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KSK ------------------------------------------------------------------------------- Maintain OUTPERFORM
4Q11 results disappoint; fuel supply clarity key trigger ahead
● KSK’s 4Q11 reported PAT at Rs377 mn appeared ahead of CSe at
Rs134 mn, but adjusting for Rs484 mn deferred tax credit created
from accelerated depreciation at Wardha Warora, it had a net loss of
Rs108 mn, despite higher-than-expected volatile project development
fees. FY11 Rec. PAT (Rs1.3 bn) was 7% below CS estimates.
● Performance of the Wardha Warora project led to the disappointment of:
1) generation reported for only 270MW versus 405MW operational during
4Q (rest capitalised on auditor’s guidance); 2) high auxiliary consumption
at 21% led by frequent back-down requested by MSEDCL and low fuel
availability; and 3) merchant tariffs of just Rs3.96/kWh earned on a
negotiated basis from MSEDCL.
● We cut earnings for FY11 by 7% in line with reported results and by
4-5% over FY12-13 on continued delay in the commencement of coal
supplies from Coal India for its Wardha Warora project.
Consequently, we lower our target price by 5% to Rs166.
● The likely start of coal supply from June, commissioning of the
135MW Unit 4 at Wardha Warora and 43MW at Arasmeta, and
potential clearance of Morga-II block from no-go zone are key
positives.
Figure 1: KSK – 4Q FY11 segment performance mix
4Q10 4Q11 % YoY 4Q11E % diff.
Project development 994 330 -67 175 89
Power generation 826 3,217 289 4,058 -21
Net sales 1,804 3,490 93 4,218 -17
Project development 897 227 -75 95 139
Power generation 285 578 103 1,071 -46
Total EBIT 1,182 805 -32 1,166 -31
Source: Company data, Credit Suisse estimates.
4Q11 disappoints on poor performance at Wardha Warora
KSK’s Wardha Warora project in Maharashtra operated three units of
135MW each during 4Q. However, on lack of stabilisation of Unit III,
auditors recommended capitalisation of its profits (at EBITDA level) as
compared to reporting it in the P&L (it will be reported in the P&L from 1Q
FY12). Also, a frequent back-down requested by MSEDCL and low coal
availability (on delayed supplies from Coal India) led to very high auxiliary
consumption at 21%. Besides, the negotiated merchant tariff of
Rs3.96/kWh from MSEDCL was much lower compared to our expectation
of Rs4.5/kWh.
Figure 2: KSK – projects operational summary
4Q FY10 1Q FY11 2Q FY11 3Q FY11 4Q FY11
Arasmeta, Sai Regency, Sitapuram – 144MW
Generation (mu) 252 263 272 250 255
Power sold (mu) 230 238 247 228 232
Auxillary consumption (%) -8.7 -9.5 -9.2 -8.8 -8.7
Tariff (Rs/kWh) 3.59 4.50 4.29 4.12 4.56
Fuel cost (Rs/kWh) 1.28 1.67 2.01 1.93 1.96
PLF (%) 79.9 83.4 86.3 79.3 80.8
VS Lignite - 135MW
Generation (mu) N.A. 138 165 187 256
Power sold (mu) N.A. 118 144 162 228
Auxillary consumption (%) N.A. -14.5 -12.4 -13.3 -11.0
Tariff (Rs/kWh) N.A. 6.0 2.9 3.3 3.6
Fuel cost (Rs/kWh) N.A. 0.8 0.7 0.7 0.7
PLF (%) N.A. 46.7 55.7 63.3 86.5
Wardha Warora - 270MW
Generation (mu) N.A. 37 194 197 469
Power sold (mu) N.A. 33 172 171 370
Auxillary consumption (%) N.A. -10.8 -11.8 -13.1 -21.0
Tariff (Rs/kWh) N.A. 4.9 7.6 4.7 4.0
Fuel cost (Rs/kWh) N.A. 1.8 2.5 3.3 3.4
PLF (%) N.A. 12.5% 32.9% 33.3% 79.3%
Source: Company data, Credit Suisse estimates.
