Adani Enterprises Initiating coverage

8/14/2019 Adani Enterprises Initiating coverage

1/55

Please refer to important disclosures at the end of this report

Market Cap Rs148bn/US$3.7bn Year to March FY08E FY09E FY10E FY11EReuters/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

Absolute Return 12m (%) 193.4 Dividend Yield 0.1 0.1 0.1 0.1

Sensex Return 3m (%) (22.9) RoCE (%) 7.6 5.1 6.6 8.1

Sensex Return 12m (%) 25.6 RoE (%) 20.9 5.9 10.0 18.2

Adani Enterprises BUY

Morphing to excel Rs601Reason for report: Initiating coverage

Equity ResearchMarch 31, 2008

BSE Sensex: 15644

Diversified

Shareholding patternJun'07

Sep'07

Dec'07

Promoters 66.9 75.0 75.0Institutionalinvestors 16.6 11.9 14.9

MFs and UTI 1.8 1.8 1.9Insurance Cos. - - 0.0FIIs 14.7 10.1 12.9

Others 16.5 13.1 10.2

Source: NSE

Price chart

0

200

400

600

800

1000

1200

1400

Apr-07

Jun-07

Jul-07

Sep-07

Nov-07

Jan-08

Mar-08

(Rs)

Poonam [email protected] 22 6637 7443

Adani Enterprises (AEL) is set to ride the Indian Infrastructure growth wave bytransitioning from being a leading trading house to a diversified infrastructureplayer. Aggressive plans in power generation and real estate (supported by otherexpanding businesses) would result in 26% revenue CAGR and ~900bps EBITDAmargin expansion, implying 92% earnings CAGR over FY08E-11E. Huge capexoutlay of ~Rs510bn in the next four years would entail ~28% equity dilution. Oursum-of-the-parts (SOTP) based valuation suggests 12-month target price ofRs908/share. Material upside could accrue from better yields and new projects inpower/real-estate, coal mining & oil exploration. Initiate coverage with BUY.

Riding the infrastructure growth wave. AEL is undergoing a transition from beinga pure trading house to diversified infrastructure play, focussing on fast growingsegments 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/commercialproperty and townships, engage in coal mining with 440MMT available reserves, setup oil & gas exploration units and introduce new agri storage & transportationoptions apart from expanding its existing trading business.

9,900MW capacity valued at Rs256bn, aided by access to low cost fuel. 80% ofthe 9,900MW capacity is likely to be sold on merchant basis as of now. Access tolow cost coal from owned mines in Indonesia and Maharashtra would aid the powerbusiness equity value at Rs256bn translating into Rs623/share for AELs stake.

Real estate development of 105mn sqft to add Rs79bn. AEL is developing twointegrated townships in Gujarat (Ahmedabad and Mundra) spanning ~96mn sqftcombined. Balance is split across three projects in prime locations at Mumbai, Kochiand Surat with residential, commercial and retail spaces. We estimate an equity

value of Rs79bn (Rs191/share for AEL stake) for this segment. Existing trading and other businesses valued at Rs75bn. AELs existing trading

business is expected to post 18% CAGR over FY08E-11E, led by robust growth inagri and coal trading. We have valued this segment at Rs43bn. Coal mining forRajasthan state electricity board, stake in the JV with the Wilmar Group, city gasdistribution and other agri-related businesses are valued at Rs32bn.

SOTP valuation suggests Rs908 fair value post 10% corporate discount and 28%dilution (without any contribution from the oil & gas business). Upside to emergefrom: i) higher yields in power tariffs or property prices, ii) acquisition of more miningassets, iii) successful venture in oil exploration and iv) lower equity dilution throughfunding at subsidiary level. Initiate coverage with a BUY.

INDIA


2/55

Adani Enterprises, March 31, 2008 ICICISecurities

2

TABLE OF CONTENTS

SOTP valuation suggests 51% upside...........................................................................3Power generation, largest asset creator forming 62% of value ......................................3Real estate Creating real value with 19% contribution ................................................4Trading & others constituting 16% of the total value ...................................................5AEL valued at Rs304bn post 10% corporate discount ...................................................6Upside to our fair value could emerge from:...................................................................6

Expanding horizons.........................................................................................................7Pipeline of 9,900MW capacity, valued at Rs256bn, aided by access to low cost fuel ...8Real estate Blend of residential & commercial projects, valued at Rs79bn ..............14Trading Providing the necessary initial capital, valued at Rs127/share ....................19Other segments adding another Rs18bn......................................................................24

Key risks .........................................................................................................................27Changing face of AELs financials...............................................................................28

