Adani Power - Shirking Negatives, Trims Losses; Result Update Q3FY15 ::Edelweiss

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Adani Power: Hope belies reality :: Kotak Sec, report

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Hope belies reality. Adani Power’s resilient stock performance reflects optimism on (1) value accretion from asset acquisitions, and (2) potential wins from coal auctions. However, it does not fully reflect continued losses despite accrual of compensatory tariffs, declining prices of imported coal and reasonable plant utilization. Maintain SELL with a revised price target of `40/share (from `36) primarily to factor the benefit of declining prices of imported coal.


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Nomura:: Adani Port & SEZ :: Strong volume growth in a difficult macro Volumes continue to grow exceptionally well and highlight core asset quality

Action: Retain Buy on strong 1QFY14 results
Adani Port’s 1QFY14 operating performance was once again ahead of our
as well as the Street’s estimates due to higher-than-expected revenue
growth. While a large part of the revenue beat was driven by a one-off
income from the transfer of CT3 to its own JV, even on an adjusted basis
revenue was ahead of consensus estimates by 6%. Volume growth,
though, was slightly lower than our expectations, but was still up 35% y-y
at a time when other ports have been reporting a negative- to-flattish trend
at best. Too many adjustments make this quarter’s true margins difficult to
read, although we estimate that it is still likely at ~70% levels. With the
core business remaining strong, we remain positive on the stock and
expects the company to deliver ~25% earnings CAGR over FY13-15F as it
should continue to gain market share due to capacity constraints at major
ports. Further, its smaller ports (Dahej and Hazira) have also started
delivering good volumes and profits. Thus, we continue to prefer ADSEZ
as our top India infrastructure play.
Catalysts: Continued market share gain and a softer rate cycle
Continued strong momentum in traffic growth and the softer interest rate
cycle are key tailwinds for the stock, in our view.
Valuation: At ~13.0x stand-alone FY15F EPS of INR11.06, the stock
offers value; upside potential of 33%
We maintain Buy on the stock as it is trading at an attractive valuation of
13.0x stand-alone FY15F EPS of INR11.06, which is unjustified given its
strong earnings growth and ROE profile. Our TP of INR187 offers an
upside potential of 33%.

Sizzling Stocks: MRF, Adani Power, ::Business Line

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).

Adani Power: Sell :: Business Line

Sizzling Stocks - Adani Power , Gujarat Gas:: Business Line

Adani Power:‘What-ifs’ linger; downgrade to Reduce ::Nomura research

Operating risk persists as key
earnings drivers hang in the
balance; financing risk rises

Utilities- Turning point may be getting closer :Avendus

Reforms are likely to be undertaken in FY13f to revive the Indian
power sector. If left unchecked, annual losses of all state‐level
distributing companies are likely to reach 1.2% of the GDP. Likely tariff
hikes by DISCOMs need to be supplemented by measures that would
ensure a steady coal supply to the new thermal generating capacity of
c7GW at a stable and reasonable price. The benefits of such reforms
and expected firming up of merchant tariffs are likely to improve
earnings from FY14. Even with the well‐known stress, the consensus
forecasts for the power companies’ FY13 and FY14 earnings growth
exceed that of the Nifty. This is likely to preserve the premium in the
P/E over the Nifty. We initiate coverage with Buy ratings on NTPC and
ADANI, an Add rating on TPWR and a Hold rating on JSW.

Adani Power: Bumpy road ahead ::Kotak Securities PDF link

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Adani Power: Bumpy road ahead
` Imported coal - assured supply at US$36/ton hinges on ramp-up at Bunyu
Island
` Domestic coal availability and pricing indecisive despite Government
directive
` Incidence of MAT at Mundra could further erode value

http://www.kotaksecurities.com/pdf/indiadaily/indiadaily06032012.pdf

Adani Power (ADANI) Initiate OW: Ahead of the curve  HSBC Research

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Adani Power (ADANI)
Initiate OW: Ahead of the curve
 Strong EPS growth – at a 53% CAGR over FY12-14e – as
capacity ramps up backed by a strong operational plan
 Fuel risk manageable thanks to the parent’s presence in coal
trading, coal mining and logistics
 Initiate with OW and TP of INR85; best positioned for growth
among peers, with sector risks likely to have limited impact

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.

