Adani Power's Q1FY20 results (Underperformer) - Long term PPA of 1000MW withGujarat terminated
Q1FY20 results
- PLF of the power plants has improved considerably : a) Mundra PLF was 81% (vs 17% in Q1FY19) and PAF of 91%) b) Tiroda TPS was 86% (vs 57% in Q1FY19) and PAF of 91% c) Kawai TPS was 72% (vs 38% in Q1FY19) d) Udupi TPS was 51% (vs 64% in Q1FY19) and PAF was 92%. As a result, overall generation increased by 108% to 17.7BU
- Adjusting for prior period items, APL reported EBITDA of Rs18bn (vs estimate of Rs18bn), an increase of 57% yoy led by higher generation in power plants and approval of amended PPA’s. Adjusted PBT for the quarter was a loss of Rs524m (est of loss of Rs416m)
- Note that CERC has approved the amendment in PPA -1 and PPA -2 of 1000MW each in April 2019. As a result, APL has started supplying to Gujarat under the amended PPA’s to the extent of 1200MW (earlier 1000MW) and 1234MW (earlier 1000MW)
- However, APL has stopped supplying power from PPA-2 to Gujarat and is selling power in open market from 1320MW (phase 3) as Supreme Court held the termination of PPA by APL in January 2010 as valid. Supreme Court also asked CERC to determine the compensation for the company for supplying power from imported coal. We estimate the compensation to be higher than >Rs50bn.
Key positives: Supreme Court direction on determining compensation for PPA -2 of 1000MW; APTEL direction to MERC to adjudicate on Lohara Coal block compensation within 3 months
Key negatives: Uncertainty on off take for cancelled quantum of capacity
Impact on financials: Increase in loss estimates to Rs7bn in FY20E and FY21E on cancellation of contracts
Valuations & view
APL under recovery for Mundra PPA -1 has reduced sharply. In addition, Supreme Court has terminated PPA-2 which will pave the way for a >Rs50bn compensation. Further, APL has various claims for Tiroda and Kawai, which are being heard by various regulatory/appellate bodies. Favourable judgement from these claims will help the company further reduce debt and cut losses (not in our profit estimates). We value APL at a revised target price of Rs48/share (include claim arising from Supreme Court order; valuing all finalised claims at 100% and other claims at appropriate discounts). We maintain our Neutral rating considering expensive valuations, high debt and risk of further litigation.​
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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