Shift from trading to infra = move from current to fixed assets .................................28 supported by increasing financial leverage ..............................................................28Equity dilution of 28% expected to bridge funding gap.................................................29Expected 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 ............................................................35Continued investment required even beyond XI Plan...............................................36but power deficit may still continue........................................................................36

and per capita consumption may increase................................................................37Opportunity for the private sector..................................................................................38Few concerns remain ................................................................................................38

Annexure 2: Indian real estate proxy on growing economy ..................................40Foundations still good ...................................................................................................41

Annexure 3: Company background .............................................................................48Key management profile ...............................................................................................49

Annexure 4: Index of Tables and Charts .....................................................................52


3/55


3

SOTP valuation suggests 51% upside

AELs 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 whichwould 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 valueAll 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/MWUnder constructionMundra 86 110,097 2,640 41.70Maharashtra 64 52,247 1,980 26.39

162,344 4,620Recent ProjectsMundra 86 38,770 1,980 19.58Rajasthan 86 21,692 1,320 16.43

Dahej 86 33,476 1,980 16.9193,938 5,280

Total 256,282 9,900 25.9Source: I-Sec Research, Company

Almost two quarters back, 3i Group plc had picked minority stake in APL valuing it at

Rs100bn (the Groups 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 companiesEPS (Rs) P/E (x) P/BV (x)

Company nameCMP(Rs)

Mkt. cap(Rs bn)

RoE(%) FY08E FY09E FY08E FY09E FY08E FY09E

NTPC 197 1,624 15.0 9.4 10.3 21.0 19.1 3.1 2.8Reliance Energy 1,251 296 10.2 40.4 46.5 31.0 26.9 2.8 2.6Reliance Power* 318 476 0.8 0.2 (1.7) NM NM 3.4 3.4Tata Power 1,172 258 11.4 32.6 33.5 35.9 35.0 3.5 3.1CESC 412 51 12.9 28.0 30.1 14.7 13.7 1.5 1.4

* Adjusted for the bonus announcedSource: I-Sec Research, Bloomberg


4/55


4

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 27513.5 224 256 288Cost of equity (%)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/sqftBKC 85 37,306 2.18 17,113Khatau 57 8,312 1.90 4,375Shantigram 71 18,180 41.50 438

Surat 95 4,614 5.65 817Cochin 95 1,490 3.24 459Mundra 95 9,338 49.99 187Weighted 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 85.10.0 72.2 79.2 86.3

Cost of equityvariation (%)

-0.5 73.2 80.4 87.5Source: 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.


5/55


5

Table 6: Relative valuation of real-estate companies

CompaniesFY09EP/E (x)

Market cap(Rs bn)

Land bank(mn sqft)

Value(Rs/sqft)

Unitech 12.6 448.3 689 651Purvankara 11.4 51.4 110 468Omaxe 6.4 36.1 170 213Sobha 12.9 43.9 225 195Parsvnath 8.2 38.8 125 310


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

ProjectsHolding

(%)FY10E P/E

(x)Equity value

(Rs mn)Remarks

Agro Commodities 100 9 10,369 High growth, increasing market shareCoal Trading 100 9 15,533 High growth, increasing market sharePower Trading 100 9 339 High growth, increasing market sharePOL 100 8 636 Moderate growth, high market shareIron Ore 100 7 1,744 Decreasing market sharePrecious Metals 100 8 8,713 Moderate growth, high market shareDubai Scrap 100 7 2,137 Decreasing market shareBelekeri Port 100 8 1,919 Moderate growth, high market shareFreight Brokerage 100 6

1,203Decreasing market share, shrinkingmargins

Total 42,595Source: 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, longgestation 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 AELs share.

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

Projects Holding (%) Basis Equity RemarksCoal mining dealwith RRVUNL

76 FCFE 14,784 Volume build-up to maximumcapacity over five years, 3%escalation in service chargesand opex

Adani Wilmar 50 13x FY10E P/E 6,322 Volume led growth, operatingmargins to shrink to 2%,

earnings to report over 15%CAGR

Agri-logistics 100 FCFE 410 Cost of equity 18%, terminalgrowth 3%

Agri-fresh 100 FCFE 2,239 Cost of equity 18%, terminalgrowth 3%

Adani Energy 65 FCFE 5,676 Cost of equity 15%, terminalgrowth 3%, with cues fromfinancials for GAIL and IGL

32,488Source: I-Sec Research, Company


6/55


6

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 AELParticulars Equity Value of AELs stakePower Generation 208,908Coal Mining 11,236Real Estate 64,025Trading 42,595Other Ventures 11,486Total 338,250Post 10% corporate discount 304,425


Table 10: Fair value of Rs926/share post dilution

Per Share Value Shares Equity Value RemarksCurrent 261.8 1,163 Post FCCB conversionPost dilution + FCCB 335.4 908 Post Rs60bn equity infusion


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.


