunity for coal trading companies to supply
coal on a short-term basis to Indian power plants, while entering into long-term
contracts at the same time.

Chart 13: Coal – Demand-supply gap

550
Demand for Coal Supply of Domestic Coal

500

450
(mn te)

400

350

300

250

200
FY07 FY08E FY09E FY10E FY11E FY12E

Source: Committee on Infrastructure, CEA, I-Sec Research

In fact, because of imported coal’s high calorific value and low ash content, it is more
efficient for power production than domestic coal and thus we believe that India will
continue to import coal even if domestic production rises significantly.

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Adani Enterprises, March 31, 2008 ICICI Securities
…implies increasing opportunity for AEL
AEL ventured into coal trading in 1998 and today imports coal from China, South
Africa and Australia. It is a full service provider, responsible for sourcing, importing,
managing logistics and supplying coal directly to the customer. Thus, it can not only
meet short-term demand supply gaps for power producer, but also get into long-term
contracts to supply thermal coal to them. While its current list of customers includes
captive power producers such as Birla Corporation, ACC etc, the future growth is likely
to come from utilities that will import coal to produce power.

AEL imported ~8mnte non-coking coal of the total imports of 25mnte in ’06-07. We
believe that coal trading will grow at 32%+ CAGR till FY12E aided by robust demand
growth in the sector and captive mining undertaken by the company. We have valued
the coal trading segment at Rs15.5bn using FY10E P/E of 9x.

Agri-trading to provide stability

Indian agri-GDP growth declined from 3.2% in the ’80s to 1.5% in the ’90s. Despite
this, the XI Five Year Plan ’07-12, targets a growth of 4.1% per annum, based on the
investment rate of 35.1% of the GDP.

Table 20: Plan growth rates versus investment ratio

Average Growth Rate (%) Investment Ratio (%)
IX Five Year Plan 2.1 23.8
X Five Year Plan 2.3 27.5
XI Five Year Plan 4.1 35.1
Source: Report of the Working Group for XI Five Year Plan, CSO

This increase in investment is not possible without the involvement of private sector
and accordingly, nearly 25% of the GDP is expected to come via private and public-
private partnerships. This focus of the Government coupled with an expected demand-
supply gap in food grains has increased opportunities for private sector players in
trading.

Table 21: Supply to remain under constraint even in best-case scenario…

(mnte) 2011-12
Demand 244
Min Production 214
Max Production 240
Current Production 212
Ten Year CAGR (%) <1%
Source: CSO, I-Sec Research, Ministry of Agriculture

This opportunity is higher in view of the regional disparities, which have always existed
in India between consumption and production of agricultural commodities.

The country’s food grain production has grown by less than 1% per annum and it is
likely to be between 214 MT and 240 MT by ’11-12. The demand on the other hand
has been projected to be 244 MT in ’11-12.

Strong potential in agri-trading

AEL’s agri division trades (in maize, DOC, pulses, wheat etc), procures commodities
and sells them domestically and internationally. It traded 1.5MT of commodities,
generating revenue of Rs20bn in FY07.

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Adani Enterprises, March 31, 2008 ICICI Securities
The portfolio is well balanced between regulated but stable commodities such as
wheat, and un-regulated, export oriented commodities such as DOCs. Thus, we
believe that agri-trading division will grow 15% per annum in volume terms in the
immediate few years backed by increasing exports of de-oiled cakes and 4-6% growth
in Indian agriculture. Accordingly, we have valued the equity for this division at
Rs10.4bn. The company now plans to foray into oil & gas exploration through two
blocks (of 75sqkm in Cambay, Gujarat and another of 95sqkm in Assam) awarded by
the Government in NELP VI, in collaboration with Wels pun and two blocks in
Thailand. AEL also plans to participate in NELP VII and has been actively looking at
Indonesia, Australia, Egypt and Yemen for more gas blocks.

Other trading divisions boosting value

AEL also trades in iron ore, petroleum products, precious metals, power and ship
scrap. The equity value of these divisions put together is estimated at Rs16.7bn, of
which we believe iron ore, valued at Rs1.7bn, will generate maximum growth in the
immediate future as the company exploits the rising demand for steel in China, where
Indian iron ore is trading at a spot price of US$200. We believe that in the long term,
however, this demand for iron ore will slow down as Chinese steel production declines
and the Indian Government takes measures to reduce ore exports. The equity of
power trading business along with precious metals, currently valued at Rs0.3bn and
Rs8.7bn respectively, is likely to drive growth in the long term as reforms in the sector
take off.

Further, we have valued the equity of non-trading businesses of port and freight
brokerage at Rs1.9bn and Rs1.2bn respectively.

Other segments adding another Rs18bn

Apart from the above mentioned business segments, AEL also has presence in city-
gas distribution, agri-logistics, oil refinery (50:50 JV with Wilmar Group) and cold
storage of fresh fruits (through Adani Agri-Fresh). These segments are not very large
at present, with the company having started operations in the past 18 months (except
for Adani-Wilmar), but have good growth potential (Table 22). We have been
conservative while valuing these segments due to their nascent stage and these too
could provide upside depending on the success of the segments.

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Adani Enterprises, March 31, 2008 ICICI Securities
Table 22: Brief overview of distribution-related business segments
Business segment AEL stake Brief overview
Gas distribution (Adani 65% City gas distribution of compressed & piped natural gas in Ahmedabad & Vadodara
Energy) to: i) industries, commercial outfits, domestic users through a pipeline network, ii)
vehicles through a CNG station network
Current status: Operating 45 CNG stations and 8,000 domestic, 245 industrial & 95
commercial connections with daily contracted quantity of 0.43MMSCMD (expected
to reach 2.4MMSCMD in the next two years). Steel ring network of over 230kms
and PE network of over 500kms across six cities already completed
Expansion plans: Proposes to set up facilities in Faridabad (Haryana), Noida (UP),
Khurja (UP), Lucknow (UP), Jaipur (Rajasthan) and Udaipur (Rajasthan)
Planned steel ring network of 493kms and 104 CNG stations across six cities,
while facility plans for Jaipur and Udaipur are being developed
Proposed expansion would likely result in 45%+ revenue CAGR and 120%+
earnings CAGR for AAFL in the next two years
Adani Wilmar (AWL) 50% Oil refining and distribution business under the brand, Fortune. AWL has the
largest refining capacity in India (3,200TPD) with a network of 80 branches, 5,000
distributors, 1mn outlets & 20mn households. Exports to more than 19 countries in
the Middle-East, South East Asia & East Africa
As per AC Neilsen data, AWL has leadership in edible oil (Fortune, India’s largest
edible oil brand commanding 17% share), soya (34 % domestic market share) and
groundnut oil (20% domestic market share)
Other growing brands include Naturalle, Raag, Kachi Ghani. While the proposed
expansion plans and leadership would help maintain high revenue growth (over
30% CAGR), earnings growth would be muted due to surging raw material prices
Adani Agri Fresh 100% AAFL is into developing integrated controlled atmosphere storage facility (CASF),
handling and transportation infrastructure for fruits & vegetables
Currently operational at three locations in Rohru, Theog & Rampur in Himachal
Pradesh with a total storage capacity of 18,000MT
Has already been dealing with leading fresh fruit/vegetable retail chains, Food
Bazar, Reliance Fresh, ITC’s Choupal Fresh, Metro, Trinetra, Fab Mall, Mother
Dairy, Big Apple, Heritage(AP/Karnataka) and owns a strong marketing network in
30 major towns across India for wholesaling, cash & carry and organised retail,
including Delhi, Ahmedabad, Coimbatore, Lucknow, Chennai, Mumbai, Surat,
Nasik, Kolkata etc
Plans to roll out pack house facilities in Maharashtra, Gujarat, Andhra Pradesh and
Karnataka and expand universe to procure grapes, orange, pomegranate and other
fruits in the medium term. AAFL has launched its wholesale brand, Farm Pik and
plans to grow it sizeably
Adani Agri-Logistics 100% AALL is pioneering the concept of developing vertical silos to store grains & bulk
(AALL) movement in top loading/bottom discharge wagons in India with the project being
developed for Food Corporation of India (FCI) on BOO basis over a long-term
contract for 20 years.
It involves storage of 0.55mnte per month with guaranteed annual tonnage of
400,000MT at base depots (in states of Punjab & Haryana) and another
150,000MT at distribution depots (in Tamil Nadu, Karnataka, Maharashtra and
West Bengal, expected to be operational by FY08 end)
207 special wagons for bulk grain transportation are being procured (orders
already placed)
Being a pioneer concept, the project has been given 100% income tax deduction
for the first five years and 30% for the next five years
Source: I-Sec Research, Company

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Adani Enterprises, March 31, 2008 ICICI Securities
The equity value of all these segments combined is estimated at Rs17.7bn (Table 23)
and AEL’s stake at Rs11.5bn (Rs34/share), though there could be significant upside
depending on growth in these relatively nascent businesses.

