Adani Power - Mundra Site Trip – Unit 5, it’s alive  Macquarie Research,

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Adani Power
Mundra Site Trip – Unit 5, it’s alive
Event
 The key takeaway is that strong execution continues at Mundra, despite
market concerns over the first 660MW supercritical unit. Site management
noted it expects all 4,620MW of capacity to be operating by end of FY12,
implying ~20BUs of net power generation in FY12, giving us greater
confidence in our 19.5BU estimate.
 Nearer term, we expect some downside to the market’s FY12 EPS forecast
on both price realisations and fuel cost. We assume lower linkage delivery
from Coal India and therefore assume greater import requirement, which
lowers our price target from Rs145/share to Rs134/share.
 Trading at 9x FY13 NPAT vs the sector at 10.5x, we retain Outperform. Adani
Power remains our preferred IPP due to its strong execution pipeline at
Mundra over the next 12 months, its captive fuel source (Bunyu Island) and
strong cashflow generation over the next 2 years.
Impact
 Supercritical Unit 5 operating well, despite speculation: The site
supervisor noted that the 660MW unit was shut down for 10 days in February
to fix a leaking tube in the turbine condenser, which is now resolved. The unit
was running close to 75% PLF during our visit (due to being back down by
100MW–150MW following a directive by the SLDC).
 Unit 6 (660MW) to be synchronised in June: Hydraulic testing and chemical
cleaning of the boiler is complete (normally done 2–3 months prior
to synchronisation). Site management was confident that the unit would be
operating by end of June, while internally, it has a target to achieve boiler light
up by the end of the month.
 Site management expects 4620MW at Mundra to be synchronised by
FY12 end: An equivalent of 3,000MW operational for full year FY12. At 85%
PLF, this would imply 22.3BUs of gross generation, or 20.1BUs of net
generation. This is slightly above our 19.5BU forecast, which we’ll retain due
to the potential for delay.
 Applying higher costs to Tiroda (100% linkage based): We downgrade our
Tiroda earnings by assuming that Coal India delivers ~60% of the projects
coal requirement, with the remainder coming from spot imports (conservative).
Earnings and target price revision
 FY12E EPS -28% and FY13E EPS -12% due to higher fuel costs.
Price catalyst
 12-month price target: Rs134.00 based on a PER methodology.
 Catalyst: commissioning of 2,640MW by FY12 end.
Action and recommendation
 Outperform.