7/55


7

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-estatedevelopment (Table 11), coal mining (Chart 3), oil & gas exploration etc.

Chart 1: AEL in transition mode

Source: Company

Chart 2: Power generation to grow at 10% CAGR

0

200

400

600

800

1,000

1,200

FY08 FY09 FY10 FY11 FY12

Energysupply(bnKwh) CAGR 10%

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

(US$ bn)Demand in

FY07Demand in

FY12EAverage demandin next five years CAGR (%)

Residential 51.7 90.6 74.1 11.9Office 3.0 7.7 5.7 20.9Retail 2.7 6.5 4.8 19.5Total 57.3 104.9 84.7 12.8Investments as a % of GDP 6.2 7.1 6.8


Evolving business

model, focused on

high growth

segments like

Power: Greater

contribution

expected from

private players to

achieve this target

Real-estate:

presents compelling

investment

opportunities

From trading house to an asset intensive infrastructure play

Trading Business

AEL is a leadingcommodity trader inIndia

AEL has trading

capability in more than70 commodities andproducts includingpower, coal, metals,minerals, agro basedcommodities etcacross 60 countries

Power Generation

Plans to set upcapacity to generate~10GW power by 12

Real Estate

Plans to develop ~105mn sqftarea in Mumbai (commercial),Ahmedabad (integratedtownship), Surat (commercial& residential), Cochin(commercial & retail), Mundra(mass housing project)

Oil & Gas

City Gas Distributionnetwork, oil explorationbusiness JV withWelsupun, Ship Fuelling

Coal Mining

Access to coal miningvia mines in India andIndonesia

Food & Vegetable Processing

Developed ultra moderncontrolled atmosphere storagefacilities for processing of agriproducts

Logistics

Shipping business aims tocapitalise on the Groupstrading business


8/55


8

Chart 3: Coal demand (from power and steel sectors) to grow at robust rates

0

100

200

300

400500

600

700

800

900

FY07 FY08E FY09E FY10E FY11E FY12E FY17E

(mnM

T)

13.4% CAGR

7% CAGR

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 byaccess 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 underconstruction 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)

Gujarat

Maharashtra

Mundra(4.6GW)

Dahej(2GW) Tiroda

(2GW)

Source: Company

Coal

mining/trading: Fuel

supply remains one

of the key hurdles for

various power and

steel projects


9/55


9

Mundra (2,640MW, extendable by 1,980MW)

APLs largest project is coming up in the Mundra special economic zone with initial

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.

AEL already controls coal block in the Bunyu Island with 140MMT estimated reserves

in the central & northern part of the island covering 3,000 hectares of land. Coal mined

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.

APL has entered into a 25-year power purchase agreement (PPA) for 2,000MW

capacity at Mundra with Gujarat Urja Vikas Nigam (GUVNL) at an average tariff of

Rs2.62/unit (higher than the level 2 bid at Rs2.26/unit won by Tata Power in Mundraultra mega power project). Rest of the planned capacity is kept as merchant, though

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

Generation capacity (MW) 2640

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 alsosetting up 400kv 425km transmission line the largest being set up by any power

player to connect the plant with the western grid.

Advanced stage of

implementation

coupled with

access to low cost

fuel

and high tariffs

through 77% PPA

(which is reasonablyhigh) and 23%

merchant sales

would boost

returns


10/55


10

Tiroda (1,980MW)

APL has taken up this project keeping in view the acute power shortage faced by the

state of Maharashtra. The project is split into two phases (2x660MW + 1x660MW)

based on super critical technology and has made decent progress till now. APL has

already secured 200 hectares land in Gondia district, near the eastern border of

Maharashtra and water linkage from the water resources department. Power off-take

would be secured by setting up 400KV 365km transmission line connecting it towestern grid.

Fuel linkage is being provided from the coal mines allotted in Lohara West & Lohara

(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

Generation capacity (MW) 1980

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.

Higher tariffs owing

to power supplied to

high power deficit

western and northern

regions

coupled with low

cost of fuel

would boost

returns


11/55


11

Table 14: Dahej and Rajasthan projects

Dahej RajasthanGeneration capacity (MW) 1980 1320Composition (3x660) (2x660)Expected CoD September-12 July-12Land and water linkage Yet to be achieved Yet to be achievedFuel linkage Yet to be achieved Yet to be achievedFinancial closure Yet to be achieved Yet to be achieved

Project cost (Rs bn) 89.1 59.4Implied per MW cost (Rs mn/MW) 45.0 45.0Funding (D:E) 80:20 0PPA Nil NilPPA tariff (Rs/Kwh) NA NAMerchant sales 1980 MW 1320 MWMerchant tariff (Rs/Kwh) 2.75 2.75Fuel cost/unit (Rs/Kwh) 0.81 0.88AEL stake (%) 86.0 86.0IRR (%) 38.6 30.9


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 AELs stake.