Table 23: Assumptions and valuation of other businesses

(%)
Adani Wilmar Agri-logistics Adani Agri Fresh Adani Energy
Revenue CAGR over FY08-FY11E 29.9 2.8 84.6 32.9
Current operating margins (%) 2.7 74.1 0.4 16.0
Earnings CAGR over FY08-FY11E 15.4 NM NM 208.1
FY10E P/E multiple assumed (x) 13.0 NA NA NA
Implied value of business (Rs mn) 6,322 NA NA NA
FCFE based valuation 410 2,239 8,733
AEL's stake (%) 50.0 100.0 100.0 65.0
Value of AEL's stake (Rs mn) 3,161 410 2,239 5,676
Source: I-Sec Research, Company

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Adani Enterprises, March 31, 2008 ICICI Securities

Key risks
We perceive the following as key challenges for AEL in the present scenario:

• Execution risk. AEL is on an aggressive expansion spree, that too in related and
unrelated business domains. From being a leading trading house, the company is
moving to an infrastructure play, which is highly capital intensive in nature. AEL
does not have any prior experience in many of the segments it is venturing into –
primarily power generation and real estate development, which exposes it to
considerable execution risk. However, the Group has a decade long experience in
handling large scale projects such as Mundra Port and Wilmar Refinery. To
mitigate such challenges, the company has been proactive in appointing, as
business heads, some of the most renowned talents from industry for respective
businesses. Yet timely execution of projects within the set budget would be very
crucial to achieve appropriate returns.
• Arranging funds for planned projects. With the present balance sheet size of
~Rs90bn, primarily locked up as inventory and debtors, funding capital intensive
projects requiring close to Rs510bn over the next 4-5 years appears challenging.
A large proportion (59%) of this sum would be funded via debt. However,
arranging for such sizeable debt with minimal experience in planned projects
would be difficult task for AEL. Also, there would be ~Rs60bn gap between
required equity funding and internal accruals, which would lead to equity dilution
• High Government intervention in agri-trading restricts volumes and scope for
players. While AEL is diversifying its revenue streams significantly, any adverse
Government policy in highly regulated sectors such as power generation, coal
mining and export-import of agricultural produce could deter financials.

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Adani Enterprises, March 31, 2008 ICICI Securities
Changing face of AEL’s financials
Shift from trading to infra = move from current to fixed assets…
AEL, till now, has been primarily associated with trading business as is reflected in thin
operating margins and high working capital with net current assets constituting over
70% of the total assets. However, with changing business composition, operating
margins would get a boost and the proportion of net current assets would likely start
declining in favour of fixed assets on the back of increasing proportion of power and
real estate businesses (Chart 14).

Chart 14: Changing asset composition and improving operating margins

Net Current assets Net Fixed assets Operating margin (RHS)
100% 14
90%
12
80%
70% 10
60% 8

(%)
50%
40% 6

30% 4
20%
2
10%
0% 0
FY05 FY06 FY07 FY08E FY09E FY10E FY11E

Source: I-Sec Research, Company

… supported by increasing financial leverage

Huge planned capex required to build these fixed assets would FY08-12E would be
funded largely through debt implying higher leverage and dampened cashflows over
the medium term (Chart 15).

Chart 15: Aggressive expansion impacting cashflows, largely funded by debt

Debt Equity FCF (RHS)
100% 40
90% 30
80%
20
70%
10
(Rs bn)

60%
50% 0
40% (10)
30%
(20)
20%
10% (30)

0% (40)
FY05 FY06 FY07 FY08E FY09E FY10E FY11E

Source: I-Sec Research, Company

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Adani Enterprises, March 31, 2008 ICICI Securities
Equity dilution of 28% expected to bridge funding gap
To fund its expansion plans, AEL requires close to Rs510bn (Table 24) over FY07-
12E, ~59% of which would likely be funded via debt, 18% from internal accruals, 9%
as minority share, 2% from FCCB conversion and the balance 12% from fresh equity
infusion (Chart 16). Alternatively, AEL is also considering raising money at the
subsidiary level (APL, AIDPL) to fund the gap.

Table 24: Funding requirement by various business segments

Rs mn FY07-FY12E
Power 424,749
Real-Estate* 78,601
Trading 3,607
Mining & Others 10,908
* Net of investment and sales
Source: I-Sec Research

Chart 16: Sources of funding

600

500 47 10 60

400
(Rs bn)

95
300

200
293
100

0
Debt Internal Minority share FCCB Funding gap
accruals conversion
Source: I-Sec Research

The FCCB conversion price has been fixed at Rs645, which will likely fetch Rs9.8bn to
AEL. The dilution on account of fresh equity issue is expected to be ~28%, assuming
issue price of Rs815 (based on the average of past six months).

Expected earnings CAGR of >96% over FY08E-11E

Till FY08, AEL’s P&L primarily reflects the numbers for trading businesses; however,
the new business units would start shaping up in the next couple of years. By FY11E,
we expect 1,980MW of capacity to be on-stream at Mundra, all the real estate projects
to start booking sales and other businesses (such as AEL) to assume significant size
(by expanding to over eight cities).

Increasing proportion and size of non-trading businesses would result in robust

revenue growth of close to 26% CAGR over FY08E-11E. This would also result in
margin expansion of 8.8pps leading to EBITDA CAGR of ~95% (Chart 17).

29
Adani Enterprises, March 31, 2008 ICICI Securities
Table 25: Financials – Various business segments
(Rs mn, year ending March 31)
FY08E FY09E FY10E FY11E
Revenues
Power - 20 14,373 27,526
Real-Estate 1,077 5,685 17,762 25,633
Trading 166,517 197,739 235,256 274,575
Mining & others 29,850 44,243 55,877 70,199
Total Revenues 197,444 247,687 323,268 397,934

EBITDA
Power - 15 10,242 19,343
Real-Estate - 426 8,450 15,136
Trading 4,961 6,320 7,306 8,231
Mining & others 1,534 3,369 3,994 5,509
Total EBITDA 6,495 10,130 29,992 48,218

EBITDA margin (%)

Power - 73.6 71.3 70.3
Real-Estate - 7.5 47.6 59.0
Trading 3.0 3.2 3.1 3.0
Mining & others 5.1 7.6 7.1 7.8
Total EBITDA margin 3.3 4.1 9.3 12.1

PAT
Power - (89) 4,554 10,829
Real-Estate (538) (2,578) 118 6,225
Trading 3,470 5,478 4,724 5,154
Mining & others 209 231 556 1,617
Total PAT 3,141 3,042 9,952 23,826

PAT margin (%)

Power (446.1) 31.7 39.3
Real-Estate (49.9) (45.3) 0.7 24.3
Trading 2.1 2.8 2.0 1.9
Mining & others 0.7 0.5 1.0 2.3
Total PAT margin 1.6 1.2 3.1 6.0
Source: I-Sec Research

Chart 17: Robust growth expected supported by evolving business model

450 Coal-mining 14
Others
400 Real-estate 12.1 12
Pow er generation 69
350 Trading
9.3 26 10
300 EBITDA margin (%)
56 28
18 8
(Rs bn)

250 14
(%)

44
200 6
30
150
3.3 4.1 4
100
2
50
167 198 235 275
0 0
FY08E FY09E FY10E FY11E

Source: I-Sec Research

While AEL would have ~Rs290bn debt by FY11E, interest outgo would be limited to
only 4% on account of lower interest incidence for power projects. The interest
payment in these cases starts only post project commissioning and most of the
projects would likely be commissioned in FY12 and FY13. Effectively, net earnings
(post minority interest payment) are expected to report 96% CAGR over FY08E-11E.

