Adani Power's Q4FY18 results (Neutral) - Positive news on various compensatory claims

Q4FY18 results

• PLF of the power plants in Q4FY18 were: a) Mundra PLF was 23% (-5353 bps yoy) b) Tiroda TPS was 56.5% (-1424 bps yoy) c) Kawai TPS was 13.7% (-6374 bps yoy) d) Udupi TPS was 67% (-1129 bps yoy). Adani Power operated the Mundra power plant at lower availability on account of high international coal prices while Udupi power plant PLF was low as power plant was undergoing maintenance.  
• APL reported EBITDA of Rs7.3bn (vs estimate of Rs15bn), a decline of 45% yoy. The miss in estimate was due to lower availability for Mundra Power plant under Gujarat PPA for 2000MW (7.5% vs 83% in Q4FY17) and Haryana PPA. As a result, APL adjusted loss of Rs12bn (vs estimate of loss of Rs5bn) in Q4FY18. Reported losses were Rs6.7bn on account of a favourable judgement allowing recovery of APL’s capex on FGD of Rs6.2bn (prior period – Rs5.8bn).
• FY18 EBITDA and adjusted losses were Rs46bn and Rs32bn. Reported losses were at Rs21bn. Losses has been adjusted for prior period recovery of FGD claim of Rs5.8bn and Rs6.4bn allowed by CERC for compensation of domestic shortage of coal under Haryana PPA.
• APL continues to recognise compensatory tariff at Rs505m/Rs5.7bn in QFY18/FY18 from Kawai Power Station for domestic coal shortage.

Key positives:  Start of coal supply under Shakti scheme with Regulator approving amendment to the PPA’s; +ve order from CERC on FGD, +ve order from MERC on Tiroda for shortage of domestic coal and deallocation of Lohara Coal block

Key negatives: Low PLF and availability of Mundra Power Plants; stoppage of supply under Mundra PPA’s

Impact on financials: We increase our loss est. for FY19E/FY20E to Rs16bn/Rs8bn 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 Rs16bn in FY19 and Rs8bn in FY20. We believe some form of equity infusion in the company over the next 12 months will help the company to reduce the current gearing of 54. Maintain Neutral with a revised target price of Rs24/share.