Table 15: FCFE based valuation of power projects

Projects Holding (%) Equity value (Rs mn) Capacity (MW) Rs mn/MWMundra 86 110,097 2,640 41.70Maharashtra 64 52,247 1,980 26.39

162,344 4,620Under PlanningMundra 86 38,770 1,980 19.58Rajasthan 86 21,692 1,320 16.43Dahej 86 33,476 1,980 16.91

93,938 5,280Total 256,282 9,900 25.9


Coal mining, providing the necessary access to fuel and boostingvalue

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.

In the pipeline, fuel

linkage likely to be

provided from mining

assets sought in

Sumatra


12/55


12

Table 16: Key assumptions and valuation of mining deal with RRVUNL

Total mineable reserves (MMT) 200Mining starts FY11Annual volumes starting with 2MMT, going up to 8MMT over next 4-5

yearsServices charges levied on RRUVNL Rs 958/MTEscalation assumed in service charges and operatingexpenses

3%

Capex involved (Rs mn) 4,834Cost of equity 15%FCFE value 14,784


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.


13/55


13

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).


14/55


14

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

Project City PartnerAIDPL

Stake (%)Saleable Area

(mn sqft)Commercial

(%)Residential

(%)

Shantigram Ahmedabad SaumyaConstruction(25%)

75 41.6 55 37

BKC Mumbai Mayfair housing(11%)

89 2.2 100

Khatau Mumbai-Borivali

1.2 80 20

Mumbai-Byculla

Marathon Group(40%)

600.8 100

Surat Surat NA 100 5.6 65 35

Cochin Cochin NA 100 3.2 15 85

Mundra Mundra NA 100 50.0 100Source: 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 plannedcapex.

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.


15/55


15

Chart 6: Prime location properties fetch higher value

(5)

-

5

10

15

20

25

(5) 5 15 25 35 45 55

Saleable area (mn sq ft)

NAV/sqft(R

s'000)

MundraShantigram

Cochin

Surat

Khatau

BKC

Size of bubble represents contribution to total real estate valuationSource: 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.

BKC is emerging as a strong commercial hub and as an alternative to Nariman Point

(the biggest commercial area housing headquarters of many companies); especially

with the apparent supply constraints and as property prices have sky rocketed for

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.

Prime location and

attractive cost

proposition would aid

value


16/55


16

Chart 7: Commercial property prices in South Bombay

0

5

10

15

20

25

30

Mar-04

Jun-04

Sep-04

Dec-04

Mar-05

Jun-05

Sep-05

Dec-05

Mar-06

Jun-06

Sep-06

Dec-06

Mar-07

Jun-07

Sep-07

(Rs'000/s

qft)

0

50

100

150

200250

300

350

400

450

(Rs/sqft/month)

Nariman Point - comm sale

Nariman Point - comm rental (RHS)

Source: Bloomberg, Cushman & Wakefield

Chart 8: Location map of BKC

North Mumbai

Khar

Bandra

Worli

Mahalaxmi

South Mumbai

P DMello

Colaba

Cental Mumbai

Bandra-Kurla Complex

Nariman Point

Borivali

Byculla

North Mumbai

Khar

Bandra

Worli

Mahalaxmi

South Mumbai

P DMello

Colaba

Cental Mumbai

Bandra-Kurla Complex

Nariman Point

Borivali

Byculla

Source: I-Sec Research, Maps of India

Rising commercial

property prices and

supply constraints in

South Mumbai have

led to suburbs

emerging as strongalternatives for office

spaces


17/55


17

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).


18/55


18

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.


19/55


19

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 MundraAssumptionsAEL stake (%) 85 57 71 95 95 95Saleable area (mn sqft) 2.18 1.15 0.75 41.50 5.65 49.99 49.99Plotted:residential:commercial 0:0:100 0:100:0 0:0:100 8:37:55 0:35:65 0:100:0 0:100:0Project completion Dec-11 Mar-10 Mar-10 Jun-12 Dec-13 Dec-16 Dec-16Land cost (Rs mn) 25,202 2,325 7,440 2,200 891 4,999Sale rates (Rs/sqft)Base Sale Rate Residential NA 4,000 NA 1,500 2,200 1,600 1,600Max Sale Rate Residential NA 4,840 NA 2,083 3,100 2,606 2,606Base Sale Rate Commercial NA NA NA NA 3,400 NA NAMax Sale Rate Commercial NA NA NA NA 3,400 NA NABase Lease Rate 300 NA 200 15 NA NA NAMax Lease Rate 350 NA 231 21 NA NA NAAvg. Lease Rate 345 NA 226 18 NA NA NABase 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 NAMax Construction Rate - Residential NA 1,800 NA 800 1,600 1,000 1,000Max Construction Rate - Commercial 4,520 NA 3,200 925 1,600 NA NA