30
Adani Enterprises, March 31, 2008 ICICI Securities
Financials
Table 26: Profit & Loss statement
(Rs mn, year ending March 31)
FY06 FY07 FY08E FY09E FY10E FY11E
Total Revenues 123,415 169,491 197,444 247,687 323,268 397,934

Less:
Cost of material used 115,576 158,733 184,764 225,894 277,561 331,883
Other Manufacturing Expenses 4,677 6,055 2,591 2,836 4,496 6,567
Power and Fuel 3,594 8,827 11,220 11,266

Total Operating Expenses 120,253 164,788 190,949 237,557 293,277 349,716

EBITDA 3,162 4,702 6,495 10,130 29,992 48,218

Depreciation & Amortisation 50 163 855 1,435 3,104 4,288

Other Income 14 42 444 900 884 406

EBIT 3,125 4,581 6,084 9,594 27,772 44,335

Less: Net Interest 1,533 2,286 2,068 5,090 9,811 9,110

Recurring Pre-tax Income 1,592 2,295 4,016 4,505 17,961 35,226

Add: Extraordinary Income 148 2 1 - - -

Less: Extraordinary Expenses (4) (7) (7) - - -

Less: Taxation 390 516 623 1,063 4,826 7,211

Net Income (Reported) 1,355 1,787 3,401 3,441 13,135 28,015

Less: Minority Interest 252 399 3,183 4,189

Recurring Net Income 1,202 1,778 3,141 3,042 9,952 23,826

Source: Company data, I-Sec Research

31
Adani Enterprises, March 31, 2008 ICICI Securities
Table 27: Balance Sheet
(Rs mn, year ending March 31)
FY06 FY07 FY08E FY09E FY10E FY11E
ASSETS
Current Assets, Loans & Advances
Cash & Bank balance 7,150 16,316 11,441 39,976 10,550 12,636
Inventory 4,597 17,991 19,955 22,475 27,552 30,250
Sundry Debtors 23,988 24,184 33,055 42,948 51,287 62,393
Loans and Advances 5,683 6,636 7,964 9,556 11,468 13,761
Total Current Assets 41,417 65,128 72,414 114,955 100,857 119,040
Current Liabilities & Provisions
Current Liabilities 20,499 22,464 25,139 30,506 40,347 42,510
Sundry Creditors 19,835 18,900 20,790 22,869 25,156 27,671
Other Current Liabilities 665 3,564 4,349 7,637 15,191 14,839
Others 2,394 3,122 4,500 5,400 6,480 7,776
Provisions 854 1,304 1,565 1,878 2,254 2,705

Total Current Liabilities and Provisions 23,747 26,890 31,204 37,784 49,081 52,991

Net Current Assets 17,670 38,238 41,210 77,171 51,776 66,049

Total Investments 665 128 236 236 236 236
Fixed Assets
Gross Block 1,612 4,654 16,227 59,578 119,784 200,447
Less Accumulated Depreciation 211 513 1,369 2,804 5,908 10,196
Net Block 1,401 4,141 14,859 56,774 113,876 190,251
Add: Capital Work in Progress 429 9,669 20,000 59,138 161,288 181,857
Total Fixed Assets 1,830 13,810 34,859 115,912 275,164 372,107
Total Assets 20,165 52,175 76,305 193,318 327,176 438,392

LIABILITIES AND SHAREHOLDERS' EQUITY

Borrowings
Short Term Debt 3,155 11,362 22,448 72,820 189,281 266,001
FCCBs 1,323 11,063 11,063 11,063 - -
Long Term Debt 7,166 18,240 24,201 24,201 24,201 24,201
Total Borrowings 11,644 40,664 57,712 108,084 213,482 290,202

Share Capital
Paid up Equity Share Capital 226 247 247 247 262 262
No. of Shares outstanding (mn) 226 247 247 247 262 262
Face Value per share (Rs) 1 1 1 1 1 1
Preference Share Capital (convertible) - 3 - - - -

Reserves & Surplus

Share Premium - - - - 9,789 9,789
Others - - - 60,000 60,000 60,000
General & Other Reserve 8,299 11,257 14,268 17,142 26,917 50,567
Less: Misc. Exp. not written off 4 36 9 9 9 9
Minority Interest - 42 4,087 7,855 16,735 27,582
Net Worth 8,521 11,511 18,593 85,234 113,693 148,190
Total Liabilities & Shareholders' Equity 20,165 52,175 76,305 193,318 327,176 438,392
Source: Company data, I-Sec Research

32
Adani Enterprises, March 31, 2008 ICICI Securities
Table 28: Cashflow statement
(Rs mn, year ending March 31)
FY06 FY07 FY08E FY09E FY10E FY11E
Cash Flow from Operating Activities
Reported Net Income 1,355 1,787 3,401 3,441 13,135 28,015
Add:
Depreciation & Amortisation 67 303 855 1,435 3,104 4,288
Provisions 406 450 261 313 376 451
Less:
Other Income 14 42 444 900 884 406
Net Extra-ordinary income 153 8 8 - - -
Operating Cash Flow before Working Capital change (a) 1,661 2,489 4,065 4,290 15,731 32,348

Changes in Working Capital

(Increase) / Decrease in Inventories (1,299) (13,395) (1,964) (2,520) (5,077) (2,698)
(Increase) / Decrease in Sundry Debtors 35 (197) (8,871) (9,893) (8,340) (11,106)
(Increase) / Decrease in Operational Loans & Adv. (2,241) (953) (1,327) (1,593) (1,911) (2,294)
(Increase) / Decrease in Other Current Assets - - - - - -
Increase / (Decrease) in Sundry Creditors 1,161 (935) 1,890 2,079 2,287 2,516
Increase / (Decrease) in Other Current Liabilities (561) 3,627 2,163 4,189 8,634 943
Working Capital Inflow / (Outflow) (b) (2,906) (11,851) (8,109) (7,738) (4,407) (12,638)

Net Cash flow from Operating Activities (a) + (b) (1,244) (9,362) (4,044) (3,448) 11,324 19,710

Cash Flow from Capital commitments

Purchase of Fixed Assets (1,330) (12,283) (21,904) (82,488) (162,357) (101,231)
Purchase of Investments (565) 537 (108) - - -
Cash Inflow/(outflow) from capital commitments (c) (1,895) (11,745) (22,012) (82,488) (162,357) (101,231)

Free Cash flow after capital commitments (3,139) (21,107) (26,056) (85,937) (151,032) (81,521)
(a) + (b) + (c)

Cash Flow from Investing Activities

Purchase of Marketable Investments - - - - - -
(Increase) / Decrease in Other Loans & Advances - - - - - -
Sale of Fixed Assets - - - - - -
Sale of Investments - - - - - -
Consideration received for sale of undertaking/division - - - - - -
Other Income 14 42 444 900 884 406

Net Cash flow from Investing Activates (d) 14 42 444 900 884 406

Cash Flow from Financing Activities

Issue of Share Capital during the year 1 20 - 60,000 9,804 -
Proceeds from fresh borrowings 5,105 29,021 17,047 50,372 105,398 76,720
Repayment of Borrowings
Buyback of Shares - - - - - -
Dividend paid including tax (117) (129) (129) (168) (176) (176)
Others (119) 1,312 3,810 3,368 5,696 6,658
Net Cash flow from Financing Activates (e) 4,870 30,224 20,728 113,572 120,722 83,201

Net Extra-ordinary Income (f) 153 8 8 - - -

Total Increase / (Decrease) in Cash 1,897 9,167 (4,876) 28,535 (29,426) 2,086
(a) + (b) + (c) + (d)+ (e) + (f)
Source: Company data, I-Sec Research

