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Adani Power (ADD)
Utilities
Stable operational performance, maintain ADD. APL reported in-line results though
reported PAT was 27% lower than our estimates on account of higher deferred tax during the
quarter. We like APL’s execution progress as it continues to steadily add capacities (having
already commissioned 1,980 MW) and incur capex for its portfolio of projects under construction
(6,600 MW) most of which will likely be commissioned by end-FY2012E. Maintain our ADD
rating with a revised target price of Rs140/share (Rs143 previously).
Operating results meet estimates, higher deferred tax dents reported PAT
APL reported revenues of Rs5 bn (115% yoy, 27% qoq), operating profit of Rs2.7 bn (115% yoy,
30% qoq) and net income of Rs1.1 bn (51% yoy, -13% qoq) against our estimate of Rs4.8 bn,
Rs2.5 bn and Rs1.5 bn, respectively. EBITDA margins at 54% were ahead of our estimates of 52%
on account of fuel cost declining to Rs0.93/kwh (Rs1.05/kwh in 2QFY11). APL sold ~189 MU
(11% of net generation) on merchant basis at an average rate of Rs3.9/kwh during 3QFY11 while
overall blended realization remained stable sequentially at Rs2.93/kwh (-1% qoq). Net income was
dented by high deferred tax component of Rs667 mn which increased the effective tax rate to
38% (14.3% in 2QFY11). We discuss key highlights of the result in subsequent sections.
Synchronizes first unit of Mundra III, project execution remains robust
APL announced synchronization of the first 660 MW unit of Mundra III taking its total operational
capacity to 1,980 MW. With balance under-construction portfolio of 4,620 MW progressing
satisfactorily (see Exhibit 3), we see limited earnings risk from any slippages in execution. We
currently factor APL’s total installed capacity to grow to 5,940 MW by end-FY2012E. Most of
APL’s portfolio of 7.9 GW is tied up in bid-based PPA with exposure to merchant sale limited to
~20% on a sustainable basis thus insulating APL’s earnings from any adverse movement in
merchant tariffs.
We concede that absence of fuel pass-through PPAs exposes APL to coal price volatility, though
highlight that contract with Adani Enterprises (AEL) for supply of Indonesian coal at US$36/ton
(CIF, Mundra) insulates ~2.5 GW of capacity while potential ramp-up of AEL’s recent acquisition of
Australian mine (Galilee Basin, Linc Energy) could be a hedge for the longer term.
Maintain ADD with a revised target price of Rs140/share
We maintain our ADD rating on APL with a revised target price of Rs140/share (Rs143 previously).
Our target price implies a P/B of 2.8X on FY2012E net worth. Our target price includes value for
7,920 MW of power projects under implementation, and implies a ratio of 5.7X on sustainable
earnings beyond FY2014E. We highlight that achievement of key project milestones at Kawai,
which can add Rs8/share to our target price, could be a key upside risk to our valuation estimates.
We have revised our EPS estimate to Rs2.8/share (previously Rs3.5/share) for FY2011E and
Rs16.5/share (previously Rs19/share) as we reduce our merchant realization assumption for
FY2011E and FY2012E. We continue to factor a sustainable merchant realization of
Rs3.5/kwh.
Key highlights of 3QFY11 results
Generation – APL’s net generation for the quarter was 1,717 MU at a PLF of 85% (82%
in 2QFY11). Sequential jump of 29% in generation was on account of commissioning of
fourth unit (330 MW) of Mundra 1 & 2. Gross generation of 1,931 MU implied an
auxiliary consumption of 11% during 3QFY11. We highlight that high auxiliary
consumptions are on account of stabilization of the new units.
Sale mix and realizations – APL sold ~189 MU (11% of net generation) on merchant
basis at an average rate of Rs3.9/kwh during 3QFY11 (Rs4.9/kwh in 2QFY11) whereas
overall blended realization was stable at Rs2.93/kwh (-1% qoq).
Fuel cost – fuel cost declined to Rs0.93/kwh (-12% qoq) highlighting that APL continues
to use the Indonesian coal at the contracted price of US$36/ton (CIF Mundra).
O&M – average O&M in 3QFY11 increased to 26p/kwh (39% qoq). A sharp sequential
jump was primarily due to customs duty of Rs155 mn for sale of power outside the SEZ
area which was expensed during the quarter. Government of India (GoI), in September
2010, notified a customs duty of Rs100 per 1,000 Kwh for export of power outside SEZ
area. Accordingly, Rs155 mn of customs duty was expensed during 3QFY11. However,
corresponding revenue was not recognised as approval for passing the duty onto the
procurer is currently pending with GERC.
