Adani Group Initiating coverageDec07EDEL

India Equity Research | Miscellaneous Initiating Coverage
ADANI ENTERPRISES INR 794
Powering ahead BUY
From trading house to infrastructure powerhouse

December 10, 2007
Adani Enterprises (AEL) is leveraging its track record and experience as a 5-star trading house
to embark on an ambitious asset-backed diversification and expansion plan that will exploit Bhargav Buddhadev
+91-22-2286 4360
emerging opportunities in the infrastructure space in India. It is investing in power generation bhargav.buddhadev@edelcap.com
and coal mining where AEL has significant trading experience and market share.
Power generation business: Attractive economics
AEL, through Adani Power (APL), is setting up a 2,640 MW thermal power plant in Mundra,
Gujarat, with captive coal linkages in Indonesia and a PPA for 2,000 MW. APL has also
acquired land and coal blocks in Maharashtra for setting up a second 2,000 MW thermal
power plant. We estimate the payback on the Mundra plant at <3 years. Our DCF value for the
two power plants comes to INR 168 bn or INR 640 per share of AEL.
Coal: Creating strong presence across the chain
AEL is extending its experience in importing coal to both, own coal blocks and provide mining
services. It has acquired coal blocks in Indonesia and India with aggregate reserves of ~240
MT for captive use of its power plants. A 74% subsidiary will provide contract coal mining
services to Rajasthan Rajya Vidyut Nigam (RRUVNL) in Chattisgarh; we estimate the value of
this contract at INR 15 bn or INR 62 per share. With 138 coal blocks coming up for allocation
Reuters : ADEX.BO
to the private sector, we believe coal mining will be a sizable opportunity for AEL going forward.
Bloomberg : ADE IN
Real estate: Cherry on the cake
AEL has also opportunistically entered the real estate development business—three projects Market Data
in Ahmedabad and Mumbai aggregating ~44 mn sq ft are in progress. It plans to increase the 52-week range (INR) : 886 / 179
total area under development to ~140 mn sq ft in a year’s time. In addition, the company is also Share in issue (mn) : 246.5
likely to have access to SEZ development at the Mundra port (group company). Our NAV M cap (INR bn/USD mn) :195.7 / 4,954.6
estimate of the three projects is INR 136 per share. Avg. Daily Vol. BSE/NSE (‘000) : 713.3
Outlook and valuations: Attractive; initiating coverage with ‘BUY’

Share Holding Pattern (%)
Our sum-of-the-parts (SOTP) value of AEL comes to INR 1,048/share (including INR 210/
share for existing trading business). The SOTP factors in large discounts to cover for execution Promoters : 75.0
risks on new businesses; however, given AEL’s history and promoter track record of execution MFs, FIs & Banks : 1.8
at the Mundra port, there are upside risks to this value. We initiate coverage with a ‘BUY’ reco. FIIs : 10.1
Others : 13.1
Financials
Year to March FY06 FY07 FY08E FY09E
Revenue (INR mn) 123,415 169,491 168,473 226,353

Rev. growth (%) (17.8) 37.3 (0.6) 34.4 1,000 3,600
EBIDTA (INR mn) 3,167 4,705 6,378 12,053
Net profit (INR mn) 1,352 1,776 3,498 6,528 750 2,700
('000)
Shares outstanding (mn) 226 246 246 246

(INR)
500 1,800
EPS (INR) 6.0 7.2 14.2 26.5
EPS growth (%) 0.0 20.6 97.2 86.8
250 900
P/E (x) 132.9 110.2 55.9 29.9
EV/ EBITDA 58.4 47.2 40.7 22.7 0 0
ROCE (%) 17.4 12.1 8.0 11.1 Dec-04 May-06 Nov-07
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Adani Enterprises
Investment Rationale
From trading house to infrastructure powerhouse
AEL is leveraging its track record and experience as a 5-star trading house to embark on an ambitious
asset-backed diversification and expansion plan that will exploit emerging opportunities in the infrastruc-
ture space in India. It is venturing into power generation, real estate development, coal mining, oil & gas
exploration, and development of storage facilities for fruits, vegetables, and food grains.
Fig. 1: Structure for the new businesses
Power Real Estate Coal Mining Oil & Gas Exploration
Mundra Maharashtra
@2549 MW @2000 MW
Shantigram Bandra Kurla Khatau

(35 mn sq.ft.) Complex (2 mn sq.ft.)
(2 mn sq.ft.)
Indonesia Chattisgarh Maharashtra

@ 140 mn MT @ 200 mn MT @100 mn MT
(Captive for (Contract basis (Captive for
Mundra Port) for RSEB) Maharashtra Power)
Cambay in Gujarat Upper Assam Thailand

75 sq. Kms block 95 sq. Kms block 3900 sq.kms block
Geologically reserves of 50 MMBL of oil and 1500 MMSCM of gas not certified by DGH
Source: Company, Edelweiss research
Asset heavy businesses likely to boost margins
We believe the company’s diversification plans are indeed an initiative to enhance margins, profitability,
and return on assets. We expect its operating margins and return on equity to jump manifold from 2.8%
and 18.5% in FY07 to 5.3% and 28.4%, respectively, in FY09E on the back of increased contribution
from new asset-backed business initiatives and higher leverage.
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Adani Enterprises
Chart 1: Improving revenue contribution from asset heavy businesses (INR mn)
168,225 216,939 291,156 372,828
100
80
60
(%)
40
20
0
FY08 FY09 FY10 FY11
Trading Power Coal mining Real estate
Chart 2: Improving trend in EBITDA margins

25
EBITDA margins
20
15
(%)
10
0
FY07 FY08E FY09E FY10E FY11E
In the near term, we expect real estate and power generation businesses to act as potential triggers for
AEL’s valuations on the back of three projects in real estate (Shantigram, Bandra Kurla Complex, and
Khatau Mills) and two projects in power generation (Mundra in Gujarat and Gundiya district in Maharashtra).
Going forward, we expect oil and gas exploration, city gas distribution, and agro-based businesses (Adani
Wilmar, Adani Agri Fresh and Adani Logistics) to mature into large business initiatives.
Power generation business: Attractive economics
Adani Power (APL), a 91% subsidiary of AEL, is setting up a 4,640 MW thermal power plants in
Mundra (Gujarat) and in Gundiya district of Maharashtra. We have used the DCF method to value the
equity part (AEL’s share) of the investment in APL at INR 157 bn (INR 114 bn for Mundra and INR 43 bn
for Maharashtra after 50% execution discount), which in terms of per share for AEL comes to INR 640.
We expect the Mundra plant at full capacity to generate ~ INR 17 bn of free cash flow on a equity
investment of INR 23.2 bn, which, in other words, means a equity pay back period of < 3 years. The
economics for the power plant in Maharashtra are not available, as financial closure has not been
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Adani Enterprises
achieved as yet. However, we believe that it will be better than Mundra’s since the coal block allocated
is close to the power plant, thereby saving logistics cost and also, APL plans to set it up as a merchant
power plant, against levelized tariff for the Mundra power plant.
We expect ~ 22-24% equity IRR at Mundra, which is significantly higher than the existing power
projects in India, which generate ~16-18% equity IRR. Superior ROE is on the back of coal linkages in
Indonesia which ensure that the landed cost of coal is restricted to USD 38 as against the ruling spot
rates of ~ USD 75 per tonne. This justifies our DCF valuation of 5x book value for the Mundra power
plant.
APL further plans to set up 2,745 MW coal-based thermal power plants in Haryana, Punjab, and
Rajasthan. The plan is to increase the power generation capacity from the current 4,640 MW to 7,385
MW in eight-nine years’ time. We expect the bidding for the same to be opened in another six months.
The break up of the same is:
Table: 1: Status of power plants
Particulars (Coal based thermal power plants) MW Status
Mundra 2,640 Financial closure for 1320 MW already through

Maharashtra 2,000 Land acquired and coal block allocated
Rajasthan 1,320 Proposed
Haryana 1,425 Proposed
7,385
Real estate: Cherry on the cake
AEL has also opportunistically entered the real estate development business, through its 100% subsidi-
ary Adani Infrastructure & Developers (AIDPL). It is developing ~ 44 mn sq ft spread across Ahmedabad
and Mumbai—the Shantigram project in Ahmedabad (40 mn sq ft), Bandra Kurla Complex project in
Mumbai (2 mn sq ft), and redevelopment of Khatau Mills in Borivli and Byculla (2 mn sq ft). AIDPL plans
to increase the total area under development to ~140 mn sq ft in a year’s time. It has inked tie ups with
local partners in each of the projects, thereby leveraging upon their experience for timely execution.
Table 2: Partners in real estate projects
Particulars Project Equity stake(%)
Saumya Constructions Shantigram 26

Mayfair Constructions BKC 11
Marathon Group Khatau Mills 40
AIDPL has also started procuring land in areas like Cochin, Kerala, Surat, and Middle East. Also, it is
proposing to develop a 550-acre land in the Mundra SEZ into a mass housing and social development
project. However, we have not factored any upsides from these projects in our NAV calculations.
Table 3: Land bank acquired for future projects
Particulars Acres
Cochin 30
Surat 50
Mundra SEZ (For development) 550
Kerala 27
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Adani Enterprises
Coal: Creating strong presence across the chain
AEL is extending its experience in importing coal to both, own coal blocks and provide mining services.
It has acquired coal blocks in Indonesia and India with aggregate reserves of ~240 MT for captive use
of its power plants. AEL, through Adani Mining (100% subsidiary), has ventured into coal mining in India
by procuring a contract from RRUVNL. We expect this business to generate ~45-50% EBITDA margin
on the back of contract signed for supplying coal at INR 958 per tonne against total mining cost of ~INR
450-500 per tonne.
We believe this could be the next focus area for the company on the back of mining operations opening
up for private sector players. With 138 coal blocks coming up for allocation to the private sector, we
believe coal mining will be a sizable opportunity for AEL going forward.
Trading business likely to provide stability
AEL is a leading commodity trader in India. It obtained 5-star export house status in 2004 and its FY07
trading business turnover topped USD 3.9 bn. The macro backdrop has been supportive with India’s
total merchandise trade (exports+imports) expanding at above 25% during FY03-06. India’s total
merchandize trade stood at USD 320 bn in FY07, up 29% Y-o-Y. AEL has trading capability in more
than 70 commodities and products across 60 countries and the company has been consistently
expanding its trading portfolio.
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Adani Enterprises
Valuations
We have valued the businesses of AEL based on the sum-of-the-parts (SOTP) methodology. The total value
works out to INR 1,097 per share, which incorporates 50% discount to the power plant coming up in
Maharashtra. The break up of SOTP is:
Table 4: Valuations
Business Value per share (INR)
Trading 210
Coal mining 62
Oil^ -
Real estate 136
Power generation 640
Total 1,048
Note: ^We have not assigned any value to the block since no substantial investments are made in the blocks allocated
(A) Trading business to contribute INR 210 to SOTP
We have valued the trading business using the residual income valuation model.
Methodology
• We have added the netwoth for all trading companies and multiplied by the difference between
the RoE and the cost of equity.
• The resultant figure is the residual income. We have discounted the residual income with the cost
of equity to arrive at the present value of all trading businesses.
• We have done this exercise up to 2011-12 and then used a terminal valuation methodology.
• We have assumed a terminal growth rate of 5% and a WACC of 13%.
• The present values of all the trading businesses are as under:
Table 5: Valuation of trading business
Particulars (Figs in INR mn) Present value as per residual income

valuation model
Agro commodities trading 2,689

Adani Agri Fresh 5,965
Adani Wilmar
Coal trading 17,450
City gas distribution 6,144
Power trading 209
Petroleum oil & lubricants 3,589
Fertilizer raw materials 287
Ship dismantling 849
Dubai scrap 4,490
Belekeri 5,085
Metals & mining 4,896
51,654
Value per share of trading business 210
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Adani Enterprises
(B) Power generation to contribute INR 640 to SOTP
We have valued the power generation businesses using the DCF methodology. The assumptions are
as below:
(1) Mundra power plant
Table 6: Valuation of Mundra power plant (Figs in INR Mn)
PV of free cash flow to equity 125,441

