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Adani Power
A Mixed Bag; Stay OW
What's Changed
F2011e EPS From Rs3.67 to Rs3.60
F2012e EPS From Rs17.82 to Rs18.35
We maintain our Overweight rating on Adani Power;
price target still Rs158/share: That implies upside of
18% from current levels. We continue to believe that
Adani Power is the best way to play the growth in the
Indian power industry. The stock has outperformed the
Sensex by 17% YTD; however, valuations still look
attractive with the stock trading at 7.3x F2012 P/E and
8.0x EV/EBITDA on our estimates.
F2Q11 EBITDA 14% lower than estimates but
earnings 6% better: Adani reported F2Q11 revenue of
Rs4 bn. 14% below our estimate, largely because of
lower generation – higher grid frequency due to better
monsoons and planned maintenance shutdown of Unit 1.
As a result, EBITDA of Rs2.1 bn was also 14% below
our estimate. However, earnings of Rs1.3 bn were 6%
above our estimate due to lower interest expense
(existing loans of Mundra I & II were refinanced) and
higher other income. The fourth unit of Mundra I & II is
expected in the first half of November 2010 and the first
unit of Mundra III in December 2010/January 2011.
Estimate revisions: We have taken our F2011 EPS
estimate down by 2% to build in the delay in the
commissioning of the third and fourth unit of Mundra I &
II. We have increased F2012e EPS by 3% to factor in
gains from refinancing of debt.
Catalysts: We expect the share price to react positively
to the commissioning of plants under construction, new
project announcements, and further domestic fuel
supply agreements.
Where we could be wrong: Any inefficiency in
managing the planned growth could lead to project
delays and cancellations, hurting cash flows. The Indian
power industry is vulnerable to any changes in
regulations, which might delay projects or affect the
viability of future projects.
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