Adani Power's Q2FY18 results (Neutral) - Reported profit higher on back of interim relief
Q2FY18 results
- Post the Supreme Court order, Adani Power (APL) approached CERC for quantification of compensatory tariff (CT) against shortage of domestic coal at Mundra under Haryana PPA of 1424MW. CERC, in its interim order, has directed Haryana DISCOMs to pay 75% of the compensation. As a result, APL recognized compensatory tariff of Rs6.6bn in Q2FY18 towards Haryana PPA. Out of Rs6.5bn, Rs6.4bn pertains to prior period. In addition, APL continued to recognise compensatory tariff at: 1) Rs455m for Tiroda Power Station against de allocation of Lohara Coal block 2) Rs651m towards shortage of domestic coal under linkage and 3) Rs2.2bn from Kawai Power Station for domestic coal shortage
- APL reported profit of Rs2.9bn led by prior periof compensatory tariff and higher other income (surcharge of Rs1.8bn). Adjusting for prior period CT, APL reported EBITDA of Rs14.6bn (vs est of Rs14bn) and adjusted loss of Rs3.4bn (vs estimate of loss of Rs5.3bn) in Q2FY18.
- PLF of the power plants were a) Mundra PLF was 69% (decline of 858 bps yoy) b) Tiroda TPS was 62.9% (69 bps yoy) c) Kawai TPS was 57.7% ( -2215 bps yoy) d) Udupi TPS was 45.6% (-972 bps yoy)
- Government conducted auction for power plants with PPA but no fuel under SHAKTI scheme Tiroda and Kawai power plants have won ~10mt of linkage coal (supplies expected from Dec 17end), which will reduce its coal cost and improve cashflows.
Key positives: Successful in securing linkage auction for 10mt of coal by bidding a nominal discount to PPA tariffs in auction
Impact on financials: We reduce our earnings est. for FY8E to a loss of Rs15bn; Introduce FY20 losses at Rs5.4bn.
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. As a result, Adani Power losses will continue to remain at elevated level as witnessed in H1FY18. We estimate APL’s total losses at Rs14bn in FY18 and Rs9.3bn in FY19. We believe some form of equity infusion in the company over the next 12 months is necessary to shore up the leverage of the company. We maintain our Neutral rating on Adani Power with a target price of Rs25/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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