Terminal value calculation NIL
Total value 116,980
Total value (AEL’s share) 114,151
Total shares 246
Per share value 464
Cost of equity
Beta 1.0
Risk free rate 8
Risk premium 5
Cost of equity (%) 13.0
WACC (%) 13.0
Table 7: Financial assumptions
(A) Project cost (INR mn)

Phase 1 24,541
Phase 2 20,702
Phase 3 43,454
Transmission line of 425 kms upto 400KV 4,000
Total 92,697
(B) Financial assumptions % Amount (INR mn)
Debt 75 69,523
Equity 25 23,174
100 92,697
Tabe 8: Opex assumptions pertaining to coal
Gross calorific value Kcal/Kg 4,250

Plant gross heat rate Kcal/Kwh 2,250
Coal consumption per Kwh Kg/Kwh 0.529
Cost of coal at origin USD/MT 20

Freight cost USD/MT 11
Total cost USD/MT 31
USD/INR 41
Total cost (FOB) INR/MT 1,266

Port charges INR/MT 300
Total landed cost of coal INR/MT 1,566
Coal cost per KWH Per KWH 0.83

Source: Company, Edelweiss resaerch
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Adani Enterprises
(1) Maharashtra power plant

plant: The economics of the Maharashtra power plant are not available since
financial closure has not been achieved as yet. However, the land allocation and allotment of coal mine
has been completed. In our valuation methodology, we have used the econometrics of Mundra plant
to value the equity part of the Maharashtra power plant and then assigned a 50% discount to the same
to account for the risk involved in executing the power plant.
Table 9: Valuation of Maharashtra power plant

Equity value on the econometrics of Mundra power plant (INR) 352
50% execution discount(INR) 176
Equity value (INR) 176
Equity value (INR Mn) 43,239
Per share value for AEL 176
(C) Coal mining (Indian block) to contribute INR 62 to SOTP
We have not valued the Indonesian block since it will be used for captive consumption. We have only
valued the Indian block at Chhattisgarh which has a potential reserves of 200 mn MT. The assumptions
are as below:
Table 10: Valuation of Indian coal mining business
Particulars Indian block
Total reserves (Mn Tonnes) 200

EV / tonne (INR) 139
Stake (%) 74
EV / tonne for Adani (INR) 103
Total EV (INR Mn) 20,585
Debt (INR Mn) 5,300
Equity owners value (INR Mn) 15,285
Value per share (INR) 62.1
(D) Real estate to contribute INR 136 to SOTP
We have valued all three projects using the NAV method. The assumptions used in our valuation
methodology for all the three projects are as under:
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Adani Enterprises
(i) Shantigram (Ahmedabad)
Table 11: Valuation of Shantigram
Particulars Amount in (INR mn)
Total area (mn sft) 40

SP psft (INR) 1,915
Land cost psqft (INR) 109
CoC psqft (INR) 800
Gross profit psqft (INR) 1,006
SGA psqft (INR) 48
PBT 35,298
Tax 10,589
PAT 24,708
D.F. 3
NPV (INR) 17,124
AEL’s share (%) 75
NPV per share (INR) 52
Discount to NPV (%) 15
NPV (INR) 44
(I) Bandra Kurla Complex
The assumptions for the Bandra Kurla Complex project are as below:
Table 12: Valuation of Bandra Kurla Complex
Particulars Amount (INR mn)
Total area (mn sqft) 2

SP psft (INR) 36,000
Land cost psqft (INR) 8,500
CoC psqft (INR) 3,300
SGA psqft (INR) 1,800
PBT 43,190
Tax 12,957
PAT 30,233
D.F. 2
NPV (INR) 25,169
NPV per share (INR) 91.1
Discount to NAV (%) 15
NPV (INR) 77.4
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Adani Enterprises
(iii) Khatau Mills redevelopment
(A) Borivli
Table 13: Valuation of Khatau (Borivli)
Total area (mn sft) 0.8

SP psqft (INR) 5,000
SGA psqft (INR) 125
PBT 1,037
Tax 311
PAT 726
D.F. 2
NPV (INR) 604
NPV (INR) 1.3
(B) Byculla
Table 14: Valuation of Khatau (Byculla)
Total area (mn sft) 0.8

SP psqft (INR) 18,000
SGA psqft (INR) 360
PBT 11,178
Tax 3,353
PAT 7,825
D.F. 2
NPV (INR) 6,127.8
NPV (INR) 12.7
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Adani Enterprises
Key Risks
Execution challenge
The biggest challenge for AEL is the execution risk for all projects in the pipe line. As of now, it has only
the trading business to fall back on which is valued at INR 196 per share. The balance value is coming
from all the projects that are in the pipeline.
Internal risk management
AEL’s core business of commodity trading is exposed to market risks in a completely unregulated
environment. Monitoring of such risks requires stringent internal risk management systems that are
technology savvy. AEL’s trading portfolio is not only exposed to market swings in exchange rates and
prices, but is also exposed to local government tariff policies and changes in trade restrictions.
Company Description
The Adani Group, founded in 1988, is one of the fastest growing business houses in India. It has its roots in
its flagship company, Adani Enterprises (formerly known as Adani Exports), which was established by Mr.
Gautam S Adani in 1988 as a partnership firm with an initial capital of INR 5 lakh. Through his entrepreneurial
vision, global aspirations, hard work, quality standards, and customer-centric approach, Mr. Adani has
transformed the Group in one of its kinds which crossed total revenue of INR 180 bn on March 31, 2007.
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Adani Enterprises
Business Description
Power generation
• Adani Power (APL), a 91% subsidiary (balance 9% divested to 3i for INR 9 bn) of AEL, is setting up
a 2,640 MW coal-based thermal power plant at Mundra in Gujarat. The power plant is backed by
coal mines in Indonesia owned by PT Adani Global, a 100% subsidiary of AEL. It has potential
reserves of over 300 mn MT and proven reserves of 140 mn MT, sufficient to last for 14-15 years
of power generation at full blast. Financial closure for 1,320 MW has been completed and financial
closure for the balance 1,320 MW is expected to be completed in two to three months’ time.
• APL is also setting up a 2,000 MW thermal-based power plant in Maharashtra. It has already
procured 200 hectares of land in the Tiroda industrial area in eastern Vidharbha’s Gondia district
(Maharashtra) and has been allocated a 100 mn MT coal block. The financial closure has,
however, not been completed and hence, we have assigned a 50% discount to the present value
in our SOTP valuation. We expect financial closure of 1,320 MW in six to eight months.
• APL has inked a power purchase agreement (PPA) for the Mundra power plant with Gujarat Urja
Vidyut Nigam (GUVNL) for supplying 2,000 MW at an average price of INR 2.62 per unit. Accord-
ing to the agreement, AEL has to supply 1,000 MW at INR 2.89 per KWH starting January 2010 for
a period of 25 years and another 1,000 MW at INR 2.3495 per KWH starting January 2012 for a
period of 25 years. The balance is reserved for selling on merchant basis.
Table 15: Roll out of electric output at Adani Power
Particulars I II III IV V VI
Unit capacity MW 330 330 330 330 660 660

Plant load factor (%) 95 95 95 95 95 95
Plant auxiliary load (%) 6 6 6 6 6 6
Working hours in a day Hours 24 24 24 24 24 24
Days in a year Days 365 365 365 365 365 365
Plant operating hours Hours 8,322 8,322 8,322 8,322 8,322 8,322
Gross generation mn kWh 2,746 2,746 2,746 2,746 5,493 5,493
Operation start from Period Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Mar-11
Source: Comapny, Edelweiss research
• The details pertaining to the machineries are as below:
• BTG package on EPC basis to “SCMEC” – China for first two phases.
• Includes boiler from world renowned Babcock & Wilcox with design and technology and
turbine and generator from leading designer Beijing Beizhong Steam Turbine Generator Co.
• Supply of other machineries tied up with big Indian players like ABB, Siemens, etc.
• Equipment erection work and boundary work already started.
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Adani Enterprises
Table 16: Funding of Mundra power plant
(I) Power (INR mn)
Mundra project 2,640 MW

Equity investment 23,174
Debt investment 69,523
Total 92,697
Funding of equity (INR mn)
Money received from 3I 9,000
Money pumped by Adani Enterprises 4,500
ICICI Mezanine finance@16% 5,000
Still not tied up 4,674
Total 23,174
Real estate
AEL has ventured into the real estate business through its 100% subsidiary Adani Infrastructure &
Developers, leveraging on its competence in successfully developing large size projects like Mundra
port, an edible oil refinery, gas distribution network, grain silos, etc. In the first year of incorporation, AEL
has identified three projects and has also started acquiring land in Cochin, Kerala, Surat, and Middle
East.
(A) Bandra Kurla Complex (AIDPL 89%, Mayfair 11%)
AEL has secured developmental rights for about 2 mn sq ft of property at Bandra Kurla Complex in
Mumbai. The site is located in the International Finance and Business Centre in Bandra Kurla Complex
and is in the vicinity of some of the most prestigious commercial developments in the area.
Key highlights of the project:
• Located in the International Finance and Business Centre opposite the ICICI Bank and IL&FS
building. The current occupants of Bandra Kurla Complex include government offices, public
sector undertakings and banks, Wockhardt, Dow Corning, Tianshi, ICICI Bank, IL&FS, IBM, Sun
Microsystems, Lucent, Cisco, Oracle, Intel, National Stock Exchange, Cisco Systems, Citibank,
and Reliance Telecom.
• Strong growth potential area. Commercial rentals growing at 28.51% every half year as per a
Cushman & Wakefield report.
• Proximity to MIDC, Andheri and Santacruz Export Zone. 80% commercial + 20% retail develop-
ment with a total of 2 mn sq ft development.
• Construction to commence by last quarter of FY08.
• Appointed Hafeez Contractor as architect.
• Construction to be complete in 36 months.
• It is in joint venture with Mayfair, which owns 11%.
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Adani Enterprises
Table17: Funding structure of BKC (Figs in INR bn)
(II) Real estate
(A) Bandra Kurla Complex (Mumbai) 2 mn sq feet

Land cost 17.0
Cost of construction (To be funded by debt) 6.0
Total 23.0
Equity investment 7.5
Debt investment 15.5
Funding of equity
Money pumped in by Adani Enterprises 6.7
Money to be brought in by Mayfair 0.8
Total 7.5
(B) Shantigram project at Ahmedabad (AIDPL 75%, Saumya Constructions 25%)
Shantigram will be one of the largest and most modern futuristic township of its kind. The project will
involve the development of residential and commercial spaces. It will also include an IT–ITES SEZ on
50 acres of land.
Fig. 2: Location of Shantigram
Source Company, Edelweiss research
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Adani Enterprises
Table 18: Funding structure of Shantigram (Figs in INR bn)
Area 40 mn sq feet
Land cost 4.4

