Adani Power's Q3FY18 results (Neutral) - New Linkage auction to improve cash flow
Q3FY18 results
- APL reported EBITDA of Rs7.3bn (vs estimate of Rs15.2bn), a decline of 44% yoy. The miss in estimate was due to a) lower availability under Gujarat PPA for 1000MW (43% vs 81% in Q3FY17) b) prior period transmission charge of Rs3bn. As a result, APL reported loss of Rs12.8bn (vs estimate of loss of Rs5bn) in Q3FY18
- PLF of the power plants were a) Mundra PLF was 61% (-1064 bps yoy) b) Tiroda TPS was 61% (-858 bps yoy) c) Kawai TPS was 43% ( -137 bps yoy) d) Udupi TPS was 54% (-3394 bps yoy)
- During Q3FY18, APL continued to recognise compensatory tariff at: 1) Rs222m for Mundra Haryana PPA for shortage of domestic coal 2) Rs275m towards shortage of domestic coal under linkage for Tiroda PPA and 3) Rs1.6bn from Kawai Power Station for domestic coal shortage. Note that CERC has allowed 75% of compensation claimed under domestic shortage of coal while other claims are being heard by regulators
- APL has won coal linkage under auction conducted by Coal India for power plants with PPA but no fuel (under SHAKTI scheme). Coal India Board has approved signing of FSA with all the winners. Tiroda and Kawai power plants have won ~10mt of linkage coal (supplies expected from Feb 17 end), which will reduce APL coal cost and improve cash flows
Key positives: Coal India Board has approved signing of FSA with APL for 10mt of coal won under bidding at a nominal discount to PPA tariffs
Impact on financials: We increase our loss est. for FY8E to a loss of Rs25bn; reduce our loss estimate for FY19E and FY20E to Rs9bn/Rs3.6bn account for supply under new linkage auction.
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 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 Rs9bn in FY19 and Rs4bn in FY20. 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 revised target price of Rs27/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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