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Maintain ‘reduce’ on Adani Power shares as earnings under pressure: Edelweiss

Adani Power earnings to be under pressure even as management anticipates a favourable outcome.

We maintain our ?reduce? rating on Adani Power shares as we expect earnings to be under pressure even as the management anticipates a favourable outcome from the CERC directive and improved domestic fuel supplies for pipeline projects.

We reduce our target price to Rs 35 per share (Rs 48 earlier). With FY14 Bunyu supplies cut yet again and inadequate policy actions by government, we have cut our FY14/FY15 estimates .

At the current market price, the stock is trading at 2.8x and 2.4x revised FY14e and FY15e BV, respectively.

Adani Power?s consolidated Q4FY13 loss, adjusting for R40-crore forex gain and Rs 140-crore deferred tax, came at Rs 485 crore. Increase in depreciation and interest expenses on new capacities (unit 6 at Mundra, unit 1 at Tiroda) and inadequate low-cost coal supplies, both at Mundra (Bunyu 0.8 MT, estimated 1.0 MT; 0.5 MT Coal India, estimated 1.1 MT; ~2 MT high-cost imported coal, estimated 1.2 MT) and Tiroda (entirely imported) widened losses. While Mundra achieved average plant load factor (PLF) of 64%, Tiroda (660 MW) operated at less than ~20% PLF, translating into 5.77 BUs/231 MUs sales, respectively.

The management expects the committee to recommend compensatory tariff (as per recent CERC order) to be constituted in a week?s time and is also confident of a favourable (retrospective) outcome. This, along with improving fuel supply (10.6 mtpa of FSA signed, Bunyu expected to supply 4-6 MT for FY14) and receding transmission bottleneck, should improve operational/financial performance in coming quarters.

APL also remained confident of securing domestic coal supplies for Tiroda extension and Kawai projects, expected to be commissioned by CY13 end. The preferential offer, wherein promoter stake will increase to 75%, is expected by June end.

The company has operational capacity of ~6 GW (at Mundra, Gujarat and Tiroda, Maharashtra) and another 3 GW to be commissioned by FY14. APL envisages achieving total commercial capacity of 20 GW by FY20. The company has a good blend of projects in terms of diverse locations, imported and domestic coal, long-term PPAs and merchant sales.

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First published on: 08-05-2013 at 02:12 IST
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