33
Adani Enterprises, March 31, 2008 ICICI Securities
Table 29: Key ratios
(Year ending March 31)
FY06 FY07 FY08E FY09E FY10E FY11E
Per Share Data (Rs)
EPS(Basic Recurring) 5.3 7.2 12.7 12.3 38.0 91.0
Diluted Recurring EPS 5.3 7.2 12.0 9.1 29.7 71.0
Recurring Cash Earnings per share (CEPS) 5.5 7.9 16.2 18.2 49.9 107.4
Free Cashflow per share (FCPS-post capex) (13.9) (85.6) (105.7) (348.6) (577.1) (311.5)
Reported Book Value (BV) 37.7 46.5 58.8 313.9 370.5 460.9
Dividend per share 0.5 0.5 0.5 0.5 0.5 0.5

Valuation Ratios (x)

Basic Price Earning Ratio 113.0 83.2 47.1 48.7 15.8 6.6
Diluted Price Earning Ratio 113.0 83.2 50.0 66.2 20.2 8.5
Price to Recurring Cash Earnings per share 108.4 76.2 37.0 33.1 12.0 5.6
Price to Book Value 15.9 12.9 10.2 1.9 1.6 1.3
EV / EBITDA 44.2 36.6 29.9 21.3 12.0 9.0
EV / Total Operating Income 1.1 1.0 1.0 0.9 1.1 1.1
EV / Operating Free Cash Flow (Pre-Capex) (112.3) (18.4) (48.0) (62.6) 31.8 22.0
EV / Net Operating Free Cash Flow (Post-Capex) (44.5) (8.2) (7.4) (2.5) (2.4) (5.3)
Dividend Yield (%) 0.1 0.1 0.1 0.1 0.1 0.1

Growth Ratios (% YoY)

Basic Recurring EPS growth NA 35.7 76.6 (3.1) 208.1 139.4
Diluted Recurring EPS Growth NA 35.7 66.3 (24.4) 227.1 139.4
Diluted Recurring CEPS Growth NA 42.3 105.8 12.0 174.7 115.3
Total Operating Income Growth NA 37.3 16.5 25.4 30.5 23.1
EBITDA Growth NA 48.7 38.1 56.0 196.1 60.8
Recurring Net Income Growth NA 47.9 76.6 (3.1) 227.1 139.4

Operating Ratios (%)

EBITDA Margins 2.6 2.8 3.3 4.1 9.3 12.1
EBIT Margins 2.5 2.7 3.1 3.9 8.6 11.1
Recurring Pre-tax Income Margins 1.3 1.4 2.0 1.8 5.6 8.9
Recurring Net Income Margins 1.0 1.0 1.6 1.2 3.1 6.0
Raw Material Consumed / Sales 93.6 93.7 93.6 91.2 85.9 83.4
SGA Expenses / Sales 3.6 3.2 3.1 4.7 4.8 4.4
Other Income / Pre-tax Income 0.8 1.8 11.1 20.0 4.9 1.2
Other Operating Income / EBITDA 0.4 0.9 6.8 8.9 2.9 0.8
Effective Tax Rate 24.5 22.5 15.5 23.6 26.9 20.5

Return / Profitability Ratios (%)

Return on Capital Employed (RoCE)-Overall 13.8 9.8 7.6 5.1 6.6 8.1
Return on Invested Capital (RoIC) 29.1 19.2 12.9 9.3 12.8 13.0
Return on Net Worth (RoNW) 15.1 17.8 20.9 5.9 10.0 18.2
Dividend Payout Ratio 9.7 7.3 4.1 4.3 1.4 0.6

Solvency Ratios / Liquidity Ratios (%)

Debt Equity Ratio (D:E) 57.7 77.9 75.6 55.9 65.3 66.2
Net Working Capital / Total Assets 87.6 73.3 54.0 39.9 15.8 15.1
Interest Coverage Ratio-based on EBIT 49.0 49.9 34.0 53.0 35.3 20.5
Cash and cash equivalents / Total Assets 38.8 31.5 15.3 20.8 3.3 2.9

Turnover Ratios
Inventory Turnover Ratio (x) 31.3 15.0 10.4 11.7 12.9 13.8
Assets Turnover Ratio (x) 7.2 4.7 3.1 1.8 1.2 1.0
Working Capital Cycle (days) 45.8 60.2 73.4 87.2 72.8 54.0
Average Collection Period (days) 71.0 51.9 52.9 56.0 53.2 52.1
Average Payment Period (days) 56.9 41.7 36.7 32.2 27.1 24.2
Source: Company data, I-Sec Research

34
Adani Enterprises, March 31, 2008 ICICI Securities
Annexure 1: Power sector – Economic growth to
lead demand
The XI Five Year Plan targets GDP growth of 9 per annum from ’07 to ’12. With the
Indian GDP already growing at 9.4 in ’06-07 and expected to grow at 9+ in the current
financial year, energy consumption in the country (at 15.4 quadrillion BTUs in ’04) is
expected to explode in the coming years.

The challenge for the Indian energy sector – constituting both public and private
players – is thus to meet this energy demand and reduce shortages. This has created
opportunities, especially for players in the power sector as demand in this sector
cannot be met by imports (which can be done in case of oil).

Power demand to continue outstripping supply

The Indian economy, till now has been able to grow despite power shortages (Chart
18). But with India experiencing 8-9 growth in the past three years, we believe this
shortage will not only increase but also slow down growth.

Chart 18: Power shortage versus GDP Chart 19: Power supply – Demand gap remains
17 Peak Shortage Energy Shortage GDP Grow th 700 Energy Demand Energy Supply
15
650
13

600
(bn Kwh)

11
(%)

9
550
7
500
5

3 450
FY03 FY04 FY05 FY06 FY07 FY03 FY04 FY05 FY06 FY07

Source: Economic Survey 2006-07; Report of the Working Group on Source: Central Electricity Authority
Power for 11th Plan

Thus, the XI Five Year Plan envisages not only GDP growth of 9 per annum but also
‘Power for all by 2012’ by increasing per capita consumption to 1,000KWh from the
current 600KWh. These twin objectives require power generation to grow by nearly 10
per annum on a CAGR basis till ’12 (Chart 20).

35
Adani Enterprises, March 31, 2008 ICICI Securities
Chart 20: Power generation to grow at 10 CAGR

1,200

1,000 CAGR 10%

Energy supply (bn Kwh)

800

600

400

200

0
FY08 FY09 FY10 FY11 FY12

Source: I-Sec Research; Report of the Working Group on Power for 11th Plan

India’s current capacity of ~135,000MW is obviously inadequate to meet this growth

requirement and thus the XI Five Year Plan has targeted a capacity addition of
78,577MW (over 132,329MW installed at the end of X Plan), requiring an investment
of Rs4,109bn in power generation sector.

Continued investment required even beyond XI Plan…

With economic growth of 8-10 per annum, additional capacity of 71,000-108,000MW
will be required in the XII Five Year Plan as well.

Table 30: Looking beyond the XI Plan

GDP GDP/Electricity
Electricity Peak Installed Capacity Addition
Growth Elasticity
Requirement Demand Capacity During XII Plan (MW)
(%) (bn KwH) (MW) (MW)
8 0.8 1,415 215,700 280,300 70,800
0.9 1,470 224,600 291,700 82,200
9 0.8 1,470 224,600 291,700 82,200
0.9 1,532 233,300 303,800 94,300
10 0.8 1,525 232,300 302,800 92,800
0.9 1,597 244,000 317,000 107,500
Source: Report of the Working Group on Power for 11th Plan

Even assuming a conservative estimate, by the end of XII Five Year Plan, India must
have added 70,800MW capacity, apart from 78,577MW in the XI Five Year Plan. In
the next 10 years, India will have to add at least as much capacity as it has added in
the past 60 years!!!

…but power deficit may still continue…

Previous Five Year Plans have not been successful in meeting capacity addition
targets (Chart 21).

36
Adani Enterprises, March 31, 2008 ICICI Securities
Chart 21: Achievement of planned targets in previous plans

45,000 Target (MW) Achivement (MW) Success Rate 120

40,000
100
35,000
30,000 80
25,000

(MW)

(%)
60
20,000
15,000 40
10,000
20
5,000
0 0

(1974-79)

(1980-85)

(1985-90)

(1992-97)

(1997-02)

(2002-07)
10th
5th

6th

7th

8th

9th
Source: White paper on Strategy for XI Plan

While the XI Five Year plan appears to do better as 62 of the planned capacity
expansion is already under implementation, nevertheless most of these projects will
be commissioned post ’10 (Chart 22) and this increases the chance of delays and
hold-ups in commissioning.

