Adani Power (XADPF, Buy) BofA Merrill Lynch,

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Adani Power (XADPF, Buy)
Bear Case: What can go wrong
􀂄 In the bear case, we expect the capex to slow down. We expect 1-5 months
delay in capacity addition of 4.6GW at Mundra III-IV and Tiroda I & II in
FY12-13E.
􀂄 We assumed the parent (ADE) will not be able to honour the coal supply
contract, which could lead to 25-46% fall in supply (Bunyu mines) and 17%
higher coal cost/tn from Bunyu on spot coal purchases.
􀂄 Cut PLF by 350-850bps on at Mundra IV, Tiroda and Kawai on risk of coal
supply.
􀂄 We expect an EPS CAGR of 46% over FY11-14E on low base.
􀂄 We assumed higher cost of equity by 100-250bps Tiroda and Kawai projects
on coal challenges.
􀂄 Consequently, we get a worst case valuation of Rs67/share valuing it at 2.1x
consol FY13E P/BV
Base Case:
􀂄 In the base case, we expect an EPS CAGR of 72% over FY11-14E on low
base.
􀂄 We expect the stock will trade at Rs112/share valuing it at 2.8x consol FY13
P/BV.
Risk-Reward: Unfavorable
􀂄 In the bear case, we expect the stock will trade at Rs67/share valuing it at
2.1x consol FY13E P/BV.
􀂄 In the base case, we expect the stock will trade at Rs112/share valuing it at
2.8x consol FY13 P/BV.
􀂄 Overall, the risk-reward appears unfavorable given the risk of fuel.