FCFE based valuationCost of Equity (%) 18 18 19 19 19 17Capital yield for commercial lease properties (%) 10 NA 10 10 NA NA NATotal value (Rs mn) 37,306 8,312 18,180 4,614 1,490 9,338Implied NAV/sq ft 17,113 4,375 438 817 459 187Value of AEL's stake 31,710 4,738 12,908 4,384 1,415 8,871


Trading Providing the necessary initial capital, valued atRs127/share

Adani started as a trading house and now plans to diversify into power and real estateover 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 tradingCoal trading Agri-trading Others

Current volumes (mnte) 11.1 2.2 NMVolume CAGR over FY08-FY11E (%) 23.6 17.6 NMYields CAGR over FY08-FY11E (%) 7.9 7.0 NMRevenue CAGR over FY08-FY11E (%) 33.4 25.9 8.7Current operating margins (%) 4.0 2.8 2.7Earnings CAGR over FY08-FY11E 26.3 38.4 5.8FY10E P/E multiple assumed (x) 9.0 9.0 7.6Implied value of business (Rs mn) 15,533 10,369 16,692AEL's stake (%) 100.0 100.0 100.0Value of AEL's stake (Rs mn) 15,533 10,369 16,692



20/55


20

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

Pow er74%

Fertilizer

1%

Cement

5%

Others

11%Steel & Coke

Ovens

9%

Source: Ministry of Coal Report for Coal Sector Reforms

At the end of the X five year plan, Indias 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.


21/55


21

Chart 11: Region-wise coal based power generation capacity and planned addition

Jammu & Kashmir

HimachalPradesh

Punjab

Haryana Uttranchal

Uttar PradeshRajasthan

GujaratMadhya Pradesh

Bihar

Jharkhand

Chhattisgarh

West Bengal

Maharashtra

Karnataka

Goa

Kerala

Tamil Nadu

Andhra Pradesh

Assam

Meghalaya

Nagaland

Manipur

MizoramTripura

Sikkim

Orissa

Low power deficit

Medium power deficit

High power deficit

Very high power deficit

Low power deficit

Medium power deficit

High power deficit

Very high power deficit

Arunachal Pradesh

Total Capacity: MW 18194 CapacityAddition in XIth Plan: MW 12930





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 Indias 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).


22/55


22

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

200

250

300

350

400

450

500

550

FY07 FY08E FY09E FY10E FY11E FY12E

(mnte)

Demand for Coal Supply of Domestic Coal

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

In fact, because of imported coals 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.


23/55


23

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 likelyto 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 23.8X Five Year Plan 2.3 27.5XI 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) 2011-12Demand 244Min Production 214Max Production 240Current Production 212Ten Year CAGR (%)


24/55


24

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 bythe 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 declinesand 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 coldstorage 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.


25/55


25

Table 22: Brief overview of distribution-related business segments

Business segment AEL stake Brief overview

Gas distribution (AdaniEnergy)

65% City gas distribution of compressed & piped natural gas in Ahmedabad & Vadodarato: 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 & 95commercial connections with daily contracted quantity of 0.43MMSCMD (expectedto reach 2.4MMSCMD in the next two years). Steel ring network of over 230kmsand 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 thelargest refining capacity in India (3,200TPD) with a network of 80 branches, 5,000distributors, 1mn outlets & 20mn households. Exports to more than 19 countries inthe Middle-East, South East Asia & East Africa

As per AC Neilsen data, AWL has leadership in edible oil ( Fortune, Indias largest

edible oil brand commanding 17% share), soya (34 % domestic market share) andgroundnut oil (20% domestic market share)

Other growing brands include Naturalle, Raag, Kachi Ghani. While the proposedexpansion plans and leadership would help maintain high revenue growth (over30% 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 HimachalPradesh with a total storage capacity of 18,000MT

Has already been dealing with leading fresh fruit/vegetable retail chains, FoodBazar, Reliance Fresh, ITCs Choupal Fresh, Metro, Trinetra, Fab Mall, MotherDairy, Big Apple, Heritage(AP/Karnataka) and owns a strong marketing network in30 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 andKarnataka and expand universe to procure grapes, orange, pomegranate and otherfruits in the medium term. AAFL has launched its wholesale brand, Farm Pikandplans to grow it sizeably

Adani Agri-Logistics(AALL)

100% AALL is pioneering the concept of developing vertical silos to store grains & bulkmovement in top loading/bottom discharge wagons in India with the project beingdeveloped for Food Corporation of India (FCI) on BOO basis over a long-termcontract for 20 years.

