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Sailing on synergies
Accelerated project execution, leveraging on group synergies
Adani Power (APL) is in an accelerated execution phase. The company expects capacity
of 4.6GW by the end of FY12 (the largest private IPP) and capex spending of Rs129b in FY11
(among the largest capex spenders in the economy). Mundra (4.6GW) is the most profitable
project in the portfolio, contributing 70% to SOTP and 90%+ of FY12/FY13 expected
consolidated earnings. At Mundra, as large parts of the capacity have fuel tied-up under
long-term contracts and power sales under PPA, ‘coal earnings’ have been converted
into ‘annuity streams’. Consolidated DER in FY12/13 is high at 3.3x/2.7x respectively but
funding is comfortable as 82% of the capex on a 6.6GW pipeline, to be commissioned by
FY13, has been incurred. Fuel availability is a challenge in the interim for Tiroda (3.3GW)
and Kawai (1.3GW), given constraints of coal linkages.
Accelerated project execution; comfortably placed on several parameters
APL’s generation capacity is likely to increase to 4.6GW by FY12 and 6.6GW by
FY13, and it will be the largest private sector IPP in India. Given the strong parent
advantage, APL is comfortably placed on key parameters such as land availability
and fuel security. Of the 16.5GW of project portfolio, 10.6GW are being commissioned
at Mundra and Dahej, where parent Adani Enterprises (AEL) has access to vast
tracts of land. AEL has access to 8b tons of reserves in Indonesia and Australia and
controls over 50% market share in overall coal trading/imports into India.
Mundra project key driver of earnings/valuations; ‘coal earnings’ converted
to ‘annuity stream’
Mundra (4.6GW) is APL's most profitable project given contracted fuel supplies from
its captive mines in Indonesia at CIF of US$36/ton, translating into competitive fuel
cost of Rs1.1-1.2/unit. While the imported coal requirement is 7mt, we understand
part of the shortfall in domestic linkages (10mt requirement) will also be met on similar
terms. Given that 80% of the 4.6GW capacity has been tied up under long-term PPAs
at levelized tariffs of Rs2.8/unit, the Mundra project has an annuity earnings profile.
Merchant profitability to contribute sizably to FY12/13 earnings
Merchant profitability will be APL's key near-term earnings driver as the trigger points
for PPA for a large part of capacities commissioned are in phases from mid-FY13.
This will lead to increased merchant sales in the interim period. Key risks are delays
in project commissioning (as merchant sales have a limited window opportunity),
volatility in merchant prices and fuel availability/pricing. Merchant sales in FY11 was
just 12% of total power sales, and is lower than available after meeting contractual
PPAs – continued disappointments could lead to earnings downgrades. The use of eauction
coal for Mundra/imported coal bought on a spot basis (due to shortages in
domestic linkages) would impact profitability.
Multi-fold earnings growth; maintain Neutral
We expect APL’s net profit to increase from Rs5.1b in FY11 to Rs29.7b in FY13.
Consolidated DER in FY12/13 is high at 3.3x/2.7x respectively. Funding is comfortable
as 82% of the capex on a 6.6GW pipeline, to be commissioned by FY13 has been
incurred. Our SOTP-based target price is Rs109. Neutral
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