Cost of construction (To be funded by debt) 32.0
Total 36.4
Equity investment 6.0
Debt 15.0
Pre selling 15.4
Total 36.4
Funding of equity
Money brought in by Soumya Constructions 1.4
Part from pre sale and part not tied up 0.5
Total 6.0
(C) Khatau Mills: (AIDPL 60%, Marathon Group 40%)
As per order of the Board for Industrial and Financial Reconstruction (BIFR) dated February 22, 2007,
Khatau Makanji Spinning & Weaving Mills (KML) has been demerged and its properties in Borivli and
Byculla vest with the resulting company i.e., Swayam Realtors and Traders (SRTL), a step down
subsidiary of AEL, which holds 60% in SRTL.
Fig. 3: Locations of Khatau
Key highlights of the project:
• 60:40 joint venture with the Marathon Group—a reputed real estate company with three decades
of experience—for developing two mill areas in Borivli and Byculla.
• The land will be handed over through a BIFR process (scheme already approved) which ensures
clear title for the developer.
• Borivli
Borivli: 1.3 mn sq ft of development.
• Byculla
Byculla: 0.7 mn sq ft of development.
• Product mix
mix: Residential (50%), commercial (30%), and retail (20%).
• All liabilities already settled and possession expected in the last quarter of FY07.
• Environmental clearance and factory closure permissions received.
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Adani Enterprises
Table 19: Funding structure of Khatau Mills project (Fig. in INR bn)
Area 2 mn sq feet
Land cost 3
Cost of construction (To be funded by debt) 3
Equity investment 3
Debt investment 3
Total 6
Funding of equity
Money brought in by Marathon Group 1.2
Total 3
Other businesses
(A) Agro (FY07 revenues of INR 170 bn and PAT of INR 1.8 bn)
AEL is a major diversified player in the agri sector. The company has expanded its global reach and
presence in domestic/foreign markets with concentrated efforts to increase market share as bulk
aggregator, logistic manager, and an established distributor. AEL has consolidated its existing agri
basket comprising food grains, fruits and vegetables, and the entire range of oil and oil meals.
• Agro commodities trading
Key highlights of the business:
• Leading trader in diversified agri commodities with emphasis on entire range of oil & oil meals,
food grains and pulses.
• Leading player in soya, castor, and pulses, sharing 15% of bulk trading market in India.
• Expertise in bulk sourcing, aggregating, logistics management, and bulk distribution.
• Long-term relationship with leading players worldwide for sourcing/supplying agri products
with repeat contracts.
• Geographical presence in Europe, Japan, Korea, China, US, Canada, Australia, South East
Asia, Middle East, South Asia, and almost all over India.
• Handled 1.5 mn MT of cargo in FY07 and is targeting to touch 3 mn MT by 2010.
• Adani Agri Logistics (AAL: 100% subsidiary of AEL)
Globally, movement of major food grains like wheat for exports and domestic consumption is done
in an integrated manner in bulk right from farm gate to port or the consumption centre. To reduce
storage and transit losses of food grains and to bring additional resources through private sector
participations the government of India in June 2004 had announced a national policy on handling
storage and transportation of food grains for bulk and conventional godowns.
AAL was awarded the contract for setting up storage facilities in grain producing states—Punjab
and Haryana—with fully mechanized operation and steel/RCC silos for grain storage. Similarly, for
local distribution, distribution depots in Navi Mumbai (50,000 MT), Coimbatore (25,000 MT), Chennai
(25,000 MT), Bangalore (25,000 MT), and Hooglee (25,000 MT) are to be established.
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Adani Enterprises
The project envisages:
• Long-term contract period of 20 years.
• Storage capacity of 0.55 mn tonnes per month.
• 400 special wagons for bulk grain transportation.
• 100% income tax deduction for first five years and 30% for the next five years.
• Adani Agri Fresh (AAF: 100% subsidiary of AEL)
India is a leading fruits and vegetables producer, but lacks post harvesting technology. Due to
absence of suitable cold storages and lack of organized distribution system the wastage of fresh
produce in India is as high as 25-30%.
AEL, through 100% subsidiary Adani Agri Fresh (AAFL), has introduced ultra modern controlled
atmosphere storage facilities in India at Himachal Pradesh for storage of apples and other fruits.
AEL has commenced operations in Himachal Pradesh with seasonal procurement of apples and
plans to expand its reach to other parts of the country with varied offerings.
Salient features of the business are:
• Setting up a distribution network across India for supply of fresh produce and setting up its
own logistics cold chain to increase efficiency of the system.
• Currently, AAF has facilities at three locations in Himachal Pradesh with a total storage
capacity of 18,000 MT. In FY07, it handled 4,800 MT of apples and plans to procure around
18,000 MT in FY08E.
• It plans to roll out additional capacities in Jammu, Maharashtra, Karnataka, and Gujarat.
• The company plans to procure cherries, lichee, pomegranate, and other stone fruits during
FY08 on a test scale basis.
• Adani Wilmar (AWL: 50% joint venture with AEL and Wilmar Group; FY07 revenues of INR 2.7
bn and PAT of INR 70 mn)
AEL commenced trading in edible oil since 2000. Keeping in mind the increasing urbanization and
demand for packaged oil, AEL has ventured into edible oil refining through a 50:50 joint venture
(Adani Wilmar) with world’s largest oil major Wilmar Trading of Singapore. Adani Wilmar (AWL) has
established the first Indian port-based edible oil refinery. With acquisition of refineries in Mantralayam,
Bundi, and Haldia, AWL has become the largest refinery in India, with a total capacity of 3,500
tonnes per day.
The name of its brand is Fortune which is:
• Amongst the top 50 FMCG brands in the country.
• India’s largest edible oil brand commanding 17% market share.
• A leader in soya with 38% domestic share.
• A leader in ground nut oil with 20% domestic market share.
• Largest exporter of edible oil from India.
17
Adani Enterprises
(B) Coal trading (FY07 revenues of INR 25 bn and PAT of INR 1 bn)
AEL is the largest integrated coal manager for a large body of power producers and other users.
Although India is one of the largest coal consuming and producing nations in the world, it heavily
depends on imported coal. Currently, 8% of the total coal consumed in the power sector is imported.
We expect this contribution to increase to 29% at the end of the Eleventh Five Year Plan on the back
of incremental coal-based thermal power plants coming up.
Table 20: Import of coal is a necessity keeping in view the demand from power sector alone
Particulars (Production and consumption per annum) FY07 FY12*
Coal based thermal power plants (MW) 71,392 123,487

Coal needed for coal based power plant (Mn Tonnes) 321 634
Coal production in India (Mn Tonnes) 383 538
Consumption of coal for power sector (Mn Tonnes)
Domestic coal consumed (Mn Tonnes) 295 450
Coal imported (Mn Tonnes) 26 184
Imports as a % of toal consumption in power sector 8 29
Source: Edelweiss research * End of Eleventh Five Year Plan
Currently, AEL is the largest private sector coal importer in India and the company continues to improve
its coal business by expanding its sourcing network, cost effective shipping, and a timely delivery
structure at power stations.
AEL moved approximately 8 mn MT of coal in India in FY07, accounting for almost 34% of India’s coal
imports. In 2005-06, India imported 6% of its total coal requirement and of this, 34% was imported by
AEL. It has entered into long term exclusive coal supply arrangements with the largest mining compa-
nies in Indonesia and has also developed relationship with 12 large miners in Indonesia and four miners
in China.
(C) Power Trading (FY07 revenues of INR 10 bn and PAT of ~ INR .05 bn)
AEL was amongst the first movers to identify an opportunity in power trading after modifications of the
Electricity Act in 2003 and venture into power trading by obtaining the necessary license. Since then
the company has emerged as the leading private sector power trader in the country.
There is a huge gap between supply and demand of power in large parts of India. Inherent diversity in
demand of various states also results in periods of seasonal surplus in one state or region coinciding
with periods of deficit in another. To capitalize on this, AEL set up a power trading division in September
2003 and obtained the highest category “F” inter state license for trading in power which entitles trading
of more than 1,000 mn units of electricity during the year, with transmission priority on national grid
covering the jurisdiction of the entire country for the next 25 years.
Table 21: Market share of players in power trading FY07(%)
PTC 44
NTPC Vidyut Vyapar Nigam 18
Adani Enterprises 12
Tata Power Trading Company 8
Reliance Energy Trading 6
Lanco Electricity Utility 5
JSW Power Trading Corporation 6
Karam Chand Thapar & Bros 1
Source: Edelweiss research
18
Adani Enterprises
50
40
30
(%)
20
10
Vyapar Nigam
Adani
Trading
Trading Corporation
Karam Chand
PTC
NTPC Vidyut
Enterprises
Thapar & Bros

Trading Company
Lanco Electricity
Utility
Tata Power
JSW Power
Reliance Energy
Source: Central Electricity Regulatory Commission
Table 22: Volumes of trading in power since 2003 (Volume in bn units)
Name of the trading licensee 2003-04 2004-05 2005-06 2006-07
PTC 11.0 8.4 8.4 6.6

NTPC Vidyut Vyapar Nigam 2.6 1.6 2.7
Adani Enterprises 0.8 3.0 1.8
Tata Power Trading Company 0.7 1.2
Reliance Energy Trading 0.5 0.9
Subhash Kabini Power Corporation 0.0 0.0
Lanco Electricity Utility 0.0 0.7
JSW Power Trading Corporation 1.0
Karam Chand Thapar & Bros 0.1
Total 11.0 11.8 14.2 15.0
Table 23: Wtd avg price and margins in power
Wtd avg price in KWh & margins in % 2005-06 2006-07

Wtd avg Wtd. avg. Wtd avg. Wtd avg.
Figs in INR pur price sel price profit pur price sel price profit
PTC 3.13 3.19 0.06 4.41 4.45 0.04

