Mundra Port & SEZ's (Mundra) Rs 8,694-crore acquisition of a 99-year lease of Abbot Point X50 Coal Terminal in Queensland, Australia would not only add more international assets to its kitty but also enable transportation of coal from mines owned by its parent in the region.

However, massive debt in the near term, until the company resorts to takeout financing, would be a dampener. The stock fell 3.5 per cent on Tuesday in line with broad market sentiment.

This would be the second terminal to be operated by Mundra in Queensland. The company is developing a coal export terminal at Dudgeon Point Port in Queensland, as a greenfield project, with capacity of 30-60 million metric tonnes per annum (MMTPA).

The Abbot Point port, which is an operational facility, has a 50 MMTPA capacity with scope to expand it by another 30 million tonnes.

The bid price of 1.8 billion Australian dollars (Rs 8,694 crore) for this terminal may appear aggressive, given that the company is expected to receive about A$110 million or Rs 530 crore as revenue (and Rs 285 crore EBITDA) in 2011. Based on these numbers, the Enterprise Value to EBITDA at 30 times appears to be at a premium.

Full capacity

However, going by the revenue projection provided by the company from the terminal, it is evident that only 36 per cent of the 50 million tonnes of capacity is currently being utilised on a use or pay basis.

At full capacity, the terminal would generate about A$305 million or Rs 1,500 crore of revenue (at current exchange rates) and Rs 1,030 crore of EBITDA on an annual basis.

The revenue stream from this terminal can be expected to be stable as 50 million tonnes are on a use or pay basis wherein third parties would have to pay a fixed sum irrespective of usage of the terminal.

The debt levels in the medium term for Mundra though may shoot up. The company has stated that this is an all-cash deal funded through an acquisition debt taken overseas.

However, the asset base of the port is expected to soon allow the company to arrange for a takeout finance at the asset level.

If this happens, Mundra's balance sheet which had a debt of over Rs 3,000 crore (September 2010) may remain moderately leveraged at about one. The cost of debt though may be low given that it is being sourced overseas.

Integration effort

While Mundra has to compulsorily use the 50-million-tonne capacity of Abott terminal for third party customers, it can choose to use the additional 30 million tonnes expansion for its own purpose. It is noteworthy that the Galilee coal mines that Mundra's parent Adani Enterprises, acquired in 2010, is expected to produce 70-80 million tonnes a year of coal.

The Dudgeon Port's capacity (initially 30 million tonnes) as well as any expanded capacity in Abbot shall be utilised by Adani Enterprises for transport of coal from the mine.

The Adani group has been adopting a strategy of integrating backwards into coal mine and port facilities to enable movement of coal from its mines abroad.

In Indonesia too, the group is building a rail and port facility to enable shipment of coal.

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