Chart 22: Commissioning of power projects

120

100

28.8
80
(%)

60 23.9

40 17.9
8.6
20
20.8
0
FY08 FY09 FY10 FY11 FY12

Source: White paper on Strategy for XI Plan

In fact, we believe, 75 of the capacity may actually be operational by ’17, which means
power supply is not going to increase dramatically any time soon.

…and per capita consumption may increase

While there may not be a dramatic change in the power supply situation, we believe
power demand will increase both on account of increased economic growth and rising
per capita consumption.

At 600KwH per capita consumption of power, India is still among the lowest power
consumers globally. However, as GDP grows at 8+, we believe demand per capita
may be higher than 1,000Kwh as envisaged by ‘Power for All by ’12’. This is because
the current economic growth will put India into a high growth trajectory and per capita
power consumption will become comparable to global peers (Chart 23).
37
Adani Enterprises, March 31, 2008 ICICI Securities
Chart 23: Economic growth to lead to increased power consumption

16,000
USA

Per Capita Power Consumption

14,000
12,000

(Kwh, 2003)
10,000

8,000 Czech Rep. Israel Spain UK

6,000
Italy
4,000
Brazil
2,000 Mexico
China
0
India
0 6,000 12,000 18,000 24,000 30,000 36,000 42,000
Per Capita GDP (2004) US$

Source: UNDP Human Development Report 2006

Hence, power deficit may not decrease in the near future, even when more capacity is
added in the XI and XII plans.

Opportunity for the private sector

With the Government not having enough financial resources to create adequate
capacity and demand outstripping supply, we believe private sector has a huge
opportunity to exploit and supply competitively priced power. In fact, in terms of
investment, private companies have 7,528MW of projects under construction as part
of the XI Plan. Overall, the planned target of 13 capacity addition from private sector
requires an investment of more than Rs410bn.

More importantly, power demand is likely to continue outstripping supply. Thus, we

believe that power tariffs will keep on offering attractive returns to the private sector,
especially through the merchant power route, wherein short-term contracts offer an
upside based on demand-supply scenario.

Few concerns remain…

While opening of the power sector augurs well for private players in particular and the
whole sector in general, most private and Government investment up till now and in
the future is in coal-based thermal power projects (Chart 24).

38
Adani Enterprises, March 31, 2008 ICICI Securities
Chart 24: Sector-wise distribution of power projects
Hydro Coal Lignite Gas&Liquid Fuel Nuclear
100% 762
3,380
90% 1,490 450 2,037
80% 1,000
70%
60%
24,310 23,135 5,460
50%
40%
30%
20%
9,685 3,263
10%
3,605
0%
Central Government State Government Private

Source: Central Electricity Authority

This raises fuel supply concerns in the future. While India does have abundant coal
reserves (253.2bnte); the mineable electricity generating coal may be much lesser. In
fact, CEA estimates that by ’11-12, 40mnte of imported coal, which is equivalent to
68mnte of Indian coal, will have to be imported to meet power sector requirements
(Chart 25). Currently, coal is already being imported from Australia, Indonesia and
South Africa.

Chart 25: Estimated coal requirement and availability for power generation
600
Total Coal Requirement Total Availability

500

400
(mn te)

300

200

100

0
FY08 FY09 FY10 FY11 FY12

Source: Central Electricity Authority

39
Adani Enterprises, March 31, 2008 ICICI Securities
Annexure 2: Indian real estate – proxy on growing
economy
We estimate the size of Indian real estate market at FY07 end to be US$57bn or 6.2%
of the Indian GDP. In value terms, we expect the real estate market to grow at 12.8
CAGR in the next five years to US$105bn or 7.1 GDP by FY12E. In the next five
years, the average annual investments required in the real estate sector are at
~US$85bn, of which the residential segment constitutes 88 at US$74bn. We estimate
annual investments for the office space to be US$5.7bn and retail segment at
US$4.8bn. These estimates are based on requirements of investment in land and the
construction cost of developments to meet the intrinsic real estate demand in India.
These estimates are not based on sales as they would present a distorted picture
since the mark up on costs could vary with market conditions.

Table 31: Investments required in Indian real estate sector

(US$ bn)
Demand in Demand in Average demand
FY07 FY12E in next five years CAGR (%)
Residential 51.7 90.6 74.1 11.9
Office 3.0 7.7 5.7 20.9
Retail 2.7 6.5 4.8 19.5
Total 57.3 104.9 84.7 12.8
Investments as a of GDP 6.2 7.1 6.8
Source: I-Sec Research

We estimate that as of end-FY07, the stock (in terms of constructed area) was at
~38bn sqft for residential units, ~135mn sqft for office space and ~90mn sqft for retail.
In FY07, ~1.8bn sqft residential space, 35mn sqft office space and 24mn sqft retail
space was added to the stock. We estimate the market to grow at 4.6% CAGR with
residential, commercial and retail segments growing at 4.2%, 15.2% and 14.3% CAGR
respectively. Also, we expect the next five-year average annual demand for
residential, office and retail space at 2bn sqft, 65mn sqft and 37mn sqft respectively.

Table 32: Real estate – Segment-wise demand forecast

(mn sqft)
Current Development Demand in Average demand for CAGR
stock in FY07 FY12E next five years (%)
Residential 37,822.5 1,763.4 2,165.7 1,998.2 4.2
Office 135.0 39.8 80.6 64.8 15.2
Retail 89.8 23.9 46.6 36.5 14.3
Total 38,047.3 1,827.1 2,292.9 2,099.5 4.6
Share of residential 99.4 96.5 94.4 95.2
Source: I-Sec Research

Going forward, hotels, logistics and warehousing would create significant real estate
demand. As per industry estimates, next five years would see additions of 100,000-
125,000 hotel rooms in India.

There is tremendous opportunity for developers to capture the burgeoning real estate
market. However, developers need to re-invent themselves to meet changing
customer needs and offer differentiated, quality products at the right price.

40
Adani Enterprises, March 31, 2008 ICICI Securities
Foundations still good
Real estate growth in Indian is based on strong economic growth, improving
demographics, rise of the services sector and the upcoming organised retail hospitality
& logistics industry. This growth is further fuelled by increasing money flow in the
sector and Government initiatives such as SEZs to generate additional demand.
These drivers are expected to remain strong in the visible future, lending credence to
long-term growth in the real estate industry.

Strong and sustainable economic growth

The critical driver of real estate growth in a country is its overall economic health; the
upswing or downswing in economic activity is a leading indicator of demand and prices
in the sector. Economic growth provides impetus to commercial real estate by
improving rentals, reducing vacancy rates and increasing demand for further office
space. On the other hand, rising income levels fuel demand for residential and retail
real estate.

In India, real estate and economy are deeply interlinked and interdependent for
growth. The real estate industry has linkages with various sectors of the economy,
being associated with 250 industries. Investment in real estate results in 78% addition
to the GDP (Source: Report of International Union for Housing Finance). A unit
increase in expenditure in this sector has a multiplier effect, generating 5x income
growth. As per industry estimates, real estate could generate 3.2mn jobs over a
decade, thus adding ~10mn to the current employment base. This makes the realty
sector the second-largest employer after agriculture. The overall employment
generation on the back of additional investment in housing/construction is 8x direct
employment (Source: IIM-Ahmedabad Study in ’00).

Chart 26: Quarterly growth in construction versus the GDP

23 GDP Construction
21
19
17
(% chg YoY)

15
13
11
9
7
5
Q1FY04

Q2FY04

Q3FY04

Q4FY04

Q1FY05

Q2FY05

Q3FY05

Q4FY05

Q1FY06

Q2FY06

Q3FY06

Q4FY06

Q1FY07

Q2FY07

Q3FY07

Source: CSO

Strong growth in the Indian economy has been mainly on account of the rise of the
services sector, which has grown annually at 12.8% for the past five years. The
services sector now contributes 60% to the GDP and is still showing unrelenting
growth.

