Adani Power :2QFY12 performance in-line: Motilal Oswal

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 2QFY12 performance in-line: Adani Power (ADANI) reported a PAT of INR1.8b. Adjusted for MTM forex loss, PAT
was INR2.3b, in line with our estimate of INR2.3b. On a reported basis, fuel cost for the quarter was INR1.48/unit.
This includes forex loss of INR940m, of which INR300m pertains to 2Q. Taking only the forex impact of 2Q, fuel cost
for the quarter was INR1.25/unit v/s INR1.15/unit in 1QFY12. During the quarter, ADANI booked INR660m on forward
contract, as well as stock, which was not consumed in 2QFY12. Any reversal in exchange movement could mean
reversal of forex loss of INR660m.
 Merchant sales at 36% of net generation v/s 9% in 1QFY12: In 2QFY12, ADANI sold ~1BU or 36% of its sales on
merchant basis, much higher than 9% of sales in 1QFY12. We understand that the higher merchant sales were led
by the commissioning of the first supercritical unit (U-I Phase-III), where the PPA with GUVNL is expected to start
from February 2012. However, ADANI has contested the PPA with GUVNL (PPA at levelized tariff of INR2.35/unit) and
has taken the matter to the apex court. (Appellate Tribunal ruled in favor of GUVNL). ADANI's average realization was
boosted owing to its medium term agreement with UP (June onwards), with a tariff of INR4.10-4.47/unit. Its MT bid
tied up with Maharashtra should begin contributing to revenue from 3QFY12.
 Capacity addition looking up; coal availability under contractual commitment key in future: Installed capacity
as at September 2011 stood at 1.98GW (excluding 660MW synchronized) and ADANI is hopeful of attaining a
capacity of 6GW by FY12. We model generation capacity at 4.6GW by FY12 / 6.6GW by FY13, based on which
ADANI is likely to burn fuel of 10m ton in FY12 and 24m ton in FY13. Given the constrained availability of coal under
agreed fixed price contract with Adani Enterprises as well as through domestic linkages, ADANI would have to
procure coal on spot basis.
 Valuation and view: We expect ADANI's consolidated net profit to increase to INR15.5b (up 1.7x) in FY12 and to
INR30.6b (up 93%) in FY13, given the increase in operational capacity. We estimate the earnings contribution of
merchant power at 65% in FY12, increasing to ~70% in FY13, as the PPAs get triggered by mid-FY13. The stock
trades at 13x FY12E and 7x FY13E earnings. Maintain Neutral.
Valuation and view
 We expect ADANI's consolidated net profit to increase to INR15.5b (up 1.7x) in
FY12 and to INR30.6b (up 93%) in FY13, given the increase in operational capacity.
We estimate the earnings contribution of merchant power at 65% in FY12, increasing
to ~70% in FY13, as the PPAs get triggered by mid-FY13.
 The stock trades at 13x FY12E and 7x FY13E earnings. Maintain Neutral.


Company description
Adani Power (ADANI) is part of the infrastructure
conglomerate, Adani Group. It is a prominent private sector
player in power utilities. ADANI's generation capacity is
expected to increase to 4.6GW by FY12 / 6.6GW by FY13,
and it will be the largest private sector IPP in the country.
In addition, 2.6GW capacity is under construction (to be
commissioned by FY14-15) and project pipeline stands at
7.2GW.
Key investment positives
 Given its strong patent advantage, ADANI is
comfortably positioned on several key parameters
including land availability, fuel security, etc. Of the
16.5GW of project portfolio, 10.6GW are being
commissioned at Mundra and Dahej, where the Adani
group has access to vast tracks of land. On the fuel
front, the Adani group has access to 8b tons of reserves
in Indonesia and Australia and also controls ~50%+
market share in overall coal trading/imports into India.
 ADANI's generation capacity is expected to increase
to 4.6GW by FY12 / 6.6GW by FY13, while PPAs are
commissioned in phases providing merchant upside
upfront.
 Capex incurred in FY10 / FY11 stands at INR200b,
making ADANI one of the highest spenders in the
economy (and compares with ~INR230b capex by
NTPC).
Key investment risks
 Fuel availability is a challenge in the interim for Tiroda
(3.3GW) and Kawai (1.3GW), given constraints of coal
linkages.
 Contracted fuel supplies from Adani Enterprises' captive
mine in Indonesia at CIF of USD36/ton could be subject
to change in laws in Indonesia.
Recent development
 Has tied up MT bids of 480MW with UP at INR4.71/
unit and 475MW with Maharashtra at INR4.10/unit.
Valuation and view
 We expect ADANI's consolidated net profit to increase
to INR15.5b (up 1.7x) in FY12 and to INR30.6b (up
93%) in FY13, given the increase in operational
capacity. We estimate the earnings contribution of
merchant power at 65% in FY12, increasing to ~70%
in FY13, as the PPAs get triggered by mid-FY13.
 The stock trades at 13x FY12E and 7x FY13E earnings.
Maintain Neutral.