KSK reported a net loss of Rs108 mn (after adjusting for deferred tax
credit of Rs484 mn), despite higher-than-expected revenues from highmargin
(but non-recurring and volatile) project development fees of
Rs330 mn earned from the milestone of completion of Wardha Warora
project and the start of land acquisition at the 1.8GW JR Power project.
Figure 3: KSK – 4Q FY11 and FY11 consolidated financial summary
(Rs mn) 4QFY10 4QFY11 FY11 FY11E % variation
Sales 1,653 3,490 11,436 12,567 (9)
Operating exps (548) (2,322) (5,881) (6,955) (15)
EBITDA 1,104 1,168 5,555 5,612 (1)
EBITDA margin (%) 66.8 33.5 48.6 44.7
Depreciation (74) (363) (1,224) (1,297) (6)
EBIT 1,031 805 4,331 4,315 0
Net interest exp (2) (797) (2,403) (2,373) 1
PBT 1,029 8 1,927 1,942 (1)
Total tax (33) (1) (132) (166) (21)
Tax rate (%) 3.3 8.6 6.8 8.6
Minority interest (47) (115) (462) (337) 37
Recurring PAT 949 (108) 1,333 1,440 (7)
Exceptional items - 484 484 -
Reported PAT 949 377 1,818 1,440 26
Source: Company data, Credit Suisse estimates.
Cutting EPS/target price by 4-5%; maintain an Outperform
We cut EPS by 4-5% for FY12/13 on delays in coal supply for Wardha
Warora and lower our target price to Rs166 (from Rs175). However, we
see positive triggers ahead on: 1) the likely start of coal supply for Wardha
Warora from June 2011; 2) commissioning of the 135MW Unit 4 at
Wardha Warora and 43MW at Arasmeta; 3) a likely favourable judgement
by APTEL in its litigation for supplying 300MW from Wardha Warora; and
4) potential clearance of the Morga-II block from no-go zone. We maintain
our OUTPERFORM rating.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
KSK ------------------------------------------------------------------------------- Maintain OUTPERFORM
4Q11 results disappoint; fuel supply clarity key trigger ahead
● KSK’s 4Q11 reported PAT at Rs377 mn appeared ahead of CSe at
Rs134 mn, but adjusting for Rs484 mn deferred tax credit created
from accelerated depreciation at Wardha Warora, it had a net loss of
Rs108 mn, despite higher-than-expected volatile project development
fees. FY11 Rec. PAT (Rs1.3 bn) was 7% below CS estimates.
● Performance of the Wardha Warora project led to the disappointment of:
1) generation reported for only 270MW versus 405MW operational during
4Q (rest capitalised on auditor’s guidance); 2) high auxiliary consumption
at 21% led by frequent back-down requested by MSEDCL and low fuel
availability; and 3) merchant tariffs of just Rs3.96/kWh earned on a
negotiated basis from MSEDCL.
● We cut earnings for FY11 by 7% in line with reported results and by
4-5% over FY12-13 on continued delay in the commencement of coal
supplies from Coal India for its Wardha Warora project.
Consequently, we lower our target price by 5% to Rs166.
● The likely start of coal supply from June, commissioning of the
135MW Unit 4 at Wardha Warora and 43MW at Arasmeta, and
potential clearance of Morga-II block from no-go zone are key
positives.
Figure 1: KSK – 4Q FY11 segment performance mix
4Q10 4Q11 % YoY 4Q11E % diff.
Project development 994 330 -67 175 89
Power generation 826 3,217 289 4,058 -21
Net sales 1,804 3,490 93 4,218 -17
Project development 897 227 -75 95 139
Power generation 285 578 103 1,071 -46
Total EBIT 1,182 805 -32 1,166 -31
Source: Company data, Credit Suisse estimates.
