AEL Resilient Q2 Performance in Energy and Airport Sectors

Company Name: Adani Enterprise Ltd | NSE Code: ADANIENT | BSE Code: 512599 | 52 Week high/low: 4,190/1,017 | CMP: INR 2,362 | Mcap: INR 2,69,240 Cr | PE: 103

Company Overview:

Adani Enterprise Ltd, a key player in the Adani Group, operates in the sectors of energy & utility, road & transport, FMCG & digital, and primary industries. The business is divided into two segments: Incubating Business (energy, airport, and road) and Established Business (retail, digital, and mining). AEL manages 8 airports in India, serving 23% of the total passenger base, and has 14 ongoing road projects covering 5000+ lane km. In the energy sector, the existing cell & module plant capacity is 2 GW, with an additional 2 GW in the new plant. AEL boasts the largest wind turbine generator globally, with a capacity of 5.2 MW, earning recognition for global WTG supply.

EBITDA gained momentum driven by strong incubating business:

EBITDA witnessed a robust 30% year-over-year growth in Q2FY24, primarily attributed to the outstanding performance of the Incubating Business segment, encompassing Energy and Airports. The Energy business demonstrated an extraordinary 11x YoY EBITDA surge, reaching 628 Cr, while the Airport business experienced a notable 15% YoY increase, totaling 568 Cr. Consequently, the consolidated EBITDA exhibited a noteworthy 30% YoY upswing (with a marginal -3.72% QoQ decline), amounting to 2,430 Cr, despite a reduction in overall revenue. In contrast, the Established Business segment, specifically IRM, witnessed a modest 4.4% YoY decline in EBITDA, settling at 1,063 Cr, whereas the Mining business demonstrated a commendable 17% YoY EBITDA growth.

Ensuring Sustained and Resilient Growth in Our Incubating Business

Incubating business exhibited robust growth, with combined revenue from airport and road operations surging 49% YoY to 1,946 Cr, driven by stellar operational performance. Passenger volume soared by 31% YoY to 21.4 Mn in Q2FY24 compared to 16.3 Mn in Q2FY23. Air traffic movement witnessed a 17% increase, while cargo experienced a 5% decline during the quarter. In the solar, wind, and data center segment, combined revenue surged by an impressive 216% YoY, reaching 1,939 Cr. This significant growth was attributed to a remarkable 205% YoY increase in module sales, totaling 630 compared to 206 in Q2FY23.

Margin improvement but PAT declined 23% YoY

In Q2FY24, the PAT saw a 23% YoY decline (-50% QoQ) to 333 Cr, attributed to a rise in the tax rate to 50% from 34% in Q2FY23. EBITDA and PAT margins showed improvements of 590 bps YoY and 35 bps YoY, respectively, driven by lower raw material costs and total Opex. The management maintains a 56% YoY reduction in raw material costs and an 8.17% YoY increase in operating costs.

Latest Developments in Data Center and ANIL Ecosystem Business:

In the Data Center segment, Chennai Phase-I 17 MW project is operational, Noida project- 50 MW was completed 63% of overall project and Hyderabad project -48 MW was completed 65% of overall project. In the ANIL Ecosystem business, solar manufacturing total operational capacity was at 4.0 GW, Wind Turbine manufacturing received final type certificate for prototype 1 and Nacelle & Hub facility – commenced commercial production.

Valuation and key ratio

The stock is currently trading at a high multiple of 103x EPS(TTM) 21.4 Rs at current market price of 2,362, with an industry PE of 38.7x. The company is valued at 2.5x its book value of 322 Rs per share. In EV/EBITDA, AEL ranks 5th among peers at 27x, compared to the industry median of 19.3x. The trailing twelve-month ROE and ROCE are 9.63% and 9.49%, respectively. The interest coverage ratio is 1.94x, indicating strong solvency.

Q2FY24 result update: Consolidated

➡️In Q2FY24, Consolidated revenue declined by 41% YoY (-11.5% QoQ) to 22,517 Cr, attributed to a slowdown in the IRM and mining business.

➡️Gross profit witnessed a 13% YoY growth (-10.5% QoQ) to 9,397 Cr, driven by a significant 56% YoY reduction in raw material costs. The gross margin showed a robust 19% YoY increase, reaching 41.7%.

➡️EBITDA surged by 30% YoY (-3.7% QoQ) to 2,430 Cr, propelled by the strong performance of incubating businesses, including energy and airport & road ventures. EBITDA margin increased by 590 bps YoY and 87 bps QoQ, reaching 10.7%.

➡️Operating business (EBIT) grew by 25% YoY (-7.5% QoQ) to 1,673 Cr, with EBIT margins expanding by 390 bps YoY and 31 bps QoQ, reaching 7.4%.

➡️PAT declined by 22.9% YoY (-50.8% QoQ) to 333 Cr, primarily due to an increased tax rate of 50% in Q2FY24 compared to 34% in Q2FY23.

➡️EPS for the quarter stood at 2.92 Rs, down from 5.94 Rs in the previous quarter.

Conclusion:

Adani Enterprise Ltd Q2FY24 showed strong EBITDA growth from thriving energy and airport businesses, offsetting an overall revenue decline. Despite a dip in PAT due to increased tax rates, the company remains resilient with a focus on sustained growth in incubating sectors. Key ratios indicate a high stock multiple and strong solvency. Ongoing developments in data centers and the ANIL ecosystem underscore AEL’s commitment to innovation and expansion.

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