NTPC Vidyut Vyapar Nigam 3.05 3.10 0.05 4.09 4.13 0.04
Adani Enterprises 3.20 3.40 0.20 5.01 5.05 0.04
Tata Power Trading Company 3.05 3.15 0.10 5.04 5.08 0.04
Reliance Energy Trading 3.20 3.26 0.06 3.94 3.99 0.05
Subhash Kabini Power Corporation 3.17 3.33 0.16 3.72 3.70 (0.02)
Lanco Electricity Utility 4.48 4.52 0.04 4.45 4.49 0.04
JSW Power Trading Corporation 4.64 4.68 0.04
Karam Chand Thapar & Bros 4.91 4.95 0.04
Average 3.33 3.42 0.10 4.47 4.50 0.03
19
Adani Enterprises
(D) Metals and minerals
Metals
• Largest importer of steel scrap in the Indian sub-continent through subsidiary established in
the Dubai Free Zone.
• Ship dismantling business
• Ship dismantling yard in Virginia, US; US MARAD approved unit for decommissioned
Naval and Coast Guard ships.
• MoU signed with French Shipyard for dismantling ships.
• Leading player in un-branded studded jewellery and gold medallions with manufacturing
base in the Surat SEZ and outsourcing with large manufacturers.
Minerals
• Captive port facility in Belekari to support iron ore business.
• Mechanization facility for faster movement of cargo and handle larger size vessels to save on
freight.
• Long-term relationship with domestic mines and importers in China, Korea, and Japan.
• Proposed iron ore mining operations in Karnataka/Orissa.
(E) Ship fuelling
• Commenced bunker fuel business from Mundra Port with procurement of two products
barges of 3,000 MT capacity each; storage and blending facilities in place.
• First private sector company to enter in to bunkering at a strategic location in the Gulf of
Kutch, where leading oil companies like Reliance Petro, IOCL, BPCL, HPCL, Essar have
established their refining/storage facilities and 8-10 VLCC are called every month.
• Target for 2009: 1 mn MT and potential to achieve 3 mn MT volume by 2010.
• Also dealing in furnace oil, HSD, and naphtha..
(F) City gas distribution
AEL has ventured into the gas distribution business with an objective of providing safe, conven-
ient, reliable, and environment friendly fuel (piped natural gas (PNG) and compressed natural gas
(CNG)) to industrial, commercial, household, and transport sectors. It has already set up a gas
distribution network for two of Gujarat’s most industrialized and commercial districts—Ahmedabad
and Vadodra.
20
Adani Enterprises
Fig. 4: CNG stations in Ahmedabad and Baroda
Source: : Company, Edelweiss research
Salient features of the business are:
• Present status
status: 45 CNG stations, 8,000 domestic, 245 industrial, and 95 commercial con-
nections.
• Daily contracted quantity= 0.32 MMSCMD; projected: 2.4 MMSCMD.
• Steel ring network of 198 km and PE network of 534 km across six cities already completed.
Planned steel ring network of 514 km and PE network of 3,163 km across six cities.
• Proposes to set up facilities in Faridabad (Haryana), Noida (UP), Khurja (UP), Lucknow (UP),
Jaipur (Rajasthan), and Udaipur (Rajasthan).
• Facility plans for Jaipur and Udaipur are being developed.
(G) Coal mining
(I) PT Adani Global Indonesia
• Block identified in the Island of Bunyu in E. Kalimantan, near the border of Malaysia, and
33 km of the island of Tarakan.
• Approximately 140 mn MT estimated reserves in the central and northern part of the
island covering 3,000 hectares of land.
• Favourable strip ratio of 1:3.5.
• Proximity to the coastal area.
• Mining rights obtained in a phased manner.
• Exploitation licenses for two concessions received.
• Commercial operations will commence from February 2008.
• Exclusive mining rights obtained in Sumatra.
21
Adani Enterprises
(II) Coal mining: India
• Adani Mining (100% subsidiary of AEL) has been selected by RRUVNL for carrying out
coal mining operations at Chhattisgarh.
• 74:26 JV formed with RRUVNL for captive coal mining–200 mn MT.
• Contract entails selling coal at a fixed price of INR 958 per tonne.
• Pursuing with other similar projects.
(H) Adani Welspun Exploration (AWEL: 65% share)
• According to the Ministry of Petroleum & Natural Gas, India ranks 12 in terms natural gas
reserves with almost 3 bn cubic meters. Most of these reserves are located in the KG basin,
upper Assam and Cambay region, Gujarat.
• AWEL has been awarded two onshore blocks by the government of India in the recently
concluded NELP VI through a consortium where AEL has the majority stake.
• One block of 75 sq km is located in Cambay (Gujarat) and another block of 95 sq km is

located in Assam.
• AWEL has also been awarded one onshore block by the government of Thailand in Eastern
provinces of Nakhon Ratchasima and Buri Ram with a total area of 3,900 sq km.
• AWEL plans to participate in the next NELP VII and is actively looking at Indonesia, Australia,
Egypt, and Yemen for gas blocks.
22
Adani Enterprises
Financial Statements (Consolidated)
Income statement
statement (INR mn)
Year to March FY05 FY06 FY07 FY08E FY09E
Income from operations 150,053 123,415 169,491 168,473 226,353

Direct costs 143,413 115,576 158,730 155,084 206,187
Employee costs 155 270 572 1,144 1,659
Other expenses 4,347 4,402 5,484 5,868 6,455
Total operating expenses 147,914 120,248 164,786 162,095 214,300
EBITDA 2,139 3,167 4,705 6,378 12,053
Depreciation and amortisation 23 50 163 640 1,169
EBIT 2,116 3,117 4,541 5,737 10,885
Interest expenses 703 1,533 2,286 1,617 3,159
Other income 26 14 42 44 46
Profit before tax 1,439 1,598 2,297 4,164 7,771
Provision for tax 227 390 516 666 1,243
Extraordinary items (14) (144) 5 0
Reported profit 1,225 1,352 1,776 3,498 6,528
Adjusted net profit 1,225 1,352 1,776 3,498 6,528
Shares outstanding 225.5 226.2 246.5 246.2 246.0
Dividend per share 0.4 0.5 0.5 0.7 0.8
Dividend payout (%) 39.1 45.2 54.2 65.1 78.1
Common size metrics as % of net revenues

Operating expenses 98.6 97.4 97.2 96.2 94.7

Depreciation 0.0 0.0 0.1 0.4 0.5
Interest expenditure 0.5 1.2 1.3 1.0 1.4
EBITDA margins 1.4 2.6 2.8 3.8 5.3
Net profit margins 0.8 1.1 1.0 2.1 2.9
Growth metrics (%)

Revenues 68.4 (17.8) 37.3 (0.6) 34.4

EBITDA 53.8 48.1 48.5 35.6 89.0
PBT (0.6) 11.0 43.8 81.3 86.6
Net profit (12.7) 10.3 31.4 97.0 86.6
EPS (14.6) 10.0 20.6 97.2 86.8
23
Adani Enterprises
Balance sheet (INR mn)
As at 31st March FY05 FY06 FY07 FY08E FY09E
Equity capital 226 226 246 246 246

Reserves & surplus 6,547 7,478 11,256 14,594 20,790
Shareholders funds 6,773 7,704 11,502 14,840 21,036
Secured loans 3,827 8,722 21,105 52,157 74,065
Unsecured loans 4,566 4,475 22,420 22,420 12,420
Borrowings 8,393 13,197 43,525 74,577 86,485
Sources of funds 15,166 20,902 55,027 89,417 107,521
Gross block 614 817 4,654 42,411 51,313
Depreciation 117 144 513 1,153 2,322
Net block 497 672 4,141 41,257 48,991
Capital work in progress 65 109 8,941 22,746 28,538
Total fixed assets 562 781 13,082 64,003 77,529
Investments 467 128 128 302 346
Inventories 3,231 3,884 17,991 18,284 20,139
Sundry debtors 21,404 22,439 24,184 17,339 20,385
Cash and equivalents 4,794 7,691 16,892 10,420 7,395
Loans and advances 3,304 5,451 6,636 1,714 1,104
Total current assets 32,732 39,465 65,703 47,756 49,023
Sundry creditors and others 18,189 18,651 22,721 21,701 18,431
Provisions 370 753 1,042 1,065 1,320
Total CL & provisions 18,559 19,404 23,763 22,765 19,751
Net current assets 14,173 20,061 41,940 24,991 29,271
Net deferred tax (64) (67) (122) 121 374
Others 28 0
Uses of funds 15,166 20,902 55,027 89,417 107,521
Book value per share (BV) 30 34 47 60 86
Cash flow statement (INR mn)

Net profit 1,225 1,352 1,776 3,498 6,528

Add: Depreciation 23 50 163 640 1,169
Add: Misc expenses written off (19) 28 - - -
Add: Deferred tax 36 4 55 (243) (253)
Gross cash flow 1,265 1,434 1,994 3,896 7,443
Less: Dividends 88 102 134 160 192
Less: Changes in W. C. 2,658 2,991 12,679 (10,477) 7,305
Operating cash flow (1,481) (1,659) (10,818) 14,212 (53)
Less: Change in investments (227) (339) - 175 44
Less: Capex 225 270 3,837 37,757 8,902
Free cash flow (1,479) (1,590) (14,656) (23,719) (9,000)
24
Adani Enterprises
Ratios
ROE (%) 18.8 18.7 18.5 26.6 36.4

ROCE (%) 17.2 17.4 12.1 8.0 11.1
Current ratio 1.8 2.0 2.8 2.1 2.5
Debtors (days) 14 18 14 10 9
Fixed assets t/o (x) 325.6 183.8 24.5 4.4 3.2
Debt/Equity 1.2 1.7 3.8 5.0 4.1
Valuation parameters
EPS (INR) 5.4 6.0 7.2 14.2 26.5

Y-o-Y growth (%) (14.6) 10.0 20.6 97.2 86.8
CEPS (INR) 55.4 62.0 78.7 168.1 312.9
P/E (x) 146.2 132.9 110.2 55.9 29.9
Price/BV(x) 26.4 23.3 17.0 13.2 9.3
EV/Sales (x) 1.2 1.5 1.3 1.5 1.2
EV/EBIDTA (x) 85.2 58.4 47.2 40.7 22.7
25
India Equity Research | Port Initiating Coverage
M UNDRA PORT AND SEZ INR 1,068
Emerging asset class BUY
Strong growth momentum in Indian port traffic likely to continue

December 6, 2007
With Indian merchandise export and import registering healthy double digit growth, the coun-
try’s port traffic has grown at a CAGR of 8.7%, touching 463 mn tonnes in 2006-07. This Krishnakant Thakur
+91-22-2286 4318
growth momentum is expected to continue and the traffic is expected to reach 980 mn tonnes krishnakant.thakur@edelcap.com
(at CAGR of 12%) over 2007-12E. Considering the massive infrastructure rollout in the coun-
Akshit Shah
try, port capacity is expected to keep pace with the rising traffic. +91-22- 2286 4714
akshit.shah@edelcap.com
Mundra Port and SEZ: Preferred destination with a well-diversified product profile
Mundra Port and Special Economic Zone (MPSEZ) is one of the leading non-captive private
sector ports in India, providing services for various cargo categories. MPSEZ also has access
to rail, road, and pipeline network across India, which has helped it tie up strategic arrange-
ments with customers and position itself as the preferred destination for customers.
SEZ development and allied port services likely to strengthen business model
MPSEZ is developing the first port-based multi-product SEZ in India. Currently, it possesses
15,665 acres of land and another 16,688 acres is being transferred to the company. With
significant land acquisition in place, proximity to industrial area, and the port acting as an
anchor tenant, the SEZ is a unique value proposition.
Increased capacity expansion and new services likely to provide next level of growth Reuters : MPSE.BO
The company is expanding its container handling capacity by setting up a second container Bloomberg : MSEZ IN
terminal. It is also setting up a terminal for coal and other cargo to cater to the upcoming ultra
mega power projects (UMPPs) and Adani Power and building a solid cargo port terminal at Market Data
Dahej. These new initiatives, along with the SEZ, container train, and ICD operations, will fuel 52-week range (INR) : 1,150 / 770
the next level of growth for MPSEZ. Share in issue (mn) : 400.7
M cap (INR bn/USD mn) : 429.7/10,833.3

Outlook and valuations: Positive; initiating coverage with `BUY'
Avg. Daily Vol. BSE/NSE (‘000) : 8,010.0
MPSEZ, with its natural location advantage and proximity to maritime trade routes, and with
strong capacity expansion is expected to register volume CAGR of 36.6% during FY07-12E.
Share Holding Pattern (%)
This is likely to drive the revenue and EPS CAGR by 48.0% and 88.7%, respectively, for the
Promoters : 81.3
company during FY07-09E. We have valued MPSEZ’s business through discounted cash
MFs, FIs & Banks : 3.6
flow valuation at INR 1331per share. Given the strong integrated business model and potential
FIIs : 5.0
upsides, we initiate coverage on the stock with a ‘BUY’ recommendation.
Others : 10.1
Financials
Revenue (INR mn) 4,003 5,959 8,437 13,060