It involves storage of 0.55mnte per month with guaranteed annual tonnage of400,000MT at base depots (in states of Punjab & Haryana) and another150,000MT at distribution depots (in Tamil Nadu, Karnataka, Maharashtra andWest Bengal, expected to be operational by FY08 end)

207 special wagons for bulk grain transportation are being procured (ordersalready placed)

Being a pioneer concept, the project has been given 100% income tax deductionfor the first five years and 30% for the next five years



26/55


26

The equity value of all these segments combined is estimated at Rs17.7bn (Table 23)

and AELs 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 32.9Current operating margins (%) 2.7 74.1 0.4 16.0Earnings CAGR over FY08-FY11E 15.4 NM NM 208.1FY10E P/E multiple assumed (x) 13.0 NA NA NAImplied value of business (Rs mn) 6,322 NA NA NAFCFE based valuation 410 2,239 8,733AEL's stake (%) 50.0 100.0 100.0 65.0Value of AEL's stake (Rs mn) 3,161 410 2,239 5,676



27/55


27

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. AELdoes 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.


28/55


28

Changing face of AELs 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, operatingmargins 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

0%

10%

20%

30%

40%

50%60%

70%

80%

90%

100%

FY05 FY06 FY07 FY08E FY09E FY10E FY11E

0

2

4

6

8

10

12

14

(%)

Net Current assets Net Fixed assets Operating margin (RHS)


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

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY05 FY06 FY07 FY08E FY09E FY10E FY11E

(40)

(30)

(20)

(10)

0

10

20

30

40

(Rsbn)

Debt Equity FCF (RHS)



29/55


29

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 salesSource: I-Sec Research

Chart 16: Sources of funding

293

95

47 10 60

0

100

200

300

400

500

600

Debt Internal

accruals

Minority share FCCB

conversion

Funding gap

(Rsbn)


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, AELs 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 projectsto 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).


30/55


30

Table 25: Financials Various business segments

(Rs mn, year ending March 31)FY08E FY09E FY10E FY11E

RevenuesPower - 20 14,373 27,526Real-Estate 1,077 5,685 17,762 25,633Trading 166,517 197,739 235,256 274,575Mining & others 29,850 44,243 55,877 70,199

Total Revenues 197,444 247,687 323,268 397,934

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

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

PAT

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

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


Chart 17: Robust growth expected supported by evolving business model

167 198 235 275

1418

30

44

56

69

28

26

12.1

9.3

4.13.3

0

50

100

150

200

250

300

350

400

450

FY08E FY09E FY10E FY11E

(Rsbn)

0

2

4

6

8

10

12

14

(%)

Coal-miningOthersReal-estatePow er generationTradingEBITDA margin (%)


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.


31/55


31

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

Total Operating Expenses 120,253 164,788 190,949 237,557 293,277 349,716EBITDA 3,162 4,702 6,495 10,130 29,992 48,218Depreciation & Amortisation 50 163 855 1,435 3,104 4,288Other Income 14 42 444 900 884 406EBIT 3,125 4,581 6,084 9,594 27,772 44,335Less: 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 35,226Add: Extraordinary Income 148 2 1 - - -Less: Extraordinary Expenses (4) (7) (7) - - -Less: Taxation 390 516 623 1,063 4,826 7,211Net Income (Reported) 1,355 1,787 3,401 3,441 13,135 28,015Less: Minority Interest 252 399 3,183 4,189Recurring Net Income 1,202 1,778 3,141 3,042 9,952 23,826

Source: Company data, I-Sec Research


32/55


32

Table 27: Balance Sheet


ASSETSCurrent Assets, Loans & Advances

Cash & Bank balance 7,150 16,316 11,441 39,976 10,550 12,636Inventory 4,597 17,991 19,955 22,475 27,552 30,250Sundry 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 13,761Total Current Assets 41,417 65,128 72,414 114,955 100,857 119,040Current Liabilities & ProvisionsCurrent 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 27,671Other Current Liabilities 665 3,564 4,349 7,637 15,191 14,839Others 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 66,049Total Investments 665 128 236 236 236 236Fixed Assets

Gross Block 1,612 4,654 16,227 59,578 119,784 200,447Less Accumulated Depreciation 211 513 1,369 2,804 5,908 10,196Net Block 1,401 4,141 14,859 56,774 113,876 190,251

