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Adani Power
Overweight
ADAN.BO, ADANI IN
4QFY11 results: An operationally strong quarter
• Operational results strong, but higher tax led to missing headline
number. Positive trends in operational performance resulted in a 6% and
12% beat to our revenue and EBITDA estimates respectively. However,
50% tax rate in 4Q (due to deferred taxes for 660MW unit commissioned in
Feb) resulted in Adani reporting a PAT of Rs1.74B vs. our est. of Rs2.3B.
Operating highlights. i) Early commissioning of the 1st 660MW unit, which
is currently selling pre-PPA @ merchant rates. Adani sold 12% of total
generation at merchant rate of Rs4.55/unit vs. Rs3.9 in 3Q ii) 4X330MW
units operating at >90% PLF and the 1X660MW at ~72% in its first month
of operation (total units sold were ~10% ahead of est.), iii) ~180bps qoq
reduction in auxilary consumption, iv) Favourable exchange rate reduced
fuel import cost; per unit fuel cost of Rs0.95 vs. Rs1.04 in 3Q.
• Other takeaways from mgt discussion: A) Tied up 600MW with UP on 1-
year bilateral @Rs4.7/KWH, starting Jun-11, and looking at bilateral /
exchange options for another ~1000MW of merchant to be available in
FY12 (comment: higher than JPM est. of Rs4/KWH). B) Maintain project
commissioning targets: (i) Second 660MW unit of Mundra-3 on schedule
for Jul-11 CoD, Tiroda-1 (3X660) COD target of Sep-11 to Mar-12.
(comment: JPM COD estimate remains conservative) C) Optimistic on
domestic coal linkage for Tiroda, and awaiting coal block auction policy
(comment: we assume linkage coal and low 70% PLF for Tiroda given
uncertainties), D) PPA for Mundra-3 starting Feb-12 @2.35/KWH valid for
now, company has appealed to tribunal for PPA modification. We increase
FY12 estimate by 3% to account for faster commissioning of Mundra III,
but believe other projects’ timely completion can provide similar upsides
• The IPP space has underperformed markets due to execution, fuel and
interest rate risks. Adani has generally held up well against peers, on
account of better execution and access to fuel. Stock catalysts include: a)
removal of uncertainty on domestic coal sourcing, which becomes more
critical going forward as new plants get commissioned, b) Further data
points on timely commissioning (which would be an upside to our estimates)
and c) firming of bilateral contracts, like the recent one with UP state. We
maintain OW with Mar-12 PT of Rs138. Downsides include lower than
expected merchant rates, execution slippages, rising interest costs and
interruptions in the so far steady coal supply from Bunyu.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Adani Power
Overweight
ADAN.BO, ADANI IN
4QFY11 results: An operationally strong quarter
• Operational results strong, but higher tax led to missing headline
number. Positive trends in operational performance resulted in a 6% and
12% beat to our revenue and EBITDA estimates respectively. However,
50% tax rate in 4Q (due to deferred taxes for 660MW unit commissioned in
Feb) resulted in Adani reporting a PAT of Rs1.74B vs. our est. of Rs2.3B.
Operating highlights. i) Early commissioning of the 1st 660MW unit, which
is currently selling pre-PPA @ merchant rates. Adani sold 12% of total
generation at merchant rate of Rs4.55/unit vs. Rs3.9 in 3Q ii) 4X330MW
units operating at >90% PLF and the 1X660MW at ~72% in its first month
of operation (total units sold were ~10% ahead of est.), iii) ~180bps qoq
reduction in auxilary consumption, iv) Favourable exchange rate reduced
fuel import cost; per unit fuel cost of Rs0.95 vs. Rs1.04 in 3Q.
• Other takeaways from mgt discussion: A) Tied up 600MW with UP on 1-
year bilateral @Rs4.7/KWH, starting Jun-11, and looking at bilateral /
exchange options for another ~1000MW of merchant to be available in
FY12 (comment: higher than JPM est. of Rs4/KWH). B) Maintain project
commissioning targets: (i) Second 660MW unit of Mundra-3 on schedule
for Jul-11 CoD, Tiroda-1 (3X660) COD target of Sep-11 to Mar-12.
(comment: JPM COD estimate remains conservative) C) Optimistic on
domestic coal linkage for Tiroda, and awaiting coal block auction policy
(comment: we assume linkage coal and low 70% PLF for Tiroda given
uncertainties), D) PPA for Mundra-3 starting Feb-12 @2.35/KWH valid for
now, company has appealed to tribunal for PPA modification. We increase
FY12 estimate by 3% to account for faster commissioning of Mundra III,
but believe other projects’ timely completion can provide similar upsides
• The IPP space has underperformed markets due to execution, fuel and
interest rate risks. Adani has generally held up well against peers, on
account of better execution and access to fuel. Stock catalysts include: a)
removal of uncertainty on domestic coal sourcing, which becomes more
critical going forward as new plants get commissioned, b) Further data
points on timely commissioning (which would be an upside to our estimates)
and c) firming of bilateral contracts, like the recent one with UP state. We
maintain OW with Mar-12 PT of Rs138. Downsides include lower than
expected merchant rates, execution slippages, rising interest costs and
interruptions in the so far steady coal supply from Bunyu.
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