Rev. growth (%) 44.3 48.8 41.6 54.8 1,100 16,000
EBITDA (INR mn) 2,336 3,237 6,032 10,018
Net profit (INR mn) 673 1,918 3,397 6,829 1,025 12,000
('000)
Shares outstanding (mn) 360 401 401 401

(INR)
950 8,000
Cons EPS (INR) 1.9 4.8 8.5 17.0
EPS growth (%) 156.5 77.1 101.0
875 4,000
P/E (x) 572.2 223.1 126.0 62.7
EV/ EBITDA (X) 170.6 138.2 74.1 44.6
800 0
ROCE (%) 9.4 10.2 11.5 13.3 Nov-07 Dec-07
Mudra Port and SEZ
Investment Rationale
Rapid growth in trade to pressurise existing port capacities
In FY07, traffic handled by Indian ports grew 9.6% Y-o-Y to 463.8 mn tones; major ports handled ~75%
of this. Based on the rising trend of traffic growth, India is expected to handle 978 mn tonnes of cargo by
2011-12E.
Chart 1: Steady traffic growth in India

500
400
Cargo (mn tonnes)

300
200
100
0
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
Source: IPA, Ministry of Shipping
Table 1: Forecasts for 2011-12
Alternative parameters Traffic volume (mn tonnes)
Trend (past 50yrs) 680.1

Trend (past 10yrs) 884.8
Trend (increasing) 978.9
To keep pace with the GDP growth of 7-8%, India needs to ramp up its port capacities in the next few
years. As global and Indian trade grows at 9-11% per annum, congestion at major ports will depress port
performance, unless sufficient capacity is created, as most Indian ports are already running at near 100%
capacity utilization.
27
Mudra Port and SEZ
Chart 2: Capacity and traffic at major Indian ports

450 140
Agg capacity Traffic in MT Capacity utilization
360 124
270 108
(Mn Tonnes)
(%)
180 92
90 76
0 60
FY92 FY96 FY01 FY02 FY03 FY04 FY05 FY06
Container traffic growth is fastest, but capacity lags
Over 80% of the total traffic volume handled by Indian ports is dry and liquid bulk, while the remaining is
general cargo, including containers. The fastest growth in port traffic during the past decade was in
container traffic, up 17% per annum in five years up to FY06. However, even though the growth is
stupendous, it still lags larger international ports. Container penetration in India is only 47%, compared to
world average of 60%.
Chart 3: Historical growth rate in container traffic

5
(Mn TEUs)
2
0
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06
With rising containerization and container penetration, container traffic is expected to register 16-18%
CAGR growth over the next six-seven years, making it the fastest growing cargo in India.
28
Mudra Port and SEZ
Table 2: Container traffic: Fastest growth segment
Existing traffic in Projected

all ports during traffic
Commodity 2005-06 2013-14 CAGR %
POL 154.3 290.0 8.2

Container 73.5 251.4 16.6
(TEUs) 5.4 21.0 18.4
Iron ore 80.6 131.5 6.3
Coal 60.2 135.9 10.7
Other cargo 95.2 152.8 6.1
Total 463.8 961.6 9.5
Source: IPA, Edelweiss research
Indian ports: Lack adequate draft requirement; competitive advantage for deeper drafts
Indian ports lack adequate draft1 requirements. Low channel depth at many non-major ports means
that large vessels cannot enter them. Also, these ports lack adequate berthing facilities, alongside
drafts, proper handling facilities, and storage sheds. Labour productivity, equipment intensification,
modernisation, and upgradation of these ports are some additional factors that need to be addressed
for Indian ports to attain world-class standards. JNPT, India’s largest container handling port, has a draft
of 11 mtrs and draft for various other ports in India is in the 10-12 mtrs range. This gives upcoming ports
a competitive advantage as they have the natural deep draft capability to handle very large vessels.
This, in turn, provides cost benefits to carriers due to economies of scale involved.
NMDP to boost port infrastructure creation
In view of the infrastructure bottlenecks faced by ports and rapid growth in trade, the Indian government
is implementing the National Maritime Development Programme (NMDP) which envisages an invest-
ment of INR 603 bn till FY14E. During this period, the overall ports capacity is likely to increase over
2.35x FY04, to 917 mn tonnes.
Table 3: Estimated capacity increase in India ports and costs (FY04-14)
Existing Proposed Proposed

FY04 FY14 Investments
(INR bn)
Kolkata Dock System 9.8 21.6 47.2

Haldia Dock System 34.1 73.8 15.2
Paradip 39.0 92.3 24.0
Vishakapatnam 49.2 130.0 35.4
Chennai 41.9 61.6 21.7
Tuticorin 15.8 45.8 30.0
Cochin 15.5 58.5 78.9
New Mangalore 30.3 55.9 71.5
Mormugao 23.5 57.2 8.1
Mumbai 40.4 58.8 19.5
JNPT 33.1 94.9 158.8
Ennore 12.0 61.8 43.2
Kandala 45.0 105.6 49.9
Total 389.5 917.6 603.4
1
draft is the number of feet that the hull of a ship is beneath the surface of the water.
29
Mudra Port and SEZ
Out of the estimated investment of INR 603 bn, ~65% will come from the private sector, budgetary
support will contribute 19%, internal resources 8.5%, while the remaining 7.5% will come from rail and
road connectivity projects.
Table 4: Total port sector investments
Investments INR bn
Budgetary support 114.5

Internal resources 50.8
Private sector 392.4
Rail & road connectivity 45.8
- Ministry of Railways 19.0
- Dept of Road Transport & Highways 10.7
- JV0Ports, NHAI, State Govts 16.0
Total investment 603.4
Source: National Maritime Development Programme
Port privatization on the rise globally
Given the constraint on account of massive finance requirement for development of the port sector,
governments across the world are opening gates for the private sector. Instead of the port providing
both commercial and regulatory functions (as in traditional service ports), the private sector is invited to
set up and operate commercial facilities, while the port authorities continue to own the land and basic
infrastructure assets as well as discharge the regulatory functions. Gujarat has been most successful
in attracting private sector interest. Gujarat Pipavav Port (Maersk, PSA), Gujarat Adani Port (the Adani
Group), and Gujarat Chemical Port Terminal have been developed as joint ventures with private
players. Reliance operates captive jetties at Jamnagar port (Gujarat) to cater to Reliance’s refinery in
Jamnagar. It has also invested in captive jetties at the Sikka port. The past two years have seen an
increase in private activity in minor ports all over the country.
30
Mudra Port and SEZ
MPSEZ: Preferred destination with a well diversified product profile
MPSEZ is among the leading non-captive private sector ports in India. The port is located in the Kutch district
in the state of Gujarat on the North West coast of India. It enjoys the exclusive right to develop and operate
the Mundra port and related facilities until February 2031, after it signed the concession agreement with the
Gujarat Maritime Board on February 17, 2001. MPSEZ is approximately 850 km North West of Mumbai and
caters to the hinterland location of northern and central India through excellent road, rail, and pipeline
connectivity.
Fig. 1: Mundra port location
Source: Company
Diversified cargo profile
MPSEZ provides port related services for bulk cargo, container cargo, crude oil cargo, value-added
port services, including rail services. With a heavy dependence on bulk cargo in 2004 (89% of total
cargo), MPSEZ has diversified into other cargo categories, reducing bulk dependence to 34.8% in
FY07. It has seen substantial growth in other cargo categories like container and crude oil, alleviating
concerns of volatility of any cargo category.
Chart 4: Break up of cargo
Cargo composition FY04 Cargo composition 3mFY07
Container
11%
Crude oil Bulk cargo
33% 35%
Bulk cargo
89% Container
32%
Source: Company
31
Mudra Port and SEZ
MPSEZ has aligned itself to cater to the high value cargo on the West coast of India. During FY04-07,
coal, fertilizers and iron, and steel throughput has registered a CAGR of 72.4%, 67% and 37.6%,
respectively. MPSEZ has emerged as an alternative for fertilizer handling following the discontinuation
of fertilizer handling at JNPT. Iron and steel have followed the general growth in the pipe coating
industry in the vicinity of the port. With anticipated development of coal power projects in the Mundra
area, growth in coal handling is expected to be robust.
Deepest water draft on West coast
MPSEZ enjoys locational advantage on the West coast of India, including a deep water draft ranging
from 15-32 meters. The trend in the shipping industry has now moved to using larger vessels to
accommodate the rapid growth in volume of global and domestic containers and oil transportation and
also to reduce ocean transportation costs through economies of scale.
With the deepest draft among all the ports on the West coast, MPSEZ is poised to become the port of
the future as it is capable of handling the future generation of large vessel size carrying bulk, container
and crude oil cargo.
Table 5: Draft comparison on the West coast of India
Major ports draft in mts
- JNPT 11
- MbPT 10.5
- Mormugao 12.5
- New Mangalore 12.5
- Cochin 11.7
Minor ports
- Kandla 5
- Pipavav 10.5
Source: Port websites
Catering to half of India’s industrial hinterland
MPSEZ enjoys proximity to the northern and industrial regions of India as well as major maritime trade
routes. Nearly half of India’s trade in commodities such as crude oil, coal, fertilizers, food grains, and
container cargo is represented by North and North-West India. The proximity of MPSEZ to the hinter-
land of northern India puts it in the position to handle the rising imports and exports in that region. Its
location near the entrance of the Gulf of Kutch on the North-West coast of India places it near major
maritime trade routes, making it an important hub for foreign trade, involved in importing and exporting
to/from the Middle East, Asia, Africa, and other destinations.
32
Mudra Port and SEZ
Fig. 2: Cargo contribution from hinterland
Source: Company
Multimodal hinterland connectivity for various cargo class
Over the years, MPSEZ has developed good hinterland connectivity to the inland regions of western
and northern India through rail, road, and pipeline network. The excellent multimodal connectivity
provides faster evacuation at ports, leading to faster turnaround time for cargo ships and hence,
provides a competitive edge over other congested ports. MPSEZ is connected to national and state
highways with a four-lane approach road including the Mundra-Anjar State Highway. Due to the road
and highway network, transporting cargo and goods from Mundra to Delhi provides customers the
advantage of reduced travel distance of 206 km over Mumbai ports and approximately 66 km over the
port at Pipavav.
It is also connected to the Indian Railways (IR) network through a broad gauge link, constructed by
MPSEZ between Mundra and Adipur. The broad gauge onward route significantly reduces the railway
distance between Mundra port and Delhi. It provides an advantage of approximately 218 km over the
ports in Mumbai for Delhi bound cargo. In addition, there are certain gauge conversions being imple-
mented by Indian Railways to directly connect Mundra to NCR of India providing, it a huge advantage
of 450 km over ports in Mumbai. With a dedicated freight corridor also being planned, the infrastructure
connectivity to the Mundra port is bound to improve.
33
Mudra Port and SEZ
Fig 3: Rail linkage from Mundra port
Source: Company
For transporting crude oil, a pipeline, owned and operated by IOCL, directly connects it to IOCL’s
refinery in Panipat. Another pipeline, owned and operated by HPCL, is used to transport POL from the
port to NCR of India.
Fig 4: Pipeline network from Mundra port
Source: Company
34
Mudra Port and SEZ
First port-based multi-product SEZ in India
MPSEZ has received approval as a master developer of a multi-product SEZ at the Mundra port and its
surrounding areas. Currently, it possesses 15,665 acres of land, including 1,871 acres of port area,
while approximately 16,688 acres of land is at various stages of being transferred to MPSEZ. MPSEZ
will be the master developer for the SEZ and has plans to work with third-party developers to develop
services such as power generation, distribution, water supply, and telecommunications. To leverage
the captive cargo from the port and SEZ, MPSEZ is also venturing into running container trains and
setting up ICDs across India.
• MPSEZ: A unique proposition
Majority of land acquisition in place: We believe that among the other SEZs being developed in
the country, MPSEZ has already acquired majority of the land and with a port in operation, basic
infrastructure is also in place. This gives it an edge over other SEZs, which are still in the process
of acquiring land.
Chart 5: MPSEZ - Majority land acquisition in place
Acquired and
notified
48%
Under transfer
52%
Source: Company
Port as an anchor tenant: Another success factor for the SEZ at the Mundra port is presence of well
developed port infrastructure which acts as an anchor tenant and upcoming industrial area in the
vicinity of the SEZ. Large industrial units like Welspun Gujarat, Jindal Saw, Ashapura Minechem, and
various CFS, textile, and chemical units have already set up base in the area. We believe presence of
port infrastructure, excellent connectivity to the hinterland, and allied services such as transportation
and storage provide strong competitive edge over other SEZs in the country.
MPSEZ only a developer: MPSEZ is planning to develop the SEZ as a master developer taking care
of the basic infrastructure, and plans to work with third-party developers to develop services such as
power generation, distribution, water supply, and telecommunication. MPSEZ will lease large tracts of
land/plot and development which will be taken care of by the tenants. We believe that outright leasing
of plots is a less risky model compared to development of such a large area.
35
Mudra Port and SEZ
Future growth drivers through capacity expansion and new initiatives
MPSEZ is expanding capacity for handling bulk cargo by constructing a bulk terminal which can have
a maximum capacity of ~10 mn tonnes. The number of berths is expected to go up from four currently
to eight in FY08E and cumulatively will have a capacity to handle 20 mn tonnes of bulk cargo (solid and
liquid). It is also constructing a container terminal to increase its container handling capacity from 1.25
mn TEUs to 2.5 mn TEUs by FY08E.
(a) Setting up a coal terminal with assured volumes
MPSEZ has signed a port services agreement with Coastal Gujarat Power to provide port and cargo-
handling services for a 4,000 MW UMPP at Mundra. The terminal is expected to have a capacity of 20
mn tonnes per annum. Additionally, Adani Power is also setting up a 2,640 MW imported coal-based
power project in the vicinity of the Mundra port. The assured coal cargo-handling for UMPP and Adani
will ensure optimum capacity utilisation for MPSEZ’s coal terminal. The terminal has been set up at an
investment of INR 20 bn and is expected to be operational in FY11.
(b) Solid cargo port terminal (SCPT) at Dahej
MPSEZ is planning to acquire 74% stake in Adani Petronet Port (APPL), a joint venture company with
Petronet LNG, to develop a solid cargo port terminal at Dahej in a phased manner, with 15 mn tonnes
of cargo capacity. The terminal is expected to have a deeper draft of 16 mts and will be operational by
June 2010. The value proposition for the terminal is to cater to users in primary inland regions of South
Gujarat, upper Maharashtra, and parts of central India for their coal requirement. The terminal is present
in developed industrial areas of Bharuch and Surat, and is connected to key routes by road and rail.
Apart from that, Gujarat Industrial Development Corporation and ONGC are likely to commit INR 15 bn
for 4,300 acres of the SEZ and the Adani Group is also expected to set up its 2,000 MW coal-based
power plant in the region.
(c) Container rail and inland container depot operations
The company has entered in the container train business through 50% equity stake in Adani Logistics
(ALL); ALL has acquired the license to run container trains across India. MPSEZ proposes to initially
procure 20 rakes for its operations and is expected to commence operations by September 2007. The
company also plans to invest in the business of developing, operating, and maintaining rail-linked
inland container depots across India, catering to EXIM as well as domestic trade. It plans to develop
approximately 14 ICDs in NCR and cargo centers in Ahmedabad, Mumbai, Kolkata, Chennai, Bangalore,
Coimbatore, and Nagpur. With container terminals, container rail operations, and presence across
ICDs, MPSEZ will be able to place itself as an end-to-end container logistics player.
(d) Robust capex plan to drive next level of growth
Table 6: Total capex requirement
Coal terminal Investment Investment Investment (INR bn)

