Adani Power,Source of opportunity BUY says Goldman Sachs,

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Adani Power (ADAN.BO; Buy, add to CL; 12-m TP: Rs167)
Source of opportunity
 We reiterate our Buy rating on Adani Power and add it to our
Conviction List and raise its 12-m SOTP-based target price to Rs167
(from Rs158) implying a potential upside of 25%.
 We believe Adani Power is best positioned to withstand the current
competitive environment as 70% of its capacity under construction
and 90% of its capacity under development have already been tied
up in the long-term PPA mechanism.
 Moreover, the Group’s presence in ports, logistics, coal trading
(through its parent company) will help Adani Power to maintain
higher plant availability to meet the demand requirements under
PPA terms compared with its peers, in our view.
 We believe Adani Power is better positioned in the current rising
fuel price environment as: 1) It sources at least 50% of its coal
requirements for its Mundra Project from Indonesian mines owned
by the parent company; and 2) PPA rates for its other projects
(Tiroda and Kawai), which are primarily based on domestic coal,
already reflect higher component of imported coal.
 With most of its projects in Mundra in advanced stages of
completion, we believe execution risk for these projects is low.
 We believe the ability of Adani Power to withstand competition will
translate into higher cash returns. We expect it to maintain its top
quartile CROCI returns and estimate its CROCI returns to expand to
20% in FY15E from about 17.7% in FY12E.
Catalyst
1) Commissioning of the first unit of Mundra Phase III in 1Q2011; 2)
receipt of coal linkages for its Kawai and Tiroda Phase II power projects
in 2011; (3) allocation of coal block for its Tiroda power project.
Valuation
We revise our FY11E/FY12E/FY13E EPS by 7%/-3%/-19% as we lower our
merchant price assumptions by 6% and 14%for FY12E/FY13E,
respectively. Consequently, we raise our 12-m SOTP-based target price
to Rs167 (we also roll over to FY12E). Despite our EPS estimates being
below Bloomberg consensus, we believe the stock is still trading at a
discount compared with peers on FY12E P/E and P/B vs. ROE multiples
(see Exhibits 20, 21 & 24).
Key risks
1) Delay in completion of projects under construction; 2) decline in shortterm
rates.