Adani Power's Q1FY19 results (Downgrade to Underperformer) - Another committee to suggest resolution for Mundra
Q1FY19 results
- PLF of the power plants in Q1FY19 were: a) Mundra PLF was 17% (-4680 bps yoy) b) Tiroda TPS was 57.4% (-576bps yoy) c) Kawai TPS was 38% (-2215 bps yoy) d) Udupi TPS was 63.5% (-553 bps yoy). Adani Power operated the Mundra power plant at lower availability on account of high international coal prices during the quarter to minimise losses. APL has started operating Mundra at higher PLF from July 2018.
- APL reported EBITDA of Rs6.3bn (vs estimate of Rs9bn), a decline of 60% yoy. APL adjusted losses came in at Rs13bn (vs estimate of loss of Rs10bn) in Q1FY19. Reported losses were at Rs8.3bn on account of favourable judgement from Rajasthan regulator and CERC (which led to recognition of Rs5.3bn for past period)
- During the quarter, CERC has ruled in favour of the company against shortage of domestic coal under Mundra Haryana PPA and Rajasthan regulator allowing compensation for shortage of domestic coal for Kawai.
- A high powered committee has been formed by Gujarat Government to find a long term solution for Mundra Power Project. It will look for sacrifice by each stakeholder including banks, project developers and procurers.
Key positives: 70% materialisation of coal supply under Shakti scheme; +ve order from RERC on shortage of domestic coal
Key negatives: Low PLF and availability of Mundra Power Plants
Impact on financials: We increase our loss est. for FY19E/FY20E to Rs20bn/Rs12bn account for increased international coal prices
Valuations & view
Post the Supreme Court judgement of compensating companies for only shortage in domestic coal, Mundra power plant is no longer eligible for compensatory tariff for using Indonesian coal. We estimate SHAKTI auction to reduce coal cost but will not be sufficient enough to offset the losses. As a result, we estimate APL’s total losses at Rs20bn in FY19 and Rs12bn in FY20. We believe some form of equity infusion in the company over the next 12 months will help the company to reduce the gearing. We downgrade the stock to Underperformer with a revised target price of Rs24/share.
Adani Power Limited is a holding company. The Company is engaged in providing electric power generation by coal-based thermal power plants and coal trading. Its business activity is undertaken at Mundra Thermal Power Plant of the Company in Gujarat and Thermal Power Plant of its subsidiaries at Tiroda (Maharashtra), at Kawai (Rajasthan) and at Udupi (Karnataka). It has approximately five power projects. The Company operates an aggregate of approximately 10,480 megawatts generation capacity comprising of over 4,620 megawatts at Mundra; approximately 3,300 megawatts at Tiroda; over 1,320 megawatts at Kawai; approximately 1,200 megawatts at Udupi, and over 40 megawatts (solar) at Kutch, Gujarat. It focuses to sell the power generated from these projects under a combination of long term Power Purchase Agreements and on merchant basis. Its subsidiaries include Adani Power Maharashtra Limited, Adani Power Rajasthan Limited, Udupi Power Corporation Limited and Adani Power Resources Limited.
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