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Adani Enterprises, March 31, 2008 ICICI Securities
Chart 27: Growth in Indian GDP and services sector
50 GDP, current prices (INRbn) YoY grow th in GDP 25%
45 YoY grow th in Services 23%
40 21%
35 19%
30 17%

(Rs trn)
25 15%
20 13%
15 11%
10 9%
5 7%
0 5%

FY07E

FY08E
FY92

FY93

FY94

FY95

FY96

FY97

FY98

FY99

FY00

FY01

FY02

FY03

FY04

FY05

FY06
Source: MOSPI, I-Sec Research

The Indian economy has grown at 11% CAGR for the past five years and is expected
to deliver 8%+ real growth in the visible future. India is the tenth largest economy in
the world and fourth largest based on purchasing power parity. Also, India is the
second fastest growing economy, well poised to become the third largest economy in
the world by ’50 (source: PwC). This lends strong base for robust growth in the real
estate market.

Favourable demographics
Rising income levels
India’s per capita disposable income growth has been 2.6x in the past 10 years and
1.6x in the past five years. From the current levels of Rs29,800, we expect the per
capita disposable income to grow 8-13% in the next five years.

Chart 28: Rising disposable Income

30 Per Capita Net disposable Income Grow th rate (RHS) 18%

16%
25
14%
(INR thousand)

20 12%
10%
15
8%
10 6%
4%
5
2%
0 0%
FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06

Source: MOSPI, I-Sec Research

For the residential real estate market, the key impact of rising income levels has been
improving affordability of homes.

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Adani Enterprises, March 31, 2008 ICICI Securities
Affordability, which measures the number of annual incomes required to buy a house,
has come down from 20 years in 1995 to as low as 4.3 years in ’04. However, the
affordability index has started rising, reaching 5.1 years by ’07; we expect sharper rise
in realty prices that would increase the affordability index even further.

Chart 29: Affordability – Within comfort zone

40 Property Cost (Lac) Affordability (years) 8

35 Annual Income (RHS) 7

Annual Income (Rs Lac)

Property Value (Rs Lac)
30 6

25 5

20 4

15 3

10 2

5 1

0 0
1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011
Source: HDFC, I-Sec Research

Affordability, in terms of years of annual income, is still not the key concern; the
affordability index was >10 years before 1997-98. However, rising financing cost and
the impact of increasing mortgage payments are the growing concerns.

Growing urban population

India’s urban population has grown ~3% annually to 285mn in ’01 from 109mn in
1971; the growth trend would continue, with urban population at ~370mn by ’11E.
Indian cities with >1mn population grew from 12 in 1981 to 35 in ’01 and are expected
to reach 70 by ’25. In ’01, 27.8% urban population living in these cities is likely to grow
to 41% by ’25, implying migration from smaller to larger cities.

Table 33: Urban population

1971 1981 1991 2001 2006 2011E
Urban population (mn) 109 159 218 285 325 370
Urban population growth (%) 2.7 3.9 3.2 2.7 2.6 2.7
urban population (% of total) 20.0 23.3 25.7 27.8 29.1 31.2
Contribution to national income (%) 35.0 47.0 55.0 60.0 63.0 66.0
Cities – population >1mn 8 12 23 35 45 53
Source: National institute of Urban, UNDP, CPHEEO, I-Sec Research

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Adani Enterprises, March 31, 2008 ICICI Securities
Chart 30: Urban and rural growth rates Chart 31: Urban growth
1971-1981 1981-1991 1991-2001 % urban population
4.5%
Contribution to national income (%)
4.0% 70.0 Cities - population more than 1 mn (RHS) 60
3.5%
60.0 50
3.0%
50.0
2.5% 40
2.0% 40.0

Cities
(%)
30
1.5% 30.0
1.0% 20
20.0
0.5%
10
population

population

population
households

households

households
10.0
Urban

Rural
Urban

India
Rural

India
0.0 0
1971 1981 1991 2001 2006 2011

Source: Census India Source: National institute of Urban Affairs, UNDP, CPHEEO, I-Sec
Research

Burgeoning Indian middle-class

The number of Indian middle-class households with annual income between Rs0.2mn
and Rs2mn has quadrupled in the past 10 years from 4.7mn households in 1996 to
17.5mn in ’06. The number of upper-class households with annual income >Rs2mn
has grown 6x from 0.08mn households in 1996 to 0.6mn in ’06.

Indian middle & upper-class together stand at ~100mn, expected to grow 15-16%
annually for the next five years. The growth of middle and upper classes is one of the
key driver for further housing demand.

Table 34: Population profile

(Households ’000s)
FY06 FY10 CAGR (FY06-FY10)
Income (mn) FY96 FY02 (approx) (estimate) (%)
>10 5 20 52 141 28.3
10 to 5 11 40 103 255 25.4
5 to 2 63 201 454 1,037 22.9
2 to 1 189 546 1,122 2,373 20.6
1 to 0.5 651 1,712 3,212 6,173 17.7
0.5 to 0.2 3,881 9,034 13,188 22,268 14.0
0.2 to .009 28,901 41,262 53,276 75,304 9.0
<0.009 131,176 135,378 132,249 114,394 (3.6)
Total 164,877 188,193 203,656 221,945
Source: NCAER (‘The Great Indian Middle Class’, ’04), I-Sec Research

Young India
India’s median age was 24 in ’05 as compared with 33 years for China and 43 years
for Japan. As per industry estimates, average age of a home buyer has decreased
from 42 years to 31 years. The younger generation is creating demand for further
residential units and the trend should continue as the income generation capability of
the Indian youth remains strong.

Nuclearisation
Reduction in household size has created additional demand in residential units. The
size of an average urban household decreased from 6.06 people in ’01 to 5.5 people
at present. Average household size in European countries varies from 2.3 to 2.8
persons. Rising income, greater number of income generators per household,

44
Adani Enterprises, March 31, 2008 ICICI Securities
especially working women and the younger generation, and changing mindset are the
primary reasons for reduction in the household size. We expect the household size to
continue to dip 0.5-0.3 annually, reaching ~5.14 people in the 10 ten years.

Increasing funding options

In India, home loan as a percentage of GDP is ~6% as of FY07 as compared with
~4% in FY06. The ratio is still considerably low in comparison with developed
countries such as the US (71%), the UK (80%), Denmark (94%) and other Asian
countries. We believe that a sizeable opportunity exists for funding residential units in
India, which in turn would propel further residential demand. However, rising interest
rates have reduced the attractiveness of home loans.

Chart 32: Home loan as a percentage of GDP

Denmark
UK
USA
Hongkong
Germany
Taiw an
Singapore
Malaysia
2007
Korea
2006
Thailand
India

0% 20% 40% 60% 80% 100%

Source: HDFC

Growth in IT/ITES sector and other businesses

India has the largest skilled labour pool in the world, with 2.5mn new graduates added
each year. Most new entrants have good communication, technical and quantitative
skills. India has a total graduate population of ~50mn, which is 1.5x China's and ~2x
USA’s. A recent AT Kearney report rated India as the second-best destination for FDI
investments after China and the #1 off-shoring location in the world.

The IT/ITES sector grew at a phenomenal pace in the past decade, significantly
impacting office real estate in India; the sector comprises ~75-80% of the current
commercial demand. In FY06, the industry exports grew 33% to US$23.6bn; the
sector is expected to grow 25-30% annually in the next few years. At present, the
IT/ITES sector has ~1.3mn employees, with more than 350,000 employee addition
expected next year. We estimate the number of employees in the IT/ITES sector at
~4.5mn by FY12E and ~8mn by FY17E. As per industry estimates, ~ 3.5mn jobs will
be outsourced to India by FY17E.

Bangalore is the traditional hub for IT/ITES space in India. In the South, Hyderabad,
Pune and Chennai are developing as key hubs of commercial development. In the
North, Delhi, Noida and Gurgaon are the preferred destinations. The West has
witnessed Mumbai, the commercial capital of India, grappling with the upcoming
demand that is pushing prices in the commercial business district (CBD) and
peripheral areas to new highs. At present, Tier II cities offer more advantages to

45
Adani Enterprises, March 31, 2008 ICICI Securities
IT/ITES companies, considering the lower real estate prices. Cities such as
Coimbatore, Mangalore, Chandigarh, Vishakhapatnam, Madurai, Mangalore, Kochi,
Jaipur, Gurgaon, and Nagpur are also in the midst of IT/ITES-led real estate boom.

