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Adani Power (ADANI)
Utilities
Disappointing on several counts. Adani Power (APL) reported a disappointing set of
results—maintenance shutdown in the month of June led to lower generation, decline
in blended realizations and higher fuel cost. While shutdown associated impact may not
sustain, we maintain our cautious stance on APL noting potential pitfalls from (1)
imposition of MAT for Mundra projects, (2) non-availability of domestic coal for projects
at Tiroda, and (3) potentially higher purchase price for imported coal noting minimum
price obligations in Indonesia. Maintain REDUCE rating with a revised PT of Rs100/share
(previously Rs120/share).
Operational performance lags on generation, realization and fuel cost
APL reported revenues of Rs8.2 bn (132% yoy, -4% qoq), operating profit of Rs4.1 bn (92% yoy, -
20% qoq) and net income of Rs1.8 bn (66% yoy, 1% qoq) against our estimate of Rs10.5 bn,
Rs6.3 bn and Rs3.1 bn, respectively. Disappointment was primarily driven by (1) lower-thanestimated
sales of 2,898 MU (against estimated 3,328 MU) due to planned maintenance
shutdown in the month of June, (2) lower-than-estimated average realization of Rs2.82/kwh
against our estimate of Rs3.15/kwh on account of lower proportion of merchant sale and (3)
higher-than-estimated fuel cost of Rs1.04/kwh against our estimate of 90p/kwh likely on account
of stabilization of the new unit and maintenance shutdown. We discuss key highlights of 1QFY12
results in the subsequent section.
Several potential pitfalls from higher tax incidence to rising fuel prices
APL faces several headwinds in the near term in the form of (1) potential incidence of MAT (as per
amendment proposed in Union Budget 2011) which could erode Rs14/share from our fair value
estimate, (2) pricing and availibility of domestic coal for Tiroda plants and (3) potential
renegotiation of coal price by AEL (currently at US$36/ton) in light of the minimum price obligation
on all coal export contracts being implemented by Indonesia. We are negatively surprised by
related party disclosures that show no coal purchases from AEL (or its subsidiaries) in FY2011,
contrary to the stated fuel supply agreements for supply of coal, and seek clarity from the
management on the same.
Maintain REDUCE with a revised target price of Rs100/share
We maintain our REDUCE rating on the stock noting potential earnings risks from higher tax
incidence and cost of fuel. We have revised our target price to Rs100/share (previously
Rs120/share) as we adjust for (1) dilution on account of acquisition of Growmore in lieu of
increased ownership in Tiroda and (2) commissioning delays and actual capex incurred till March
2011. Our target price implies a P/B of 1.6X on FY2013E net worth.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Adani Power (ADANI)
Utilities
Disappointing on several counts. Adani Power (APL) reported a disappointing set of
results—maintenance shutdown in the month of June led to lower generation, decline
in blended realizations and higher fuel cost. While shutdown associated impact may not
sustain, we maintain our cautious stance on APL noting potential pitfalls from (1)
imposition of MAT for Mundra projects, (2) non-availability of domestic coal for projects
at Tiroda, and (3) potentially higher purchase price for imported coal noting minimum
price obligations in Indonesia. Maintain REDUCE rating with a revised PT of Rs100/share
(previously Rs120/share).
Operational performance lags on generation, realization and fuel cost
APL reported revenues of Rs8.2 bn (132% yoy, -4% qoq), operating profit of Rs4.1 bn (92% yoy, -
20% qoq) and net income of Rs1.8 bn (66% yoy, 1% qoq) against our estimate of Rs10.5 bn,
Rs6.3 bn and Rs3.1 bn, respectively. Disappointment was primarily driven by (1) lower-thanestimated
sales of 2,898 MU (against estimated 3,328 MU) due to planned maintenance
shutdown in the month of June, (2) lower-than-estimated average realization of Rs2.82/kwh
against our estimate of Rs3.15/kwh on account of lower proportion of merchant sale and (3)
higher-than-estimated fuel cost of Rs1.04/kwh against our estimate of 90p/kwh likely on account
of stabilization of the new unit and maintenance shutdown. We discuss key highlights of 1QFY12
results in the subsequent section.
Several potential pitfalls from higher tax incidence to rising fuel prices
APL faces several headwinds in the near term in the form of (1) potential incidence of MAT (as per
amendment proposed in Union Budget 2011) which could erode Rs14/share from our fair value
estimate, (2) pricing and availibility of domestic coal for Tiroda plants and (3) potential
renegotiation of coal price by AEL (currently at US$36/ton) in light of the minimum price obligation
on all coal export contracts being implemented by Indonesia. We are negatively surprised by
related party disclosures that show no coal purchases from AEL (or its subsidiaries) in FY2011,
contrary to the stated fuel supply agreements for supply of coal, and seek clarity from the
management on the same.
Maintain REDUCE with a revised target price of Rs100/share
We maintain our REDUCE rating on the stock noting potential earnings risks from higher tax
incidence and cost of fuel. We have revised our target price to Rs100/share (previously
Rs120/share) as we adjust for (1) dilution on account of acquisition of Growmore in lieu of
increased ownership in Tiroda and (2) commissioning delays and actual capex incurred till March
2011. Our target price implies a P/B of 1.6X on FY2013E net worth.
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