Reported PAT was dented by high deferred tax component of Rs667 mn which increased
the effective tax rate to 38% (14.3% in 2QFY11). Increase in deferred tax is on account
of commissioning of fourth unit of Mundra I & II.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Adani Power (ADD)
Utilities
Stable operational performance, maintain ADD. APL reported in-line results though
reported PAT was 27% lower than our estimates on account of higher deferred tax during the
quarter. We like APL’s execution progress as it continues to steadily add capacities (having
already commissioned 1,980 MW) and incur capex for its portfolio of projects under construction
(6,600 MW) most of which will likely be commissioned by end-FY2012E. Maintain our ADD
rating with a revised target price of Rs140/share (Rs143 previously).
Operating results meet estimates, higher deferred tax dents reported PAT
APL reported revenues of Rs5 bn (115% yoy, 27% qoq), operating profit of Rs2.7 bn (115% yoy,
30% qoq) and net income of Rs1.1 bn (51% yoy, -13% qoq) against our estimate of Rs4.8 bn,
Rs2.5 bn and Rs1.5 bn, respectively. EBITDA margins at 54% were ahead of our estimates of 52%
on account of fuel cost declining to Rs0.93/kwh (Rs1.05/kwh in 2QFY11). APL sold ~189 MU
(11% of net generation) on merchant basis at an average rate of Rs3.9/kwh during 3QFY11 while
overall blended realization remained stable sequentially at Rs2.93/kwh (-1% qoq). Net income was
dented by high deferred tax component of Rs667 mn which increased the effective tax rate to
38% (14.3% in 2QFY11). We discuss key highlights of the result in subsequent sections.
Synchronizes first unit of Mundra III, project execution remains robust
APL announced synchronization of the first 660 MW unit of Mundra III taking its total operational
capacity to 1,980 MW. With balance under-construction portfolio of 4,620 MW progressing
satisfactorily (see Exhibit 3), we see limited earnings risk from any slippages in execution. We
currently factor APL’s total installed capacity to grow to 5,940 MW by end-FY2012E. Most of
APL’s portfolio of 7.9 GW is tied up in bid-based PPA with exposure to merchant sale limited to
~20% on a sustainable basis thus insulating APL’s earnings from any adverse movement in
merchant tariffs.
We concede that absence of fuel pass-through PPAs exposes APL to coal price volatility, though
highlight that contract with Adani Enterprises (AEL) for supply of Indonesian coal at US$36/ton
(CIF, Mundra) insulates ~2.5 GW of capacity while potential ramp-up of AEL’s recent acquisition of
Australian mine (Galilee Basin, Linc Energy) could be a hedge for the longer term.
Maintain ADD with a revised target price of Rs140/share
We maintain our ADD rating on APL with a revised target price of Rs140/share (Rs143 previously).
Our target price implies a P/B of 2.8X on FY2012E net worth. Our target price includes value for
7,920 MW of power projects under implementation, and implies a ratio of 5.7X on sustainable
earnings beyond FY2014E. We highlight that achievement of key project milestones at Kawai,
which can add Rs8/share to our target price, could be a key upside risk to our valuation estimates.
We have revised our EPS estimate to Rs2.8/share (previously Rs3.5/share) for FY2011E and
Rs16.5/share (previously Rs19/share) as we reduce our merchant realization assumption for
FY2011E and FY2012E. We continue to factor a sustainable merchant realization of
Rs3.5/kwh.
Key highlights of 3QFY11 results
Generation – APL’s net generation for the quarter was 1,717 MU at a PLF of 85% (82%
in 2QFY11). Sequential jump of 29% in generation was on account of commissioning of
fourth unit (330 MW) of Mundra 1 & 2. Gross generation of 1,931 MU implied an
auxiliary consumption of 11% during 3QFY11. We highlight that high auxiliary
consumptions are on account of stabilization of the new units.
Sale mix and realizations – APL sold ~189 MU (11% of net generation) on merchant
basis at an average rate of Rs3.9/kwh during 3QFY11 (Rs4.9/kwh in 2QFY11) whereas
overall blended realization was stable at Rs2.93/kwh (-1% qoq).
Fuel cost – fuel cost declined to Rs0.93/kwh (-12% qoq) highlighting that APL continues
to use the Indonesian coal at the contracted price of US$36/ton (CIF Mundra).
O&M – average O&M in 3QFY11 increased to 26p/kwh (39% qoq). A sharp sequential
jump was primarily due to customs duty of Rs155 mn for sale of power outside the SEZ
area which was expensed during the quarter. Government of India (GoI), in September
2010, notified a customs duty of Rs100 per 1,000 Kwh for export of power outside SEZ
area. Accordingly, Rs155 mn of customs duty was expensed during 3QFY11. However,
corresponding revenue was not recognised as approval for passing the duty onto the
procurer is currently pending with GERC.
Reported PAT was dented by high deferred tax component of Rs667 mn which increased
the effective tax rate to 38% (14.3% in 2QFY11). Increase in deferred tax is on account
of commissioning of fourth unit of Mundra I & II.
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