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KSK ------------------------------------------------------------------------------- Maintain OUTPERFORM
3QFY11 above estimates but mainly led by volatile PDF revenues
● In-line with our estimates, fixed costs of its 270MW Wardha
Warora project that was shutdown for 45 days for performance
guarantee and reliability tests has hurt 3QFY11 performance.
However, KSK’s 3QFY11 PAT was above our estimates mainly
led by project development fees of Rs424 mn (CSe Rs25 mn)
earned from its wind and 1.8GW coal-based JR Power projects.
However, we expect these revenues to be volatile near-term.
● We are concerned about the rising cost of generation and lower
utilisation for its Wardha Warora project given that KSK is
operating on expensive e-auction/ imported coal, pending start of
coal supplies from the cost-plus mine of Western Coalfields
(WCL). KSK expects WCL coal supplies to commence from March
2011. Any further delay would be a key risk to our FY12 earnings.
● We cut our FY12 EPS by 12% on potential lower merchant tariff of
Rs5/kWh (versus contracted Rs5.5/kWh) on its contract with
Reliance Infra to supply 0.3GW from Wardha Warora. We tweak
our FY11 and FY13 EPS by 1%. Potential clearance of Morga-II
from no-go zone can be a key positive. Maintain OUTPERFORM.
3QFY11 surprise mainly driven by volatile PDF revenues
KSK’s reported PAT at Rs86 mn was better than our estimates of a
loss of Rs382 mn, mainly led by higher-than-expected project
development fees (PDF) of Rs424 mn earned from its 49MW wind
and 1.8GW JR Power coal projects. These are project milestone
linked revenues earned from its power SPVs for consultancy services.
We expect PDF revenues to be volatile near-term based on the stage
of completion of its under construction 3.6GW Wardha projects.
Delay in coal supply key risk to our FY12 estimates
KSK’s Wardha Warora project is based on the linkage coal from the
cost-plus mine of Western Coalfields (WCL). Coal supplies from WCL
was expected to commence from April 2010 but has been delayed. In
the meanwhile, the project is operating on expensive e-auction and
imported coal. KSK expects coal supply from WCL to commence from
March 2011. We have built in similar assumptions in our estimates.
Delay in coal supplies from WCL would be a key risk to our FY12 EPS.
Cut FY12 EPS by 12%, Maintain OUTPERFORM
We cut our FY12 EPS by 12% on potential of its merchant tariff to be
lowered to Rs5/kwh from Rs5.5/kWh during FY12, under its contract
with Reliance Infra, led by fall in merchant tariffs. We lower our FY11
& FY13 EPS by 1%. Potential clearance of the Morga-II coal block
from no-go zone by the Environment Ministry as recommended by the
government would be a key positive for KSK. Company expects this
issue to be resolved by June 2011. We maintain our OUTPERFORM.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
KSK ------------------------------------------------------------------------------- Maintain OUTPERFORM
3QFY11 above estimates but mainly led by volatile PDF revenues
● In-line with our estimates, fixed costs of its 270MW Wardha
Warora project that was shutdown for 45 days for performance
guarantee and reliability tests has hurt 3QFY11 performance.
However, KSK’s 3QFY11 PAT was above our estimates mainly
led by project development fees of Rs424 mn (CSe Rs25 mn)
earned from its wind and 1.8GW coal-based JR Power projects.
However, we expect these revenues to be volatile near-term.
● We are concerned about the rising cost of generation and lower
utilisation for its Wardha Warora project given that KSK is
operating on expensive e-auction/ imported coal, pending start of
coal supplies from the cost-plus mine of Western Coalfields
(WCL). KSK expects WCL coal supplies to commence from March
2011. Any further delay would be a key risk to our FY12 earnings.
● We cut our FY12 EPS by 12% on potential lower merchant tariff of
Rs5/kWh (versus contracted Rs5.5/kWh) on its contract with
Reliance Infra to supply 0.3GW from Wardha Warora. We tweak
our FY11 and FY13 EPS by 1%. Potential clearance of Morga-II
from no-go zone can be a key positive. Maintain OUTPERFORM.
3QFY11 surprise mainly driven by volatile PDF revenues
KSK’s reported PAT at Rs86 mn was better than our estimates of a
loss of Rs382 mn, mainly led by higher-than-expected project
development fees (PDF) of Rs424 mn earned from its 49MW wind
and 1.8GW JR Power coal projects. These are project milestone
linked revenues earned from its power SPVs for consultancy services.
We expect PDF revenues to be volatile near-term based on the stage
of completion of its under construction 3.6GW Wardha projects.
Delay in coal supply key risk to our FY12 estimates
KSK’s Wardha Warora project is based on the linkage coal from the
cost-plus mine of Western Coalfields (WCL). Coal supplies from WCL
was expected to commence from April 2010 but has been delayed. In
the meanwhile, the project is operating on expensive e-auction and
imported coal. KSK expects coal supply from WCL to commence from
March 2011. We have built in similar assumptions in our estimates.
Delay in coal supplies from WCL would be a key risk to our FY12 EPS.
Cut FY12 EPS by 12%, Maintain OUTPERFORM
We cut our FY12 EPS by 12% on potential of its merchant tariff to be
lowered to Rs5/kwh from Rs5.5/kWh during FY12, under its contract
with Reliance Infra, led by fall in merchant tariffs. We lower our FY11
& FY13 EPS by 1%. Potential clearance of the Morga-II coal block
from no-go zone by the Environment Ministry as recommended by the
government would be a key positive for KSK. Company expects this
issue to be resolved by June 2011. We maintain our OUTPERFORM.
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