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.

Adani Power (ADAN.BO) Neutral: Recurring PAT 11% Below Expectations  Citi Research

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Adani Power (ADAN.BO)
Neutral: Recurring PAT 11% Below Expectations
 Recurring PAT 11% below CIRA — APL’s 2Q12 Recurring PAT at Rs2.0bn (CIRA
Rs2.3bn) was +59% YoY/ +13% QoQ. Reported PAT was Rs1.8bn due to (1) Rs558m
loss on derivative MTM and (2) Rs332m on recovery of old receivables net of taxes.
 Lower sale units - Higher merchant rates — Net sales at 2959m kWh was lower
than CIRA at 3388m kWh on lower generation and high auxiliary consumption.
Merchant realizations were high at Rs4.70/kWh on account of sales to UPPCL. APL
also made some opportunistic purchases in the UI market at Rs2.53/kWh and sold the
same at higher rates in the merchant market.
 Other takeaways — (1) APL is not providing cash MAT taxes (Rs902m in 1H12) yet
and is disputing the amendments in the Budget. Taxes in P&L are deferred in nature;
(2) Receivable days have moved up from 58 days to 74 days over the last year.
 Fuel costs - Higher than expected — At Rs1.33/kWh of generation on (1) rupee
depreciation and (2) because the company has provided for outstanding costs of
imported coal. Ex the above two reasons, fuel costs were in line at Rs1.04/kwh of
generation.
 Update on capacity addition — APL has commissioned (CoD) 2640MW of Mundra
capacity. The 6th unit of 660MW could not supply power because of a transmission
constraint. The 7th unit of 660MW has also been CoD. The 8th unit will be CoD in next
1.5 months. The 9th unit of Mundra will be CoD by Feb12. APL also expects two units
of Tiroda to be synchronized by Apr12.
 Target price Rs86 — Revise down EPS estimates by 7-25% over FY12E-20E to factor
in: (1) lower PLFs, (2) higher fuel costs and (3) higher O&M costs. Adjust our target
price to Rs86 (Rs87) to factor in (1) EPS revision and (2) roll forward of target P/BV of
2.0x to Mar13E (Dec12E). We remain cautious on APL given domestic coal shortages,
high imported/ e-auction coal prices and APL’s case-I PPAs.

Adani Power: Higher merchant realizations help absorb fuel cost ::Kotak Securities

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Adani Power (ADANI)
Utilities
Higher merchant realizations help absorb fuel cost. Adani Power’s (APL) net
income at Rs2.3 bn for 2QFY12 met estimates—as the incremental cost of generation
(Rs1.3/kwh) due to a depreciating local currency was compensated by a favorable
change in sales mix with merchant sales at Rs4.7/kwh (+7% qoq) bucking the industry
trend of overall weakness in the monsoon season. We maintain our REDUCE rating with
revised PT of Rs81/share 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.

ADANI POWER In line performance ::Edelweiss

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Adani Power (APL) reported PAT of INR1.8bn in Q2FY12. Adjusted for
forex related fluctuations of INR1.2bn, earnings are in line with our
INR3bn estimate. However, considering marginal delay in commissioning
of pipeline projects and lower than expected PLF we have recalibrated
FY12E and FY13E earnings. Hence, our revised SOTP is INR78/share (INR
90/share earlier). Maintain ‘REDUCE’ as fuel supply issues persist.
Adjusted earnings in line
APL reported Q2FY12 earnings of INR1.8bn which include MTM loss of INR558mn on
derivative instruments and forex fluctuations on creditor dues aggregating INR939mn.
Adjusting for these, earnings are in line with our estimate and significantly higher than
consensus estimate of INR2.2bn.
Gross merchant realisation high at INR4.7/kwh
The key reason behind the robust earnings was high gross merchant realisation of
INR4.7/kwh (open access and transmission related cost of INR0.3/kwh booked in other
expenses) and maintaining costs at the same level. PLFs were at 75%, but auxillary
consumption was high at ~9% against the normalised 7-8%.
Capacity addition behind schedule; revising down FY12‐13 earnings
APL is slightly behind schedule with respect to its capacity addition plans and is likely to
end FY12 with 3,300 MW, of which 1x660 MW may contribute marginally to earnings.
However, in terms of installed capacity, we could see ~ 5GW as most of these units will
be in the testing/synchronisation stage. PLF during H1 has been lower than our
expectation of 91% for FY12. Hence, we have revised our earnings estimates down for
FY12 and FY13 by 49% and 28%.
Outlook and valuations: Fuel issues persist; maintain ‘REDUCE’
In addition to the fuel linkage issue (domestic coal supplies), the recent coal pricing
regulation in Indonesia could likely impact fuel costs going ahead. This, along with
delay in capacity addition, has impacted our SOTP by INR12 to INR78/share. We
maintain ‘REDUCE/SU’ recommendation/rating on the stock.