SEZ project project in APPPL in ALL in ICPL Total
Total funds required 7.0 20.0 2.5 0.5 1.6 31.6

Funding
Already deployed 0.0 0.0 0.5 0.3 1.0 1.7
IPO proceeds 7.0 4.5 2.1 0.2 0.5 14.4
Debt financing 0.0 12.0 0.0 0.0 0.0 12.0
Internal acruals 0.0 3.5 0.0 0.0 0.0 3.5
Total 7.0 20.0 2.5 0.5 1.6 31.6
Source: Company
36
Mudra Port and SEZ
Valuations
Given the long gestation infrastructure projects and steady cash flows arising from them, we have valued
MPSEZ by the discounted cash flow (DCF) methodology.
Mundra port
Mundra port is expanding its capacity on bulk and container cargo from existing 10 mn tonnes of bulk
handling and 1.25 mn TEUs of container cargo to 20 mn tonnes of bulk and is setting up another container
terminal with 1.25 mn TEUs capacity. It has also set up a terminal to handle crude oil having a capacity of
25 mn tonnes and is also setting up a coal terminal with a capacity of 30 mn tonnes. Given the lower risk on
account of Mundra port being operational and availability of captive cargo for the upcoming coal terminal,
we have discounted the cash flows at cost of equity of 12% and assigned a value of INR 88.2 bn.
Table 7: Present value of Mundra port
PV of free cash flow to equity (INR mn) 88,190

Terminal value Nil
Total value to equity (INR mn) 88,190
Cost of equity calculation
Risk free rate (%) 8
Beta 0.8
Risk premium (%) 5
Cost of equity (%) 12
Port-based multi product SEZ
MPSEZ has acquired and notified 15,665 acres of land. Another 16,688 acres of land is in the process of
being transferred to MPSEZ. We have tried to value 15,665 acres of land in our base case valuation as the
land has been acquired and notified. The present value of rentals is assumed at INR 6.5 per sq ft per month,
the NPV value for the SEZ project comes at INR 190 bn.
Table 8: NPV of Mundra SEZ
- FY08-10E 3,067
- FY11E-17E 13,505
Rental per sq ft (INR) 6.4
Land cost per sq ft (INR) 5.0
CoC per sq ft (INR) 35
Discount factor 8
NPV (INR mn) 190,444
Table 9: Sensitivity of land development of remaining 16,688 acres of land (price per share)
Discount factor Development of additional SEZ area

0% 50% 100%
6 576 863 1,150

7 524 785 1,045
8 476 713 950
9 433 648 864
10 393 589 785
37
Mudra Port and SEZ
Container terminal II
MPSEZ has set up container terminal II to benefit from the increased container traffic from the NCR. We
have tried to value container terminal II based on assumption of operations and management by MPSEZ
itself and assigned a value of INR 46.9 bn.
Table 10: Present value of container terminal II
PV of free cash flow to equity (INR mn) 46,890

Terminal value Nil
Total value to equity (INR mn) 46,890
Cost of equity calculation
Risk free rate (%) 8
Beta 0.8
Risk premium (%) 5
Cost of equity (%) 12
Solid cargo port terminal at Dahej
MPSEZ is planning to acquire a 74% stake in Adani Petronet Port (APPL) to develop a solid cargo port
terminal at Dahej in a phased manner, to have a capacity of 15 mn tonnes of cargo. We have valued Dahej
terminal at INR 12.6 bn with cost of equity assumption at 12%.
Container rail and inland container depot operations
MPSEZ has entered into container train business through 50% equity stake in Adani Logistics (ALL); ALL
has acquired the license to run container trains across India. We have valued the container logistics
business at INR 2.8 bn with cost of equity at INR 13.1 1bn.
Table 11: MPSEZ SOTP valuation
With additional With additional

50% SEZ value 100% SEZ value
Stake Stake value Price per share Price per share Price per share
(INR mn) (%) (INR mn) (INR) (INR) (INR)
Mundra Port 88,190 100 88,190 220 220 220

CT2 46,890 100 46,890 117 117 117
SEZ 190,444 100 190,444 476 713 950
Dahej Terminal 12,663 74 9,370 23 23 23
Container Rail 2,839 50 1,419 4 4 4
ICD 13,085 50 6,542 16 16 16
Total 354,430 343,175 857 1,094 1,331
38
Mudra Port and SEZ
Key Risks
Unfavourable government regulations
MPSEZ operates its businesses as concessions from various government and quasi-government
organisations like the Gujarat Maritime Board. Cancellation, termination, or non-renewal of such con-
cession agreements could impact MPSEZ’s business.
High capital investment requirements and long gestation projects
MPSEZ’s various projects like SEZ, container terminal II, coal terminal, solid cargo port terminal at
Dahej, container train business, and ICDs are capital intensive and long gestation projects. Any delay
or adverse competitive pressure on any of these projects could impact the company’s performance.
Lack of clarity on SEZ regulation
Any unfavourable regulation regarding working of SEZs could severely hamper MPSEZ’s valuations, as
the SEZ is one of the key growth drivers for the company.
Situation of oversupply on West coast of India
Significant capacities are expected to come up on the West coast of India, to cater to the rising
container traffic. This includes setting up of container terminals at JNPT (IV terminal) and Mumbai Port.
This, in turn, could create pricing pressure on MPSEZ.
39
Mudra Port and SEZ
Company Description
MPSEZ is one of the leading non-captive private sector ports in India. It started trial operations at Mundra port
in October 1998 and began commercial operations in October 2001. It signed the concession agreement
with the Gujarat Maritime Board (GMB) and pursuant to that obtained the exclusive right to develop and
operate Mundra port and related facilities until February 2031. MPSEZ provides services for bulk cargo,
container cargo, crude oil cargo, value-added port services, including rail services, which has helped
MPSEZ increase its volume growth at a CAGR of 47% during FY03-07.
Chart 6: Cargo volumes

25
Total general cargo mmt Total liquid cargo mmt
Container Cargo : CT-1 mmt Crude oil : IOC (SPM) mmt
20
(MN tonnes)
15
10
0
FY04 FY05 FY06 FY07
Source: Company
Bulk cargo services
MPSEZ provides handling and storage of dry and liquid bulk, marine services to bulk cargo vessels
including piloting, wharfage, and other port-related services. The bulk cargo handled by MPSEZ has
registered a CAGR of 31.5% during FY04-07.
Table 12: Bulk cargo serviced by Mundra port
2004 2005 2006 2007
Bulk dry cargo

