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UBS Investment Research
Adani Power
Risks not priced in, maintain Sell
[ EXTRACT]
We recently lowered our price target from Rs110.00 to Rs80.00
Adani Power’s Q1 FY12 results were below our expectations and significantly
below consensus estimates as well. It reported a sharp decline in plant utilisation in
Q1. The average PLF was 74% versus 80% in Q1 FY11. We recently lowered our
price target 27% to Rs80.00. Please refer to our note: Lower price target to Rs80,
maintain Sell, 8 August 2011.
Indonesia is a key source of fuel for AEL
According to media reports, the Indonesian government has decided to link the
price of coal exported from the country with a benchmark based on international
coal prices. However, we expect the impact on Adani Power to be limited (Adani
Enterprises Limited has captive mines and it was subsidising coal supply to Adani
Power). We assume a US$36/tonne price for imported coal to Adani Power.
We are negative as risks do not seem to be priced in
We like the company for its strong execution, but think the share price does not
factor in risks: 1) a decline in merchant tariffs; and 2) no fuel price escalation
clauses in long-term PPAs. We believe the share price risk is to the downside.
Valuation: Maintain Sell rating and price target of Rs80.00
We derive our price target from a plant-by-plant DCF, assuming COE of 13.8% for
projects under construction and 12.3% for operational projects. We currently value
6,600MW capacity (4,620MW from Mundra and 1,980MW from Tiroda).
Adani Power
Adani Power is part of the Adani Group. With 6,600MW commissioned/under
construction and 3,300MW under development, Adani Power targets becoming
one of the largest private sector power generation companies in India by FY15
when we expect it will possess significant capacity. We believe the company has
significant non-replicable strengths due to fuel availability and competitive
pricing, good execution, and attractive tariffs from long-term PPAs and
merchant power.
Statement of Risk
We believe the key risks for Adani Power are: 1) availability or pricing of
imported coal; 2) slower-than-expected progress in the execution of projects; 3)
no project wins; 4) a sharp decline in merchant tariffs; and 5) performance
issues with Chinese equipment.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Adani Power
Risks not priced in, maintain Sell
[ EXTRACT]
We recently lowered our price target from Rs110.00 to Rs80.00
Adani Power’s Q1 FY12 results were below our expectations and significantly
below consensus estimates as well. It reported a sharp decline in plant utilisation in
Q1. The average PLF was 74% versus 80% in Q1 FY11. We recently lowered our
price target 27% to Rs80.00. Please refer to our note: Lower price target to Rs80,
maintain Sell, 8 August 2011.
Indonesia is a key source of fuel for AEL
According to media reports, the Indonesian government has decided to link the
price of coal exported from the country with a benchmark based on international
coal prices. However, we expect the impact on Adani Power to be limited (Adani
Enterprises Limited has captive mines and it was subsidising coal supply to Adani
Power). We assume a US$36/tonne price for imported coal to Adani Power.
We are negative as risks do not seem to be priced in
We like the company for its strong execution, but think the share price does not
factor in risks: 1) a decline in merchant tariffs; and 2) no fuel price escalation
clauses in long-term PPAs. We believe the share price risk is to the downside.
Valuation: Maintain Sell rating and price target of Rs80.00
We derive our price target from a plant-by-plant DCF, assuming COE of 13.8% for
projects under construction and 12.3% for operational projects. We currently value
6,600MW capacity (4,620MW from Mundra and 1,980MW from Tiroda).
Adani Power
Adani Power is part of the Adani Group. With 6,600MW commissioned/under
construction and 3,300MW under development, Adani Power targets becoming
one of the largest private sector power generation companies in India by FY15
when we expect it will possess significant capacity. We believe the company has
significant non-replicable strengths due to fuel availability and competitive
pricing, good execution, and attractive tariffs from long-term PPAs and
merchant power.
Statement of Risk
We believe the key risks for Adani Power are: 1) availability or pricing of
imported coal; 2) slower-than-expected progress in the execution of projects; 3)
no project wins; 4) a sharp decline in merchant tariffs; and 5) performance
issues with Chinese equipment.
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