ADANI POWER Another disappointing quarter :: Edelweiss

Adani Power’s (APL) Q3FY13 adjusted loss of INR4.1bn surpassed our
/consensus INR1.5bn/INR2bn loss estimate. The variance was due to use
of high cost imported coal on account of lower-than-expected Bunyu
volumes. Subdued PLF at Tiroda also impacted earnings. While
management remains confident of improving domestic fuel supplies for
pipeline projects, near-term challenges persist. Maintain ‘REDUCE’.
Disappointment continues on coal supplies
APL’s consolidated Q3FY13 loss, adjusting for INR1.4bn of forex loss, deferred tax of
INR1bn and profit on sale of shipping business of INR238mn, came at INR4.1bn against
our estimate of INR1.5bn loss/consensus loss estimate of INR2.0bn. Lacklusture
performance at Mundra continued with Bunyu coal supplies dropping to 0.44MT
(versus our estimate of 1MT and 0.8MT supplied in Q2FY13). Supplies under FSA from
Coal India rose to 0.41MT, but still fell short of ~1.3MT quarterly ACQ. Thus, APL had to
consume ~2.5MT high cost imported coal, leading to higher-than-estimated loss.
Tiroda plant’s first unit (660MW), which commenced operations during Q3FY13, also
operated at estimated PLF of ~26% (gross generation of 378MUs and sale of 353MUs),
resulting in higher-than-expected loss on higher fuel (INR 2.9/unit) and fixed costs.
Tiroda FSA inked; targeting 9,240MW by FY14 end
The Tiroda plant signed a FSA for 2.3MTPA (for Units 1&2) on December 28 with South
Eastern Coalfields; similar quantum is likely to be inked in Q4FY13 against incremental
LoA. Management stated that Tiroda extension and Kawai projects are in advanced
stages and will be commissioned by FY14, taking APL’s total capacity to 9,240MW.
Outlook and valuations: Lacks visibility; maintain ‘REDUCE’
While management remains confident of securing domestic coal supplies for Tiroda
extension and Kawai projects, risks of lower-than-expected supplies from Coal India
and scale up issues at Bunyu remain. At CMP of INR60, APL is trading at 2.9x and 2.2x
revised FY13E and FY14E BV, respectively. We have introduced FY15 estimates.
Maintain ‘REDUCE/Sector Underperformer’ with SOTP-based target price of
INR45/share (INR 47 earlier).

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