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Adani Power (ADAN.BO, Buy, 12-m TP: Rs146)
Source of opportunity
We reiterate our Buy rating on Adani Power (APL) with a new 12-m
SOTP-based TP of Rs 146 (down from Rs167), but remove it from
our Conviction List due to outperformance. Since we added Adani to
the Conviction List on October 26, 2010, the stock decreased 7.7%
vs. a 9.9% decline in BSE Sensex. In the past 12 months, Adani’s
stock price has risen 14.2% vs. an 11.5% increase in BSE Sensex.
We remain positive on APL as we believe it is best positioned vs.
peers based on:
(1) its superior track record in execution and high visibility on
timelines for commissioning of Mundra Phase III and Tiroda power
plant;
(2) high visibility on realizations as 70% of its capacity under
construction and 90% of its capacity under development is tied up
under long-term PPA mechanisms;
(3) ability to maintain higher plant availability due to group’s
backward fuel integration and presence in ports, logistics, etc; and
(4) exposure to states in the Western region that are financially
more stable.
With the synchronization of Unit 1 (660MW) of Mundra Phase III
ahead of the seasonally strong summer season, we believe APL can
take advantage of the near-term strength in merchant rates, which
could help generate cash flows to fund future capex plans.
Further, we believe the group’s foray into overseas coal mining in
the form of its acquisition of Linc’s energy assets will likely help
Adani Power have visibility on the cost structure which will help
them to bid for long-term PPAs ahead of its peers. Visibility on the
realizations will help APL to expedite the pre-construction activities
for its imported coal-based plants such as Dahez, in our view.
However, we lower our 12-m target price to Rs146 (from Rs167) and
cut our FY11E-FY13E EPS by 3%-14% primarily to reflect: (1) higher
fuel costs for Tiroda power plant; and (2) utilization levels being cut
to 80% due to low demand schedules. We believe the Coal India
Limited adverse guidance on production growth does not augur well
for its Tiroda power plant. We have now assumed a 30% blending
with imported coal.
Valuation
Our 12-m SOTP-based target price of Rs 146 implies potential upside of
about 19% from current levels. The stock is currently trading at a
discount on P/E and P/B vs. ROE on FY12E multiples.
Key risks
(1) Delay in completion of projects under construction; (2) decline in
short-term rates.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Adani Power (ADAN.BO, Buy, 12-m TP: Rs146)
Source of opportunity
We reiterate our Buy rating on Adani Power (APL) with a new 12-m
SOTP-based TP of Rs 146 (down from Rs167), but remove it from
our Conviction List due to outperformance. Since we added Adani to
the Conviction List on October 26, 2010, the stock decreased 7.7%
vs. a 9.9% decline in BSE Sensex. In the past 12 months, Adani’s
stock price has risen 14.2% vs. an 11.5% increase in BSE Sensex.
We remain positive on APL as we believe it is best positioned vs.
peers based on:
(1) its superior track record in execution and high visibility on
timelines for commissioning of Mundra Phase III and Tiroda power
plant;
(2) high visibility on realizations as 70% of its capacity under
construction and 90% of its capacity under development is tied up
under long-term PPA mechanisms;
(3) ability to maintain higher plant availability due to group’s
backward fuel integration and presence in ports, logistics, etc; and
(4) exposure to states in the Western region that are financially
more stable.
With the synchronization of Unit 1 (660MW) of Mundra Phase III
ahead of the seasonally strong summer season, we believe APL can
take advantage of the near-term strength in merchant rates, which
could help generate cash flows to fund future capex plans.
Further, we believe the group’s foray into overseas coal mining in
the form of its acquisition of Linc’s energy assets will likely help
Adani Power have visibility on the cost structure which will help
them to bid for long-term PPAs ahead of its peers. Visibility on the
realizations will help APL to expedite the pre-construction activities
for its imported coal-based plants such as Dahez, in our view.
However, we lower our 12-m target price to Rs146 (from Rs167) and
cut our FY11E-FY13E EPS by 3%-14% primarily to reflect: (1) higher
fuel costs for Tiroda power plant; and (2) utilization levels being cut
to 80% due to low demand schedules. We believe the Coal India
Limited adverse guidance on production growth does not augur well
for its Tiroda power plant. We have now assumed a 30% blending
with imported coal.
Valuation
Our 12-m SOTP-based target price of Rs 146 implies potential upside of
about 19% from current levels. The stock is currently trading at a
discount on P/E and P/B vs. ROE on FY12E multiples.
Key risks
(1) Delay in completion of projects under construction; (2) decline in
short-term rates.
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