Thursday, August 9, 2012

Adani Posts drop in Profit in line with Market Expectations.

Adani Enterprises, the flagship firm of the Adani Group has posted its consolidated net profit to Rs 402.88 crore for the first quarter ended June 30, 2012.  This is down by 29% on Y-o-Y basis . AEL had posted a net profit of Rs 569.81 crore in the Q1 last year.

Bad Days are nearing end for ADANI?
The consolidated net sales of the company in this quarter was Rs 11,024.59 crore  vis-a-vis Rs 9,596.13 crore of the first quarter of FY'12, it said in a filing to the BSE. This is an increase of about 15%. The AEL standalone performance has shown remarkable performance. Its standalone net profit for the quarter ended June rose a whopping 344 per cent to Rs 421.6 crore, against Rs 94.9 crore in the corresponding period last year.

Reasons cited for the drop in profit were known and anticipated by the invetors. Market had  already discounted  the likely impact of Fuel cost to its power business. Till June AEL stock was traded in the range of 210-260,   but it slipped to the current range of  171-196 in July. Going forward  if there are no fresh shockers to the market,  AEL share can bounce back to the previous range soon.

There are two reasons to this. First,  in this quarter drop in profit has absorbed an increased cost of finance.  It's finance cost in April-June quarter of 2011-12 was at Rs 222.97 crore. This quarter it rose to to Rs 927.19 crore.  The impact was of more than Rs 700 cr.  If  this factor is ignored  there is a  45% rise in the net profit.  (402.88 + 704.22 - 281.69  =  Rs 825.41 Cr).

Share Performance on 9th August'12
Second reason is that the  financing cost will come down as   promoters have to reduce their  stake to below  the threshold level of 75% in the three group companies  as per the directives of the  regulators.  Promoter holding  in Adani Power is pegged at 76.63%, in Adani Port and SEZ at 77.5% and about 80% in Adani Enterprises.  This dilution is expected to raise about US$ one  billion.  Which will be used in financing the upcoming mining projects in Australia.

Environment and other regulatory clearances for  its Australian coal venture will also be obtained by fiscal-end.  The operations of overburden removal at Australian mine is expected to begin in November 2013.

Most bleeding of business plans has happened in power sector. Group Chairman Gautam Adani is optimist there. He said the company is working with concerned authorities to arrive at a solution and "are confident that our power business shall generate the envisaged return shortly, creating value for its stakeholders."

But, nothing will  happen till the government is willing to take tough reforms in the power sector, which may not be liked by the managements of the DISCOMS.  Unless that happens major  break through in revival would be slow. 


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