Coal and coke 0.6 2 2.6 3
Fertliser and raw materials 0.3 0.6 1.6 1.4
Minerals 0.7 0.6 0.5 0.5
Iron and steel 0.6 0.9 1.5 1.6
Foodgrains 0.7 0.6 0.1 2.7
Others 0.5 0.5 0.8 0
Bulk liquid cargo
Edible oils 0.6 0.5 0.5 0.3
Petroleum products 0.2 0.2 0.2 0.2
Chemicals 0.2 0.2 0.3 0.3
Total 4.4 6.1 8.1 10
Source: Company
40
Mudra Port and SEZ
Container services
The container services at Mundra port include loading, unloading, and storage of containers, provided
by the container sub-concessionaire; MPSEZ receives only royalties for the same. The container
volumes at MPSEZ have experienced robust growth of 121% to reach 521,000 TEUs in FY07. The
terminal is expected to have a capacity of 1.25 mn TEUs and the volume growth is expected to be
strong with the container terminal II being set up.
Crude oil services
MPSEZ has set up a single-point mooring (SPM) facility for handling crude oil for IOC through a pipeline
to the storage tank area. MPSEZ receives fixed annual payments from IOCL for developing and
maintaining the SPM facility. It also entered into a long-term contract with GGSRL, a subsidiary of
HPCL, for single-point mooring facilities.
Railway services
MPSEZ provides services for rail movement of cargo, bulk and container, on the rail sidings in the port
and on the Mundra-Adipur railway, connecting the port to the IR network. MPSEZ constructed the
Mundra Adipur rail link and received a portion of freight revenues generated by cargo movement by the
railways to-and-from the Mundra port. It has also entered into an arrangement with Concor to provide
railway haulage services for container cargo at Mundra port.
Fig. 5: MPSEZ - Holding structure
Mundra Port and SEZ

(Operating and holding company)
50% 50%
74%
Adani Petronet Inland conware Adani Logistics Dholera Port

(Dahej terminal) (ICD network) (Container train operations) (Port & SEZ)
Source: Company
MPSEZ related sectors on a high growth trajectory
Port industry: Strong growth in sea borne trade
India currently has 12 major and 184 minor/intermediate ports spread across the vast 7,517 km
coastline. They handle almost 90% of India’s total foreign trade. Over the period of past five-six years,
seaborne trade in India has witnessed a CAGR of 8.5%.
Table 13: H ealthy sea borne traffic growth in India

Healthy
In mn tones 2000-01 2001-02 2002-03 2003-04 204-05 2005-06 CAGR

(%)
POL 108.3 103.3 109.6 122.2 126.4 142.1 5.6

Iron ore 40.5 45.2 50.6 58.8 76.2 79.2 14.4
Fertilizer 9.1 9.6 8.6 7.5 9.7 12.2 5.9
Coal 48.1 46.4 48.2 48.8 52.6 58.8 4.1
Container 32.2 37.2 43.7 51.0 54.8 62.0 14.0
Others 42.8 45.9 52.9 56.5 64.1 69.4 10.1
Total 281.1 287.6 313.6 344.8 383.7 423.6 8.5
41
Mudra Port and SEZ
Private sector participation key to growth
The government of India dominated maritime activity in the past. Policy direction is now oriented to
encourage the private sector to take the lead in port development activities and operations. Many major
and minor ports are now being developed largely as landlord ports with significant investment on BOT
basis by foreign players including Maersk (JNPT, Mumbai) and P&O Ports (JNPT, Mumbai, and
Chennai), Dubai Ports International (Cochin and Vishakhapatnam), and PSA Singapore (Tuticorin).
Policy initiatives in ports sector
• FDI up to 51% is allowed on automatic basis in support services like operation and maintenance
of piers and loading and discharging of vessels.
• Up to 100% FDI under automatic route is permitted in projects for vehicular tunnels, ports, and
harbours.
• The BOT model will generally be used for private sector participation with the assets reverting back
to the port after the concession period.
• Major ports have been permitted to form joint ventures with foreign ports, minor ports and other
companies to attract new technology, better management practices, implementation of develop-
ment schemes and creation of optimal port infrastructure.
• Inputs and concessional import duty allowed with liberalised trade policy.
• The process of phased corporatisation has been initiated for major ports.
• An independent tariff authority for major ports has been set up to fix and revise ceiling tariff.
• Ten year tax holiday that may be availed in a block of fifteen years for infrastructure facility relating
to port, inland port and inland waterways, w.e.f. April 1, 2002, under Section 80-IA of the IT Act.
SEZ: The next frontier, though long-term in nature
The Indian government passed the SEZ Act in June 2005, primarily to promote exports. This has led to
a mad rush in corporate India to get their SEZ projects approved. As on October 2006, there were 237
approved and 166 in principle approved SEZs. Out these 403 SEZs, about 172 or 53% of the total SEZs
are IT/ITES SEZs with only 76 or 19% being multi product. Another 155 or 38% of SEZs are also
specialised single product SEZs. This implies that a majority of SEZs have been planned to take
advantage of tax benefits for the IT sector and only a few will pan out as large growth drivers for exports
in India. At last count, 263 SEZ projects had received formal approvals and another 169 had been
granted in-principle clearance.
• Potential for investment of ~USD 19 bn over next five years
According to the Commerce Ministry, approved SEZs in India could attract foreign investments of
USD 22.6 bn and will create 500,000 jobs by 2009E. We expect total FDI investments for devel-
oping these SEZs could be in the USD 4-6 bn range annually for the next two years.
Assuming that over 70 SEZs will be set-up in India by 2012 at an average size of 425 hectares per
SEZ, we estimate a total investment of greater than INR 859 bn or USD 19 bn in creating these
SEZs. Around USD 5 bn will be required for land acquisition and USD 6 bn for developing those
lands. Once the land development is complete, another USD 8 bn will be used for construction of
commercial and residential properties within these SEZs. Note that these investments constitute
42
Mudra Port and SEZ
only the basic investments required for a SEZ; investments made in other additional facilities are
not included. Other key investments like construction of power plants, airports, ports, connecting
roads, and bridges will also require significant amount of investments.
Table 14: Total investments in SEZs from FY07 to FY12E
Current number of appoved SEZs 430

Estimated no .of SEZs developed 70
Average size (acres) 1,020
Total acres 71,400
Land acquisition costs (mn/acre) 4.5
Land cost INR per sq ft 103
Development costs (mn/acre) 5.5
Development cost per sq ft 126
Constructed area (mn sq ft) ratio (% )
-Free space 1,089 35
-Residential/Commercial 467 15
-Industrial 1,555 50
Construction cost (INR /sq ft) 1100
Investments in next five years (INR mn)
Land costs 321,300
Total dev. cost (INR mn) 392,700
Construction cost (Residential/Commercial) 513,180
Total Investments 1,227,180
Haircuts for execution/other delays (%) 70
Minimum investments 859,026
Source: Industry, Edelweiss research
43
Mudra Port and SEZ
Container Logistics Opened for Private Sector
Containerization to contribute about 22.66% to total cargo by 2010-11E
The robust growth of India’s manufacturing industry has pushed up India’s containerization. The
government of India has pursued a policy of developing a number of Inland container depots and
container freight stations to facilitate modal interchange and distribution of cargo and most importantly
to avoid awkward customs procedures from the waterfront. Containerisation at major ports of India
contributed about 11% of total cargo handled at those ports in 2000-01, it increased to 16% in 2005-
06, and is estimated to further increase to 22.7% by 2010-11.
Chart 7: Share of container traffic at ports Chart 8: Expected container traffic in India
25 10
20 8
15 6
(MN TEUs)
(%)
10 4
5 2
0 0
2000-01 2005-06 2010-11E 2004 2006 2008E 2010E
Source: IPA, Ministry of Shipping Source: IPA, Ministry of Shipping
Container traffic flow in India
Northern and western parts of India generate as much as 60% of the country’s total container traffic.
This predominantly has been the trend in the past few years and due to massive industrialization in this
region, we expect the trend to continue. JNPT, Mumbai, and other ports on the West in the country like
Kandla, Pipavav, and Mundra are expected to benefit immensely from this trend.
44
Mudra Port and SEZ
Fig 6: Container traffic flow in India
60% of the
container
traffic
5% of the
container
traffic
15% of the
container
traffic
Container train business: Cashing in on inland container transportation
In India, till some time back, container carrying was a monopolistic industry. Container Corporation of
India (Concor) was the only player allowed to run container trains. While container traffic increased at
a phenomenal pace, Concor was unable to keep up with that pace and hence, the government, to
boost container traffic, decided to end its monopoly and allow private parties to enter the business
segment. Indian Railways has issued licenses for running container trains and till date 14 players have
received licenses for running through various categories. The four categories that Indian Railways has
issued license for are:
Table 15: Various routes for container license
Category Routes License fes (INR mn)
Category I JNPT/Mumbai Port - NCR 500

Category I I JNPT/Mumbai - Hinterland & not NCR 100
Category I II Pipavav, Mundra, Chennai/Ennore, Vizag, Kochi with hinterland 100
Category I V Kandla, New Mangalore, Tuticorin, Haldia/Kolkata, paradip &
Mormugao - hinterland 100
45
Mudra Port and SEZ
Table 16: Players applied for container train license
(INR 500 mn) (INR 100 mn)
Concor J M Baxi
MSC (Hind terminal) Delhi assam Roadways
NOL (Hindustan Infrastructure) Bothra Shipping
SICAL PRCL
ETA
Adani logistics
P&O ports (DPW)
CWC
GDL
Reliance
46
Mudra Port and SEZ
Financial Outlook
Bulk volume growth through capacity addition
MPSEZ, with its natural locational advantage and proximity to maritime trade routes as well as northern
hinterland, has experienced a healthy volume CAGR of 24.2% in bulk cargo during FY03-07, to reach
9.9 mn tonnes. This is primarily driven by strong growth in volumes in coal/coke (32.6% CAGR),
fertilizers (70% CAGR), iron and steel (33% CAGR), and food grains (23% CAGR). With setting up of
another bulk terminal and strong volume growth in cargo categories, we expect its bulk volume CAGR
to be 16.6% during FY07-12E.
Chart 9: Capacity growth to fuel bulk cargo growth

25
General cargo Liquid cargo

20
15
(Mn tonnes)
10
0
FY03 FY04 FY05 FY06 FY07 FY08E FY09E FY10E FY11E FY12E
Container terminal II to benefit from increase in container traffic
MPSEZ’s container terminal I has registered robust volume growth of 114% CAGR to reach 0.48 mn
TEUs in FY07, managed by DP World. It is now setting up container terminal II to benefit from the
increased container traffic from the NCR. Under the sub-concession agreement with DP World for
management of container terminals, MPSEZ collects 10% of MICT’s gross revenues on container
terminal I. If DP World operates container terminal II as well, the percentage share will increase to 20%
on both the terminals. MPSEZ is also considering giving 50% stake to a shipping line, in case it
manages the terminal on its own, providing assured volumes for the terminal. We expect container
terminal II to register volume growth of 74% CAGR during FY08-12E.
47
Mudra Port and SEZ
Chart 10: 74% CAGR growth in container traffic

2,500
Container terminal I Container terminal II
2,000
1,500
(000's TEUs)
1,000
500
0
FY04 FY05 FY06 FY07 FY08E FY09E FY10E FY11E FY12E
Long-term agreement for crude oil
MPSEZ entered into agreement with IOC for development and use of a single point mooring facility for
its crude oil requirement at its Panipat refinery. Following which, MPSEZ constructed a dedicated SPM
facility connecting the pipeline from the facility to the storage tank at Mundra port. MPSEZ started
receiving crude oil since 2006. It has also entered into agreement with Guru Goving Singh Refinery
(GGSR), a subsidiary of HPCL, for similar infrastructure and facility.
Chart 11: Long term agreements provides assured crude volume

25
Crude oil POL
20
15
(Mn tonnes)
10
0
FY06 FY07 FY08E FY09E FY10E FY11E FY12E
Stable revenue stream from SEZ development
MPSEZ has received approval as a master developer of a multi-product SEZ at Mundra port and its
surrounding areas. We have assumed a lease rental of INR 6.5 per sq ft and MPSEZ will be spending
INR 350 per sq m for development of the SEZ area. We have assumed development of initial 16,000
acres of land over FY08-17E.
48
Mudra Port and SEZ
Chart 12: SEZ -The next growth driver for the company
8,000
Operating income Net income