Add: Capital Work in Progress 429 9,669 20,000 59,138 161,288 181,857Total Fixed Assets 1,830 13,810 34,859 115,912 275,164 372,107Total Assets 20,165 52,175 76,305 193,318 327,176 438,392

LIABILITIES AND SHAREHOLDERS' EQUITYBorrowings

Short Term Debt 3,155 11,362 22,448 72,820 189,281 266,001FCCBs 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 CapitalPaid up Equity Share Capital 226 247 247 247 262 262

No. of Shares outstanding (mn) 226 247 247 247 262 262Face Value per share (Rs) 1 1 1 1 1 1

Preference Share Capital (convertible) - 3 - - - -

Reserves & SurplusShare Premium - - - - 9,789 9,789Others - - - 60,000 60,000 60,000General & Other Reserve 8,299 11,257 14,268 17,142 26,917 50,567Less: Misc. Exp. not written off 4 36 9 9 9 9Minority Interest - 42 4,087 7,855 16,735 27,582

Net Worth 8,521 11,511 18,593 85,234 113,693 148,190Total Liabilities & Shareholders' Equity 20,165 52,175 76,305 193,318 327,176 438,392



33/55


33

Table 28: Cashflow statement


Cash Flow from Operating ActivitiesReported Net Income 1,355 1,787 3,401 3,441 13,135 28,01Add:

Depreciation & Amortisation 67 303 855 1,435 3,104 4,28Provisions 406 450 261 313 376 45

Less:Other Income 14 42 444 900 884 40Net Extra-ordinary income 153 8 8 - -

Operating Cash Flow before Working Capital change (a) 1,661 2,489 4,065 4,290 15,731 32,34Changes 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 2,51Increase / (Decrease) in Other Current Liabilities (561) 3,627 2,163 4,189 8,634 94Working Capital Inflow / (Outflow) (b) (2,906) (11,851) (8,109) (7,738) (4,407) (12,638Net Cash flow from Operating Activities (a) + (b) (1,244) (9,362) (4,044) (3,448) 11,324 19,71Cash Flow from Capital commitments

Purchase of Fixed Assets (1,330) (12,283) (21,904) (82,488) (162,357) (101,231Purchase of Investments (565) 537 (108) - -Cash Inflow/(outflow) from capital commitments (c) (1,895) (11,745) (22,012) (82,488) (162,357) (101,231Free Cash flow after capital commitments (3,139) (21,107) (26,056) (85,937) (151,032) (81,521(a) + (b) + (c)

Cash Flow from Investing ActivitiesPurchase 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 40Net Cash flow from Investing Activates (d) 14 42 444 900 884 40

Cash Flow from Financing ActivitiesIssue of Share Capital during the year 1 20 - 60,000 9,804Proceeds from fresh borrowings 5,105 29,021 17,047 50,372 105,398 76,72Repayment of BorrowingsBuyback of Shares - - - - -Dividend paid including tax (117) (129) (129) (168) (176) (176Others (119) 1,312 3,810 3,368 5,696 6,65Net Cash flow from Financing Activates (e) 4,870 30,224 20,728 113,572 120,722 83,20Net Extra-ordinary Income (f) 153 8 8 - -Total Increase / (Decrease) in Cash 1,897 9,167 (4,876) 28,535 (29,426) 2,08(a) + (b) + (c) + (d)+ (e) + (f)



34/55


34

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 91.0Diluted Recurring EPS 5.3 7.2 12.0 9.1 29.7 71.0Recurring Cash Earnings per share (CEPS) 5.5 7.9 16.2 18.2 49.9 107.4Free 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 58.8 313.9 370.5 460.9Dividend 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 6.6Diluted Price Earning Ratio 113.0 83.2 50.0 66.2 20.2 8.5Price to Recurring Cash Earnings per share 108.4 76.2 37.0 33.1 12.0 5.6Price to Book Value 15.9 12.9 10.2 1.9 1.6 1.3EV / EBITDA 44.2 36.6 29.9 21.3 12.0 9.0EV / Total Operating Income 1.1 1.0 1.0 0.9 1.1 1.1EV / Operating Free Cash Flow (Pre-Capex) (112.3) (18.4) (48.0) (62.6) 31.8 22.0EV / 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) 208.1 139.4Diluted Recurring EPS Growth NA 35.7 66.3 (24.4) 227.1 139.4

