We maintain our ‘sell’ rating on Adani Power (APL) with a price target of R40 per share. We maintain our cautious stance and will look for capacity ramp-up before revisiting our view.
Adani Power has not been able to meaningfully improve its financial performance despite accounting for compensation of R1,000 crore on a consolidated basis for FY14. Any improvement in financial performance could only come from a ramp-up of extant capacities. We have not yet included the financials of Udupi in our estimates of APL, as we seek clarity on the treatment of past under-recoveries of the project as well as time lines for completion of the acquisition.
We currently estimate losses of R1,100 crore in FY15e, and note the inclusion of Udupi in the financials will not dramatically alter reported earnings, after taking into consideration the cost of funding equity for the project.
APL has acquired the 1,200-MW imported coal-based project from Lanco Infratech for a consideration of R6,000 crore — comprising R4,000 crore of debt and R2,000 crore of cash payment towards equity. The deal does not appear expensive for a cost-plus project with fuel pass; however, Udupi has been traditionally beset by regulatory hurdles and under-recoveries that have impacted financial results.
APL reported consolidated Ebitda of R4,100 crore after. Despite the inclusion of the compensatory tariff, interest coverage remains low at 1.1X, with interest cost of R3,600 crore in FY14.
Kotak Institutional Equities