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India Equity Research Reports, IPO and Stock News
India Equity Research Reports, IPO and Stock News
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TP:Rs82
Investment Rationale
§ Though execution has been a lot better vs. peers, the business model with almost 7000MW+ case I bids (fuel not
a pass through) and fuel coming from Indonesia (cheap cost, has risk to be revised upwards due to regulations)
and coal India (shortage and price changes) - poses structural long-term risk.
§ Taken into consideration best operating parameters (PLF, SHR, Aux, O&M etc), posing a risk of earnings
downgrade – which has been happening since past few qtrs and will continue. Further, have considered
Rs3.6/unit merchant prices in the long-term, which we believe has a downside - again a risk to long-term
earnings.
§ Negative news flow recently - (1) MAT on SEZ, (2) Coal India hiking prices of MCL coal (Mundra linkage from
MCL), (3) Indonesian coal export price regulations and (4) domestic coal shortage aggravating.
Valuations
§ APL is trading at 1.5x FY12E book (not considering FY13E because it depends on PAT in FY12E/13E - which
we believe could be downgraded substantially). Valuations imply long term merchant tariff of Rs4.0/unit (our est.
of sustainable merchant tariffs is Rs2.7/unit). Plus, factors in cheaper fuel, aggressive execution/ operating
parameters & early merchant and do not factor in recent negative news flows and risks. Reduce
§ Fair value for Adani power, taking conservative (vs aggressive currently) operational parameters, is Rs65/Share
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