Event update: Adani Power (Underperformer) - Liquidation of compensatory tariff in 5-6 quarters
We present key takeaways from Adani Power (APL) analyst day, which we attended at their corporate office in Ahmedabad
Key Highlights
- Approved compensatory tariff to be liquidated over 5-6 quarters: APL has received approval orders for Rs234bn of compensatory tariff from various regulators. Of this, DISCOMs have paid Rs50bn and APL expects to receive the balance Rs184bn over next 5-6 quarters. The total compensatory tarff is ~50% of the total long-term debt.
- Additional Compensatory tariff of Rs70bn expected in bid 2 PPA of Gujarat: Supreme Court had directed CERC to determine the compensation along with carrying cost within a period of 3 months for Bid 2 PPA. As per Management, final compensation is expected to be higher than Rs70bn (including carrying cost).
- Godda power plant on track: APL expects to commission a 1600MW imported coal-based power plant by FY23, which has a 25-year PPA with Bangladesh. The PPA has a capacity charge of USD4 cents/Kwh, while the energy charge is a pass through. APL estimates the power plants would generate surplus cash of USD250m/annum.
- FY23 recurring EBITDA at Rs130bn: Adani Power expects to have a EBITDA of Rs130bn in FY23E (our FY21E is Rs72bn) with the commissioning of Godda Power plant and increase in PPA tie ups.
- Long-term bonds to replace current debt: APL is refinancing its existing debt on operating assets through foreign currency bonds of longer tenor and overall, lower interest cost. As a result, overall interest cost is expected to reduce by 500-600bps and duration is expected to increase to 12 years (from six years currently).
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 >Rs70bn compensation. Further, compensatory tariff claims are likely be paid which will further reduce debt and cut losses (not in our profit estimates). We value APL at a 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 Underperformer 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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