4Q11 disappoints on poor performance at Wardha Warora
KSK’s Wardha Warora project in Maharashtra operated three units of
135MW each during 4Q. However, on lack of stabilisation of Unit III,
auditors recommended capitalisation of its profits (at EBITDA level) as
compared to reporting it in the P&L (it will be reported in the P&L from 1Q
FY12). Also, a frequent back-down requested by MSEDCL and low coal
availability (on delayed supplies from Coal India) led to very high auxiliary
consumption at 21%. Besides, the negotiated merchant tariff of
Rs3.96/kWh from MSEDCL was much lower compared to our expectation
of Rs4.5/kWh.
Figure 2: KSK – projects operational summary
4Q FY10 1Q FY11 2Q FY11 3Q FY11 4Q FY11
Arasmeta, Sai Regency, Sitapuram – 144MW
Generation (mu) 252 263 272 250 255
Power sold (mu) 230 238 247 228 232
Auxillary consumption (%) -8.7 -9.5 -9.2 -8.8 -8.7
Tariff (Rs/kWh) 3.59 4.50 4.29 4.12 4.56
Fuel cost (Rs/kWh) 1.28 1.67 2.01 1.93 1.96
PLF (%) 79.9 83.4 86.3 79.3 80.8
VS Lignite - 135MW
Generation (mu) N.A. 138 165 187 256
Power sold (mu) N.A. 118 144 162 228
Auxillary consumption (%) N.A. -14.5 -12.4 -13.3 -11.0
Tariff (Rs/kWh) N.A. 6.0 2.9 3.3 3.6
Fuel cost (Rs/kWh) N.A. 0.8 0.7 0.7 0.7
PLF (%) N.A. 46.7 55.7 63.3 86.5
Wardha Warora - 270MW
Generation (mu) N.A. 37 194 197 469
Power sold (mu) N.A. 33 172 171 370
Auxillary consumption (%) N.A. -10.8 -11.8 -13.1 -21.0
Tariff (Rs/kWh) N.A. 4.9 7.6 4.7 4.0
Fuel cost (Rs/kWh) N.A. 1.8 2.5 3.3 3.4
PLF (%) N.A. 12.5% 32.9% 33.3% 79.3%
Source: Company data, Credit Suisse estimates.
KSK reported a net loss of Rs108 mn (after adjusting for deferred tax
credit of Rs484 mn), despite higher-than-expected revenues from highmargin
(but non-recurring and volatile) project development fees of
Rs330 mn earned from the milestone of completion of Wardha Warora
project and the start of land acquisition at the 1.8GW JR Power project.
Figure 3: KSK – 4Q FY11 and FY11 consolidated financial summary
(Rs mn) 4QFY10 4QFY11 FY11 FY11E % variation
Sales 1,653 3,490 11,436 12,567 (9)
Operating exps (548) (2,322) (5,881) (6,955) (15)
EBITDA 1,104 1,168 5,555 5,612 (1)
EBITDA margin (%) 66.8 33.5 48.6 44.7
Depreciation (74) (363) (1,224) (1,297) (6)
EBIT 1,031 805 4,331 4,315 0
Net interest exp (2) (797) (2,403) (2,373) 1
PBT 1,029 8 1,927 1,942 (1)
Total tax (33) (1) (132) (166) (21)
Tax rate (%) 3.3 8.6 6.8 8.6
Minority interest (47) (115) (462) (337) 37
Recurring PAT 949 (108) 1,333 1,440 (7)
Exceptional items - 484 484 -
Reported PAT 949 377 1,818 1,440 26
Source: Company data, Credit Suisse estimates.
Cutting EPS/target price by 4-5%; maintain an Outperform
We cut EPS by 4-5% for FY12/13 on delays in coal supply for Wardha
Warora and lower our target price to Rs166 (from Rs175). However, we
see positive triggers ahead on: 1) the likely start of coal supply for Wardha
Warora from June 2011; 2) commissioning of the 135MW Unit 4 at
Wardha Warora and 43MW at Arasmeta; 3) a likely favourable judgement
by APTEL in its litigation for supplying 300MW from Wardha Warora; and
4) potential clearance of the Morga-II block from no-go zone. We maintain
our OUTPERFORM rating.
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