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Adani Power
Overweight; ADAN.BO, ADANI IN
Execution prowess & superior operating track record merit a premium: Reiterate OW
• We expect Adani Power to outperform peers: The company has shown
healthy execution so far – 1980MW of capacity is operational, including
synchronization of the country’s first 660MW supercritical unit. Operating
track record has been superior, in our view, with average plant availability
of 93-95% and PLF of 82-85% over the past two quarters lending
conviction to our estimates. We note that healthy performance has been
delivered soon after commissioning, whereas peers (Lanco, RPWR, JSW
Energy) have been struggling with teething troubles around commissioning.
• Confidence in near-term earnings is higher: Adani is more secure now
against spiking import coal prices. The group-owned Bunyu mine has
delivered coal at a landed cost of US$45/MT over the past three successive
quarters. According to management, the current production level is
~6MTPA and will be scaled up to 9MTPA in FY12. Current production can
support ~2GW at ~80% PLF, in our view. Adani’s Mundra project may also
be ahead in the queue to secure domestic coal, given timely commissioning
of projects. While merchant prices are inherently unpredictable, we believe
an average of Rs4/unit in FY12 is achievable. The first 660MW unit
synchronized in Dec-10 is likely to get CoD status in Feb-11, two months
ahead of estimates, implying potential upside to FY12E EPS.
• Accounting for pessimism on domestic coal uncertainty in PLFs: While
Mundra appears secure on fuel requirements, other projects factored in SOP
– Tiroda-I&II (5x660MW) and Kawai (2x660MW) – are exposed, and we
now factor in 75-80% PLF for these projects. We draw comfort from the
fact that basic ingredients for execution do not appear at risk – balance sheet
leverage levels are comfortable, land is available for construction, and
execution capability has been demonstrated. We maintain our FY12 EPS
estimate but reduce our FY13-14 EPS estimates by 11-16%.
• Reiterate OW, with revised Dec-11 SOP PT of Rs138 (down 10% from
our Sep-11 PT), implying 10.7x FY13E P/E and 15.7x FY12E P/E. Key
downside risks include lower-than-expected merchant prices; every 500bp
lower PLF than expected in Mundra would reduce our PT by Rs7.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Adani Power
Overweight; ADAN.BO, ADANI IN
Execution prowess & superior operating track record merit a premium: Reiterate OW
• We expect Adani Power to outperform peers: The company has shown
healthy execution so far – 1980MW of capacity is operational, including
synchronization of the country’s first 660MW supercritical unit. Operating
track record has been superior, in our view, with average plant availability
of 93-95% and PLF of 82-85% over the past two quarters lending
conviction to our estimates. We note that healthy performance has been
delivered soon after commissioning, whereas peers (Lanco, RPWR, JSW
Energy) have been struggling with teething troubles around commissioning.
• Confidence in near-term earnings is higher: Adani is more secure now
against spiking import coal prices. The group-owned Bunyu mine has
delivered coal at a landed cost of US$45/MT over the past three successive
quarters. According to management, the current production level is
~6MTPA and will be scaled up to 9MTPA in FY12. Current production can
support ~2GW at ~80% PLF, in our view. Adani’s Mundra project may also
be ahead in the queue to secure domestic coal, given timely commissioning
of projects. While merchant prices are inherently unpredictable, we believe
an average of Rs4/unit in FY12 is achievable. The first 660MW unit
synchronized in Dec-10 is likely to get CoD status in Feb-11, two months
ahead of estimates, implying potential upside to FY12E EPS.
• Accounting for pessimism on domestic coal uncertainty in PLFs: While
Mundra appears secure on fuel requirements, other projects factored in SOP
– Tiroda-I&II (5x660MW) and Kawai (2x660MW) – are exposed, and we
now factor in 75-80% PLF for these projects. We draw comfort from the
fact that basic ingredients for execution do not appear at risk – balance sheet
leverage levels are comfortable, land is available for construction, and
execution capability has been demonstrated. We maintain our FY12 EPS
estimate but reduce our FY13-14 EPS estimates by 11-16%.
• Reiterate OW, with revised Dec-11 SOP PT of Rs138 (down 10% from
our Sep-11 PT), implying 10.7x FY13E P/E and 15.7x FY12E P/E. Key
downside risks include lower-than-expected merchant prices; every 500bp
lower PLF than expected in Mundra would reduce our PT by Rs7.
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