Adani Power - Good 2Q as merchant sales allowed & didn’t provide MAT � �� BofA Merrill Lynch

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Adani Power Ltd.
Good 2Q as merchant sales
allowed & didn’t provide MAT
�� 2Q beat on pre-PPA merchant sales & lack of MAT prov.
APL had a good 2Q as Rec PAT grew by 137%YoY (+44%QoQ) beating
consensus by 13% as APL won case v/s GUVNL to sell power on merchant
before PPA start, and volumes +122%YoY. Fuels cost rose 8%YoY on INR
depreciation. Cut PO to Rs112 (124) on cut in our FY12-14E EPS by 9-13% to
factor in 2 months delay at most sites, generation loss on lower PLF in FY12E on
start-up issues and higher coal costs at Tiroda on allocation of lower linkages by
CIL. Buy APL on (1) a +3x in capacity by FY13E via an unregulated model and (2)
3.1x EPS over FY11-13E on 77% power pre-sold at good tariffs, low cost
imported coal from parent, secure funding, location advantage & business model
(shift to PPAs from FY13E Chart 7). Stock many go sideways till coal linkages at
Mundra / Tiroda plants in 4QF’12.
2Q EBIT margin fell 180bps on inefficiency & higher fuel costs
APL 2Q gross generation at 3.3bn kWh +121%YoY. PLF of its Chinese plants
was poor @~75% v/s JSPL 92% (Chart 2). 2Q was led by a) ASP grew 18% on
570%YoY (+295% QoQ) growth in merchant volume (higher ASP @ Rs4.7/kWh)
as APL won case v/s GUVNL to sell power in merchant market before PPA starts,
and b) volumes +122%YoY as capacity 2x (1.98GW vs 990MW). Fuels cost rose
8%YoY on INR depreciation. EBIT margins fell 180bps. APL didn’t provide MAT of
Rs450mn under-protest. Including-MAT rec. PAT would have been up 95%YoY.
Competitive advantages - coal, location and visible scale-up
APL has secured low-cost fuel via coal linkages (25% of capacity) and contracts
with parent (42%). It has 86% of capacity located in the West - highest peak
power deficit (14.7%) vs India (9.8%) in FY11. These competitive advantages and
good pre-sales tariffs at ~Rs2.9 (Table 2) make APL the top margin (54% FY13E)
and RoE (20%) earner in our IPP universe. Risks: Delivery of coal in-line with
linkage letters of Ministry of Coal / with contract of ADE, imported coal - exposes it
to country, currency & freight risks and fall in power rates on lower power deficit.

Adani Power Same story; cut earnings/TP; Maintain Reduce :Emkay

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Adani Power

Same story; cut earnings/TP; Maintain Reduce

REDUCE

CMP: Rs78                                        Target Price: Rs72

---

n     2Q PAT of Rs1.8bn is below expectation of Rs2.7bn due to (1) Rs0.8bn of extraordinary items (forex loss, receivable recovery) and (2) fuel cost (past forex adjusted) higher at Rs1.26/unit. Adjusted PAT stood at Rs2.1bn.

n     Aggressive accounting continued in this qtr - 1) not provided MAT (supposed to provide) and 2) recognized SEZ duty (Rs213mn) as revenues. 