Apart from the IT/ITES sector, biosciences, insurance, banking and consulting sectors
also contribute to office space demand. Further, India has emerged as the global
manufacturing base, especially for textiles, auto & auto components and light
engineering industries.

Office space in India currently stands at 135mn sqft, which is low compared to
international peers. Hong Kong alone has more office space than India; Manhattan,
US has > 430mn sqft.

Growth in organised retail

At present, India’s retail market is ~US$270bn and growing ~7-9% annually. We
estimate the retail market at US$600bn by FY17E. Given that retail is globally the
largest industry at ~US$7.2trn, we expect significant action in retail space. A number
of international retailers and brands are entering the Indian retail market. AT Kearney’s
recent retail report, Global Retail Development Index, ’06, rated India as the most
attractive place for the retail industry.

The size of the organised retail market, as a component of total retail, increased from
2% in FY03 to ~6% in FY07. However, the share of organised retail in India is very low
when compared with >15% in China and >40% in other Asian countries. We expect
organised retail to grow at 21% CAGR to US$109bn in FY17E. Improving
demographics, increasing urbanisation and cultural shift are key reasons for growth in
organised retail.

Chart 33: Retail growth

700
Total Retail Market ($ bn)
600 Organised Retail ($ bn)

500
(US$ bn)

400

300

200

100

0
FY08E

FY09E

FY10E

FY11E

FY12E

FY13E

FY14E

FY15E

FY16E

FY17E
FY04

FY05

FY06

FY07

Source: Industry, I-Sec Research

In the next three years, ~220 malls are expected to emerge in India, including
specialised malls such as auto, jewellery, furniture and electronic malls. Further, many
upcoming malls would offer hotel and amusement facilities.

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Adani Enterprises, March 31, 2008 ICICI Securities
Table 35: Upcoming malls (three years)
City Number of malls
Delhi 60
Mumbai 30
Bangalore 10
Chennai 5
Kolkata 10
Hyderabad 15
Pune 11
Ahmedabad 4
Tier III cities 75
Total 220
Source: Business Standard

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 Adani Enterprises, March 31, 2008 ICICI Securities

Annexure 3: Company background

AEL is the flagship company of the Adani Group and is one of the leading trading
houses in India, being the first company to be accorded the status of Five Star Trading
House by the Directorate General of Foreign Trade, New Delhi. The Adani Group,
founded in 1988, is one of the fastest growing business houses in India.

With its head office in Ahmedabad, India, AEL has extended its activities across the
globe. AEL has over the years transformed itself into a multiple asset backed
commodities trader, sourcing, producing, marketing and transporting nearly 70
commodities across more than 60 countries. The company operates through 30
offices including eight overseas offices in the US, the UAE, China, Singapore,
Indonesia, Mauritius and Myanmar.

The Adani Group is now witnessing a transition from primarily being a trusted trading
house to a diversified conglomerate. Its business canvass includes edible oil, logistics,
power generation, coal, oil & gas exploration, gas distribution, real estate, ports,
special economic zones and IT-enabled services, largely held within AEL. Its growth
has been organic, which led to a synergy among business units making them more
productive and competitive together.

Chart 34: Company evolution

2nd FCCB US$250mn
2007

2006 Agri Fresh, Agri Logistics, 660 MW Power Proj–Work Commence

2005 T/O US$3bn+ Market Cap USD 327mn

2004 T/O : US$2bn+ FCCB USD38mn Five Star Export House

2002 Subsidiary in Singapore

2001 Edible Oil Refinery Golden Superstar Trading House

1999 Subsidiary in UAE

1998 Mundra Port Operational Coal Business Commenced

1994 IPO @ Rs.150/share. Over subscribed 25 times Super Star Trading House

1993 Public Ltd Company Star Trading House

1988 Started as Partnership Firm

Source: Company

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Adani Enterprises, March 31, 2008 ICICI Securities
Key management profile
Gautam S. Adani – Group Chairman. Mr. Gautam S. Adani, aged 44 years, is the
Company's Chairman and has over 20 years of varied experience in manufacturing
and trading. His unparalleled expertise in international trade, new problem solving
approaches, innovation and endurance in an increasingly competitive and rapidly
expanding trading market has seen the Adani group metamorphose itself from a
trading house to an infrastructure builder and basic utility provider.

Rajesh S. Adani – Managing Director. Mr. Rajesh S. Adani, aged 42 years, is the
Managing Director of the Company and holds a degree in commerce. He is
responsible for the operations of the Issuer. His proactive and personalized approach
to business and a competitive spirit has been instrumental in AEL establishing
business relationships and a wide network of contacts with traders across the globe.

Energy
R.K. Gupta – President (Power Generation). Mr Raj Kumar Gupta, aged 62 years,
holds a degree in B.E. (Electrical Engineering) and has a rich experience of more than
4 decades in the field of hydro/diesel/coal/gas power generation and distribution. His
achievements include commissioning of various power plants across India in a record
time and within the given cost budgets. He has earlier worked with RRVUNL as CMD
and UPRVUNL as Director (Technical).

R.K. Madan – President (Power Trading). Mr. Madan, an Electrical Engineering

Graduate with 64 years old possess a total experience of more than 41 years in all the
facets-engineering, contracting, execution, operation and maintenance of power /
transmission works of Indian Power Sector. Prior to joining Adani Group, he was
Chairman & Managing Director of Power Trading Corporation of India

Rajiv Sharma – CEO (Adani Energy). Mr. Rajeev Sharma has been associated with
Adani Group since last 4 years and has been responsible for Group’s initiatives in gas
business and development of city gas distribution projects across the country. Prior to
joining Adani Group, he was associated with GAIL (India) Limited for 19 years in
various capacities. As the founding Managing Director of Indraprastha Gas, he has the
distinction of implementing successfully the prestigious CNG Program in Delhi. He has
been responsible for formation of a professional forum - “Natural Gas Vehicles
Association of India (NGVAI)” for discussing and highlighting developments in
technology, codes & standards and policy issues.

Pradeep Mittal – Director & CEO (Energy & Minerals). Mr. Pradeep Mittal, aged 52
years, is an Executive Director of the Company. He is the Chief Executive Officer of
the Company's energy and minerals divisions and has more than 28 years experience
in international coal trading. He has been instrumental in several new business
initiatives which have now been turned into successful ventures like trading in power,
coal etc.

Harsh V. Mishra – President (Overseas Business Development). Mr. Harsh Mishra

is a Post Graduate in Physics from IIT Delhi and an MBA from FMS, Delhi. He has
worked with ONGC, Times of India and other big corporate groups including Jindal
Strips, his last employment for 9 years as Director/Executive Vice President

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Adani Enterprises, March 31, 2008 ICICI Securities
(Corporate Planning). In Adani he is heading the coal mining operations in Indonesia.
He is also responsible for new business development abroad.

Mr M.K. Thapar (President Coal Mining). Shri Thapar has had a very illustrious
career in the Coal Industry last assignment being that of CMD of South Eastern Coal
Fields. Prior to his assignment in South Eastern Coal Fields Shri Thapar has worked
in different capacities such as Director in the Ministry of Coal, initially as Tech Director
& later as CMD OF Central Coal Fields Limited. He has been a turnaround specialist
and is known to drive growth from primarily optimizing utilization of resources.

T L Jain – President (POL). Mr. Jain, a Fellow Member of the Institute of Chartered
Accountants of India (FCA). He brings with him a very rich experience and
accomplished track record of more than 30 years in Downstream Oil Industries. He
has served with Indian Oil Corporation Ltd. (IOCL) in different capacities across the
functions such as Finance, Marketing, Corporate Planning. He held last position as
Executive Director (Corporate Planning & Economic Studies).

Mr Mathur – CEO (Adani Welspun Exploration). Mr. Mathur has a very rich
background in the petroleum & oil sector, having spent 35 years in various positions in
Shell in the US, the Hague and in London.