Diluted Recurring CEPS Growth NA 42.3 105.8 12.0 174.7 115.3Total Operating Income Growth NA 37.3 16.5 25.4 30.5 23.1EBITDA Growth NA 48.7 38.1 56.0 196.1 60.8Recurring 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 12.1EBIT Margins 2.5 2.7 3.1 3.9 8.6 11.1Recurring Pre-tax Income Margins 1.3 1.4 2.0 1.8 5.6 8.9Recurring Net Income Margins 1.0 1.0 1.6 1.2 3.1 6.0Raw Material Consumed / Sales 93.6 93.7 93.6 91.2 85.9 83.4SGA Expenses / Sales 3.6 3.2 3.1 4.7 4.8 4.4Other Income / Pre-tax Income 0.8 1.8 11.1 20.0 4.9 1.2Other Operating Income / EBITDA 0.4 0.9 6.8 8.9 2.9 0.8Effective 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 8.1Return on Invested Capital (RoIC) 29.1 19.2 12.9 9.3 12.8 13.0Return on Net Worth (RoNW) 15.1 17.8 20.9 5.9 10.0 18.2Dividend 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 66.2Net Working Capital / Total Assets 87.6 73.3 54.0 39.9 15.8 15.1Interest Coverage Ratio-based on EBIT 49.0 49.9 34.0 53.0 35.3 20.5Cash and cash equivalents / Total Assets 38.8 31.5 15.3 20.8 3.3 2.9

Turnover RatiosInventory Turnover Ratio (x) 31.3 15.0 10.4 11.7 12.9 13.8Assets Turnover Ratio (x) 7.2 4.7 3.1 1.8 1.2 1.0Working Capital Cycle (days) 45.8 60.2 73.4 87.2 72.8 54.0Average 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 24.2Source: Company data, I-Sec Research


35/55


35

Annexure 1: Power sector Economic growth tolead 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

3

5

7

9

11

13

15

17


(%)

Peak Shor tage Energy Shor tage GDP Growth

450

500

550

600

650

700


(bnKwh)

Energy Demand Energy Supply

Source: Economic Survey 2006-07; Report of the Working Group onPower for 11th Plan

Source: Central Electricity Authority

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).


36/55


36

Chart 20: Power generation to grow at 10 CAGR

0

200

400

600

800

1,000

1,200


Energysupply(

bnKwh) CAGR 10%

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

Indias 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

GDPGrowth

(%)

GDP/ElectricityElasticity

ElectricityRequirement

(bn KwH)

PeakDemand

(MW)

InstalledCapacity

(MW)

Capacity AdditionDuring XII Plan (MW)

0.8 1,415 215,700 280,300 70,80080.9 1,470 224,600 291,700 82,2000.8 1,470 224,600 291,700 82,20090.9 1,532 233,300 303,800 94,3000.8 1,525 232,300 302,800 92,800100.9 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 continuePrevious Five Year Plans have not been successful in meeting capacity addition

targets (Chart 21).


37/55


37

Chart 21: Achievement of planned targets in previous plans

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

5th

(1974-79)

6th

(1980-85)

7th

(1985-90)

8th

(1992-97)

9th

(1997-02)

10th

(2002-07)

(MW

)

0

20

40

60

80

100

120

(%

)

Target (MW) Achivement (MW) Success Rate

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

20.8

8.6

17.9

23.9

28.8

0

20

40

60

80

100

120


(%)

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).


38/55


38

Chart 23: Economic growth to lead to increased power consumption

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

0 6,000 12,000 18,000 24,000 30,000 36,000 42,000

Per Capita GDP (2004) US$

PerCapitaPower

Consumptio

(Kwh,20

03)

USA

UK

Italy

SpainIsraelCzech Rep.

MexicoBrazil

India

China

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).


39/55


39

Chart 24: Sector-wise distribution of power projects

9,6853,605

3,263

24,310 23,135 5,460

2,0373,380

450

1,000

762

1,490

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Central Government State Government Private

Hydro Coal Lignite Gas&Liquid Fuel Nuclear


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

0

100

200

300

400

500

600


(mnte)

Total Coal Requirement Total Availability



40/55


40

Annexure 2: Indian real estate proxy on growingeconomy

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

FY07Demand in

FY12EAverage demandin next five years CAGR (%)

Residential 51.7 90.6 74.1 11.9Office 3.0 7.7 5.7 20.9Retail 2.7 6.5 4.8 19.5Total 57.3 104.9 84.7 12.8Investments as a of GDP 6.2 7.1 6.8


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

stockDevelopment

in FY07Demand in

FY12EAverage demand for

next five yearsCAGR

(%)Residential 37,822.5 1,763.4 2,165.7 1,998.2 4.2Office 135.0 39.8 80.6 64.8 15.2Retail 89.8 23.9 46.6 36.5 14.3Total 38,047.3 1,827.1 2,292.9 2,099.5 4.6Share of residential 99.4 96.5 94.4 95.2


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.


41/55


41

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,

Adani Enterprises Initiating coverage

Documents