6,400
4,800
(INR mn)
3,200
1,600
0
FY08E FY09E FY10E FY11E
Dahej terminal positioned as a hub for coal logistics
MPSEZ is planning to acquire a 74% stake in Adani Petronet Port (APPL) to develop a solid cargo port
terminal at Dahej in a phased manner, to have a capacity of 15 mn tonnes of cargo. The terminal is
present in strong industrial area of Bharuch and Surat, and is connected to key routes by road and rail.
Apart from that, Gujarat Industrial Development Corporation and ONGC are likely to commit INR 15 bn
for a 4,300 acres of SEZ and the Adani Group is also expected to set up its 2,000 MW of coal-based
power plant in the region.
Chart 13: Coal requirement to boost volumes for Dahej terminal

12
Coal Others
10
(Mn tonnes)
5
0
FY10E FY11E FY12E FY13E FY14E
49
Mudra Port and SEZ
Leading to revenue and EPS CAGR of 48% and 88.7% over FY07-09E, respectively
Chart 14: Capacity expansion to drive revenue and EPS CAGR
35,000
Consolidated revenues Net profit

28,000
21,000
(INR mn)
14,000
7,000
0
FY06 FY06 FY08E FY09E FY10E FY11E
50
Mudra Port and SEZ
Financial Statements
Income statement
statement (INR mn)
Income from operations 2,774 4,003 5,959 8,437 13,060

Direct costs 746 1,102 1,944 1,809 2,335
Employee costs 65 119 148 217 241
Other expenses 229 446 630 378 466
Total operating expenses 1,040 1,667 2,721 2,404 3,042
EBITDA 1,735 2,336 3,237 6,032 10,018
Depreciation and amortisation 437 614 807 1,038 1,169
EBIT 1,298 1,722 2,430 4,995 8,848
Interest expenses 343 573 668 1,284 1,765
Profit before tax 954 1,149 1,763 3,711 7,083
Provision for tax 286 489 (125) 314 254
Extraordinary items (6) (13) 31 - -
Reported profit 663 673 1,918 3,397 6,829
Adjusted net profit 663 673 1,918 3,397 6,829
Shares outstanding 180 360 401 401 401
Common size metrics as % of net revenues

Operating expenses 37.5 41.6 45.7 28.5 23.3

Depreciation 15.8 15.3 13.5 12.3 9.0
Interest expenditure 12.4 14.3 11.2 15.2 13.5
EBITDA margins 62.5 58.4 54.3 71.5 76.7
Net profit margins 23.9 16.8 32.2 40.3 52.3
Growth metrics (%)

Revenues 44.3 48.8 41.6 54.8

EBITDA 34.7 38.5 86.3 66.1
PBT 20.4 53.4 110.5 90.9
Net profit 1.5 185.2 77.1 101.0
EPS (84.7) 156.5 77.1 101.0
Cash flow statement (INR mn)

Net profit 663 673 1,918 3,397 6,829

Add: Depreciation 437 614 807 1,038 1,169
Add: Deferred tax 227 425 262 421 323
Gross cash flow 1,326 1,712 2,987 4,856 8,321
Less: Changes in W. C. (820) 2,893 (2,346) 278 881
Operating cash flow 2,147 (1,181) 5,334 4,578 7,440
Less: Change in investments 320 (320) 766 1,831 423
Less: Capex 3,372 5,616 4,175 12,960 12,957
Free cash flow (1,546) (6,476) 393 (10,213) (5,939)
51
Mudra Port and SEZ
Balance sheet (INR mn)
As at 31st March FY05 FY06 FY07 FY08E FY09E
Equity capital 1,428 1,802 3,604 4,007 4,007

Reserves & surplus 4,251 1,373 3,872 20,188 26,103
Shareholders funds 5,679 5,986 7,505 27,005 32,921
Secured loans 6,244 9,619 12,822 28,208 36,477
Deferred revenue 4,583 4,638 7,159 4,419 4,227
Borrowings 10,827 14,257 19,981 32,627 40,704
Sources of funds 16,506 20,243 27,500 59,633 73,624
Gross block 12,212 22,256 22,336 39,305 52,261
Depreciation 943 1,617 2,509 3,376 4,545
Net block 11,269 20,639 19,827 35,929 47,716
Total fixed assets 15,638 20,639 24,007 35,929 47,716
Cash and equivalents 306 478 611 21,944 23,701
Other current asets 1,241 1,907 4,814 1,598 1,476
Total current assets 1,547 2,385 5,425 23,541 25,177
Sundry creditors and others 691 2,177 2,013 1,321 921
Total CL & provisions 691 2,177 2,191 1,321 921
Net current assets 856 208 3,234 22,220 24,256
Net deferred tax (308) (604) (507) (1,113) (1,367)
Uses of funds 16,506 20,243 27,500 59,633 73,624
Ratios
ROE (%) 11.5 28.4 19.7 22.8

ROCE (%) 9.4 10.2 11.5 13.3
Current ratio 1.1 2.5 17.8 27.3
Fixed assets t/o (x) 0.3 0.3 0.3 0.3
Debt/Equity 2.4 2.7 1.2 1.2
Valuation parameters
Cons EPS (INR) 3.7 1.9 4.8 8.5 17.0

Y-o-Y growth (%) (49.2) 156.5 77.1 101.0
CEPS (INR) 6.1 3.6 6.8 11.1 20.0
P/E (x) 290.5 572.2 223.1 126.0 62.7
Price/BV(x) 33.9 64.3 57.0 15.8 13.0
EV/Sales (x) 73.2 99.6 75.1 53.0 34.2
EV/EBITDA (x) 117.0 170.6 138.2 74.1 44.6
52
Edelweiss Securities Limited
Limited, 14th Floor, Express Towers, Nariman Point, Mumbai – 400 021, Board: +91 22 2286 4400, Email: research@edelcap.com
Naresh Kothari Co-Head Institutional Equities naresh.kothari@edelcap.com 2286 4246
Vikas Khemani Co-Head Institutional Equities vikas.khemani@edelcap.com 2286 4206
Shriram Iyer Head Research shriram.iyer@edelcap.com 2286 4256
Coverage group(s) of stocks by primary analyst(s):

Krishnakant Thakur: All Cargo Global, Container Corporation , Deepak Fertilisers, Dredging Corporation, Gateway Distriparks, Gati, Sanghvi
Movers, Sical, Suzlon Energy, Transport Corporation of India & Texmaco.
Bhargav Buddhadev: AIA Engineering, Bharat Earth Movers, Elecon Engineering, Finolex Cables, Havell’s India, McNally Bharat Engineering,
Sintex Industries, TIL & TRF,
Adani Enterprises Recent Research

900
Date Company Reports Price Recos
750
02-Nov-07 TIL On fire; 482 Buy
Result Update
600
01-Nov-07 McNally Order intake continues 230 Buy
(INR)
450 Bharat to be strong;

Result Update
300
31-Oct-07 AIA Cement demand boosts 1,479 Buy
150 Engineering volumes; Result Update
Jul-07
Apr-07
Jan-07
Jun-07
Oct-07
Feb-07
Mar-07
Dec-06
Aug-07
Sep-07
Nov-07
Dec-07
May-07
30-Oct-07 Havells’ Business momentum 654 Buy

India continues; Result Update
Mundra Port and SEZ Recent Research

1,125
Date Company Reports Price Recos
1,075
02-Nov-07 All Cargo Soft quarter; 919 Buy
1,025 Global Result Update
(INR)
02-Nov-07 Sical Growth by offshore; 233 Buy

975
Logistics Result Update
925 01-Nov-07 Texmaco Robust performance 1,800 Buy

continues, Result Update
875
Nov-07
Nov-07
Nov-07
Nov-07
Dec-07
Dec-07
Dec-07
Dec-07
Dec-07
Dec-07
Dec-07
Dec-07
Dec-07
Dec-07
31-Oct-07 Dredging On a firm footing; 895 Buy

Corporation Result Update
Distribution of Ratings / Market Cap Rating Interpretation

Edelweiss Research Coverage Universe Rating Expected to
Buy Accumulate Reduce Sell Total
Buy appreciate more than 20% over a 12-month period
Rating Distribution 103 47 22 3 190
Accumulate appreciate up to 20% over a 12-month period
* 13 stocks under review / 2 rating withheld
> 50bn Between 10bn and 50 bn < 10bn Reduce depreciate up to 10% over a 12-month period
Market Cap (INR) 96 65 29 Sell depreciate more than 10% over a 12-month period
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Copyright 2007 Edelweiss Research (Edelweiss Securities Ltd). All rights reserved

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India Equity Research | Miscellaneous Initiating Coverage

ADANI ENTERPRISES INR 794

Powering ahead BUY

From trading house to infrastructure powerhouse

Power generation business: Attractive economics

Coal: Creating strong presence across the chain

Outlook and valuations: Attractive; initiating coverage with ‘BUY’

Revenue (INR mn) 123,415 169,491 168,473 226,353

Shares outstanding (mn) 226 246 246 246

From trading house to infrastructure powerhouse

Fig. 1: Structure for the new businesses

Power Real Estate Coal Mining Oil & Gas Exploration

Shantigram Bandra Kurla Khatau

Indonesia Chattisgarh Maharashtra

Cambay in Gujarat Upper Assam Thailand

Asset heavy businesses likely to boost margins

Chart 2: Improving trend in EBITDA margins

Power generation business: Attractive economics

Table: 1: Status of power plants

Particulars (Coal based thermal power plants) MW Status

Mundra 2,640 Financial closure for 1320 MW already through

Real estate: Cherry on the cake

Table 2: Partners in real estate projects

Particulars Project Equity stake(%)

Saumya Constructions Shantigram 26

Table 3: Land bank acquired for future projects

Coal: Creating strong presence across the chain

Trading business likely to provide stability

Business Value per share (INR)

(A) Trading business to contribute INR 210 to SOTP

• We have assumed a terminal growth rate of 5% and a WACC of 13%.

• The present values of all the trading businesses are as under:

Table 5: Valuation of trading business

Particulars (Figs in INR mn) Present value as per residual income

Agro commodities trading 2,689

(B) Power generation to contribute INR 640 to SOTP

(1) Mundra power plant

Table 6: Valuation of Mundra power plant (Figs in INR Mn)

PV of free cash flow to equity 125,441

Table 7: Financial assumptions

(A) Project cost (INR mn)

Tabe 8: Opex assumptions pertaining to coal

Gross calorific value Kcal/Kg 4,250

Cost of coal at origin USD/MT 20

Total cost (FOB) INR/MT 1,266

Coal cost per KWH Per KWH 0.83

(1) Maharashtra power plant

Table 9: Valuation of Maharashtra power plant

(C) Coal mining (Indian block) to contribute INR 62 to SOTP

Table 10: Valuation of Indian coal mining business

Particulars Indian block

Total reserves (Mn Tonnes) 200

(D) Real estate to contribute INR 136 to SOTP

(i) Shantigram (Ahmedabad)

Table 11: Valuation of Shantigram

Particulars Amount in (INR mn)

Total area (mn sft) 40

(I) Bandra Kurla Complex

Table 12: Valuation of Bandra Kurla Complex

Particulars Amount (INR mn)

Total area (mn sqft) 2

(iii) Khatau Mills redevelopment