n     Reiterate earnings downgrade through out FY12E; after 2Q12 its 23%/22% for FY12E/13E - driven by higher fuel cost and one-two month delay in capacities

n     Foresee further downgrades due to - (1) fuel cost assumed at Rs1.14/unit (2Q - 1.26), (2) Indonesian regulations impact & (3) operating parameters (aux, heat rate & PLF); Maintain Reduce; Cut TP to Rs72         

Adani Power – Blurry outlook ::RBS

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Adani Power's medium term outlook looks nebulous given the imposition of 'Indonesian Coal
Reference Index', high probability of domestic linkage shortfall for Mundra-IV & Tiroda-I and no
coal linkage, so far, awarded for Tiroda-II and Kawai projects. Clarity on the issues will drive
medium term performance. Hold.


Adani Power’s (APL) seemingly near-perfect business model at IPO has been challenged by the
imposition of the Indonesian Coal Reference price, de-allocation of the captive coal block for
Tiroda-I, lower pre-PPA sales and a domestic fuel shortage hurting linkage plants. Our calculations
indicate the current share price partially factors in the negative impact of these issues. We think the
risk to the downside appears higher than to the upside (see Chart 1).
Indonesian Coal Reference price poses a significant problem
The Indonesian government has imposed a transfer price of coal based only on the Indonesian
Coal Reference price. In our view, this poses a significant problem for all Indian developers,
including APL. The new law makes us wonder again if the ‘sweet coal’ deal between Adani
Enterprise (AEL) and APL will still be honoured. APL’s management contends the contract will be
unaffected, but we remain cautious. We calculate that every US$10/ton increase in the coal price
will negatively affect APL’s share price by Rs16/share. Also, a lower-than-expected ramp-up in
the Bunyu mines could lead to APL importing spot coal to bridge the gap, thereby affecting
project economics. We presently assume the contract between AEL and APL at US$36/ton will
be continued.
No coal linkage, so far, for Tiroda II and Kawai
APL had tied up power to be generated from Tiroda II and Kawai (each 1.32GW) under the Case-
I competitive bid, presuming coal linkage (partial/full) would be allocated under the XIIth plan
dispensation route. However, as detailed in our sector thesis, the award of further coal linkage
looks highly unlikely to us, at least in the near term. Given the scenario, APL may have to use a
substantial amount of imported and/or e-auction coal to run the plants, which would affect project
profitability – allowed fuel price escalation is based on domestic coal (per bidding documents) and
all fuel risk must be borne by the developer. We assume linkage/e-auction/imported ratios of
60%/30%/10% for both Tiroda-II and Kawai. Initiate coverage with a hold rating and Rs 75 target
price.

UBS:: Adani Power - May appeal in SC against tribunal order

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UBS Investment Research
Adani Power
M ay appeal in SC against tribunal order
􀂄 Event: Adani Power may appeal to Supreme Court in 1,000MW PPA case
According to media reports, Adani Power plans to appeal against the order of the
Appellate Tribunal for Electricity after the tribunal rejected the company's
argument that a low tariff bid (Rs2.35/unit) was contingent on Adani Power
receiving coal supply from GMDC (a Gujarat government company). Please refer
to our note, Adani Power: Appellate Tribunal rejects company’s plea, published on
8 September 2011.
􀂄 Impact: the issue is relevant for other imported coal-based projects as well
We think that if Adani Power files an appeal in the Supreme Court for a review of
the coal cost recovery mechanism, the court’s view on this issue will be important
for other imported coal-based power projects which do not have fuel cost passthrough.
Our estimates for Adani Power remain unchanged as we assumed the
power purchase agreement (PPA) will remain valid and that tariffs will not be
raised.
􀂄 Action: we are negative on the stock as risks do not seem to be priced in
We acknowledge the company’s strong execution, but we believe that the current
stock price does not fully factor in risks such as: a) a decline in merchant tariffs;
and b) no fuel escalation in its long-term PPAs. Hence, we believe the stock may
have some more downside at current levels.
􀂄 Valuation: maintain Sell rating and price target of Rs80.00
We derive our price target using a plant-by-plant DCF assuming COE of 13.8% for
under-construction projects and 12.3% for operational projects. We currently value
6,600MW capacity (4,620MW at Mundra and 1,980MW at Tiroda