Real Estate
Mr Tarwinder Singh – CEO (Adani Developers Pvt). Mr. Tarwinder Singh, CEO, has
done his Bachelor of Engineering (Civil) and Masters in Technology in Construction
Management from IIT, Delhi. He joined the Adani Group in March 2006 as the CEO of
the Group’s realty business. Before joining the Adani Group, he was a Director on
board of Punj Lloyd, looking after the Infrastructure SBU of the company.

Agro
Pranav Adani – Director (Adani Wilmar). Mr. Pranav Adani graduated in Business
Management from Boston University, US and immediately got involved in newly
formed Joint Venture between Adani Group and Wilmar Group of Singapore. He
possesses a rich & varied management experience of more than 8 years in the FMCG
sector & under his able guidance, the Adani Wilmar Limited has been transformed into
a formidable player with a leading market share of more than 20. Under his
management, the Adani Group is also making an ambitious foray into development of
integrated Agri Infrastructure from Farm to Retail for Fresh Fruits and Vegetable
sector.

Atul Chaturvedi – President (Agro). Mr. Atul Chaturvedi, Post Graduate in Export-
Import Management, has more than 26 years of varied general and strategic
management experience in the field of Manufacturing and Trading. He has played a
key role in the development of Agro Division within a span of 4 years of his association
with Adani Enterprises Ltd.

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Adani Enterprises, March 31, 2008 ICICI Securities
Ravindra Jain – CEO (Agrifresh). Mr Ravindra Jain is a gold medalist in his B.E.
(Elect) from the M. Regional Engineering College, Jaipur and has thereafter done his
Post Graduation from the IIM, Ahmedabad in 1980. He has worked in Companies like
Crompton Greaves, Bakelite Hylam, Titan Industries, Hitachi Amtrex Appliances in
senior positions of sales and marketing. Mr. Jain is heading the Agrifresh business of
Adani’s and his background in marketing and strategic planning with the exposure to
the food industry would go a long way in development of the Agrifresh business which
the group is embarking upon.

Services
Devang Desai – Chief Financial Officer. Mr. Devang Desai is a Chartered
Accountant and has 26 years of corporate experience in reputed Indian companies.
His exposure to “new ventures” and “start-ups” in industries ranging from
Petrochemicals, Cement, Textiles, Infrastructure and retailing, has provided him with a
wealth of business perspectives and developmental issues. He has been extensively
involved in conceptualizing ventures, managing large resource mobilization
programmes and initiating & nurturing alliances in Adani for more than a decade. He
is part of the core team which has large interests in global commodity business and
infrastructure.

Chart 35: Shareholding pattern

Existing
Post FCCB conversion
Public FCCB
25% 6%

Public
24%

Promoters
75% Promoters
70%
Source: Company, I-Sec Research

51
Adani Enterprises, March 31, 2008 ICICI Securities

Annexure 4: Index of Tables and Charts

Tables
Table 1: Valuation for power projects ................................................................................... 3
Table 2: Relative valuations for power companies ............................................................... 3
Table 3: Power generation valuation sensitivity to tariffs and discount rates ....................... 4
Table 4: Valuation summary of real estate ........................................................................... 4
Table 5: Real estate valuation sensitivity to property prices and discount rates .................. 4
Table 6: Relative valuation of real-estate companies ........................................................... 5
Table 7: Valuation of trading businesses.............................................................................. 5
Table 8: Valuation of other businesses (including brief remarks)......................................... 5
Table 9: SOTP valuation for AEL.......................................................................................... 6
Table 10: Fair value of Rs926/share post dilution ................................................................ 6
Table 11: Investments in Real estate expected to report 12.8% CAGR............................... 7
Table 12: Mundra project details .......................................................................................... 9
Table 13: Tiroda project details........................................................................................... 10
Table 14: Dahej and Rajasthan projects............................................................................. 11
Table 15: FCFE based valuation of power projects............................................................ 11
Table 16: Key assumptions and valuation of mining deal with RRVUNL ........................... 12
Table 17: Real estate space – Break-up ............................................................................ 14
Table 18: Real estate: assumptions and valuation details ................................................. 19
Table 19: Assumptions and valuation for trading................................................................ 19
Table 20: Plan growth rates versus investment ratio.......................................................... 23
Table 21: Supply to remain under constraint even in best-case scenario… ...................... 23
Table 22: Brief overview of distribution-related business segments................................... 25
Table 23: Assumptions and valuation of other businesses ................................................ 26
Table 24: Funding requirement by various business segments ......................................... 29
Table 25: Financials – Various business segments ........................................................... 30
Table 26: Profit & Loss statement....................................................................................... 31
Table 27: Balance Sheet..................................................................................................... 32
Table 28: Cashflow statement ............................................................................................ 33
Table 29: Key ratios ............................................................................................................ 34
Table 30: Looking beyond the XI Plan................................................................................ 36
Table 31: Investments required in Indian real estate sector............................................... 40
Table 32: Real estate – Segment-wise demand forecast................................................... 40
Table 33: Urban population................................................................................................. 43
Table 34: Population profile ................................................................................................ 44
Table 35: Upcoming malls (three years) ............................................................................. 47

52
Adani Enterprises, March 31, 2008 ICICI Securities
Charts
Chart 1: AEL in transition mode ............................................................................................ 7
Chart 2: Power generation to grow at 10% CAGR ............................................................... 7
Chart 3: Coal demand (from power and steel sectors) to grow at robust rates .................... 8
Chart 4: Planned projects with total of 9.9GW capacity ....................................................... 8
Chart 5: Progress made in Bunyu Island for coal mining ................................................... 13
Chart 6: Prime location properties fetch higher value......................................................... 15
Chart 7: Commercial property prices in South Bombay ..................................................... 16
Chart 8: Location map of BKC ............................................................................................ 16
Chart 9: Shantigram – proposed plan ................................................................................. 18
Chart 10: Key uses of coal.................................................................................................. 20
Chart 11: Region-wise coal based power generation capacity and planned addition ........ 21
Chart 12: Major seaborne coal trade routes ....................................................................... 22
Chart 13: Coal – Demand-supply gap ................................................................................ 22
Chart 14: Changing asset composition and improving operating margins ......................... 28
Chart 15: Aggressive expansion impacting cashflows, largely funded by debt.................. 28
Chart 16: Sources of funding .............................................................................................. 29
Chart 17: Robust growth expected supported by evolving business model ....................... 30
Chart 18: Power shortage versus GDP .............................................................................. 35
Chart 19: Power supply – Demand gap remains ................................................................ 35
Chart 20: Power generation to grow at 10 CAGR............................................................... 36
Chart 21: Achievement of planned targets in previous plans ............................................. 37
Chart 22: Commissioning of power projects ....................................................................... 37
Chart 23: Economic growth to lead to increased power consumption ............................... 38
Chart 24: Sector-wise distribution of power projects .......................................................... 39
Chart 25: Estimated coal requirement and availability for power generation ..................... 39
Chart 26: Quarterly growth in construction versus the GDP............................................... 41
Chart 27: Growth in Indian GDP and services sector ......................................................... 42
Chart 28: Rising disposable Income ................................................................................... 42
Chart 29: Affordability – Within comfort zone ..................................................................... 43
Chart 30: Urban and rural growth rates .............................................................................. 44
Chart 31: Urban growth....................................................................................................... 44
Chart 32: Home loan as a percentage of GDP ................................................................... 45
Chart 33: Retail growth ....................................................................................................... 46
Chart 34: Company evolution ............................................................................................. 48
Chart 35: Shareholding pattern........................................................................................... 51

53
Adani Enterprises, March 31, 2008 ICICI Securities

ICICI Securities Limited has been mandated for rendering advisory services to Adani Enterprises Limited. This report is prepared on the basis of
publicly available information

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We /I, Poonam Nishal, PGDM, BE research analysts and the authors of this report, hereby certify that all of the views expressed in this research report accurately
reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or
indirectly related to the specific recommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated
person of the ICICI Securities Inc.

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This report has not been prepared by ICICI Securities, Inc. However, ICICI Securities, Inc. has reviewed the report and, in so far as it includes current or historical
information, it is believed to be reliable, although its accuracy and completeness cannot be guaranteed.

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Adani Enterprises, March 31, 2008 ICICI Securities

EQUITIES
A Murugappan Executive Director +91 22 6637 7101 [email protected]
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