Adani Power-- Tiroda – mine all mine ::Macquarie Research,

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


Adani Power
Tiroda – mine all mine
Event
􀂃 Adani Power has increased its stake in the 3,300MW Tiroda Project, currently
under construction, from 77.38% to 100% in a share swap agreement with the
minority shareholder, Growmore Trade and Investment. Based on the equity
dilution and higher stake, our price target falls marginally by 3%, while we
reduce our EPS estimate in FY13/14 by 6% and 4% respectively.
Impact
􀂃 Slight negative impact to earnings and valuation: Adjusting for the
equity dilution and full ownership of Tiroda impacts valuation by -Rs.3/share,
while FY13E and FY14E EPS fall by 6% and 4% respectively. Note that we
assume higher fuel costs than the market for Tiroda in its earlier years due
to its reliance on coal linkage and likely requirement to source alternatives –
costlier coal.
􀂃 Qualitative impact – slightly higher risk profile: We view Tiroda as having
a higher risk profile than its 4,620MW Mundra Project as it is yet to commence
operation and fuel supply is based on 100% coal linkage with Coal India
(COAL IN, Rs394.25, Neutral, TP: Rs382.00). Based ~700km inland, we
believe imports will be expensive due to inland transportation requirements.
We have factored 50% linkage delivery into our Tiroda forecasts and assume
a higher cost of equity for Tiroda (14%) vs the Mundra units in
operation (13%).
􀂃 Don't know much about Growmore: Speaking to Adani Power last night,
they confirmed it is not part of the Adani Group or it is not an inter-related
transaction in any way. We question the timing of the transaction – why would
the minority shareholder swap so close to the project being commissioned?
We will follow up further with the company today.
􀂃 About the transaction: The Board of Directors at Adani Power approved
(subject to the requisite approvals) the scheme of Amalgamation of Growmore
Trade and Investment Private Limited from the appointed date - 1 April 2011.
Adani took on record the Valuation Reports submitted by Independent valuers
Ernst & Young and also a "fairness opinion" on valuation of assets/shares
done by ICICI securities Limited, an independent merchant banker. After the
scheme being effective, on the basis of the referred share swap ratio, about
213.2m equity shares of Rs.10/- each will be issued.
Earnings and target price revision
􀂃 FY13E EPS: -6%, FY14E EPS: -4%, valuation -Rs3/share
Price catalyst
􀂃 12-month price target: Rs116.00 based on a PER methodology.
􀂃 Catalyst: ongoing execution, adding 660MW per quarter through FY12.
Action and recommendation
􀂃 Retain Neutral.