Adani Power's Q2FY19 results (Underperformer) - Reported profit was led by one offs
Q2FY19 results
- PLF of the power plants in Q2FY19 were: a) Mundra PLF was 71% (+179 bps yoy) b) Tiroda TPS was 63.1% (+19bps yoy) c) Kawai TPS was 68% (+994 bps yoy) d) Udupi TPS was 25% (-2022 bps yoy). Adani Power availability under Gujarat PPA -2 of 1000MW was low at 41% while PAF under Gujarat PPA 1 has improved to 100%. Udupi operated at a high PAF. As a result, it reported a profit of Rs600m.
- APL reported adjusted EBITDA of Rs11.9bn (vs estimate of Rs13.4bn), a decline of 19% yoy. APL adjusted losses came in at Rs7.5bn (vs estimate of loss of Rs6.5bn) in Q2FY19. APL’s reported profit was on account of Rs11.4bn due to additional compensatory tariff for Tiroda power plant. Note that Maharashtra regulator had allowed recovery of compensatory tariff in March 2018.
- Supreme Court has directed CERC to examine PPA amendment issues and pass an order in 8 weeks for Gujarat based power plants. A high level powered committee constituted by Gujarat government has recommended compensation by way of pass through of energy charge.
- Rajasthan DISCOMs have appealed against the order allowing compensation of domestic coal shortage for Kawai power plant. Supreme Court has directed Rajasthan DISCOMs to pay 50% of the claim of Rs55bn.
Key positives: Supreme court order directing CERC for amendment of PPA’s; Conversion of promoter loan of Rs50bn to perpetual securities
Key negatives: Increase in International coal prices; Appeal by Rajasthan DISCOM against RERC order
Impact on financials: We increase our loss est. for FY19E/FY20E to Rs23bn/Rs13bn to account for sharp rupee depreciation
Valuations & view
We believe Supreme Court direction to CERC for amendment of PPA’s is positive but may be prone to a protracted litigation. As a result, Mundra will continue to make cash losses. We estimate SHAKTI auction to reduce coal cost but will not be sufficient enough to offset the losses at Mundra. As a result, we estimate APL’s total losses at Rs23bn in FY19 and Rs13bn in FY20. We believe some form of equity infusion in the company over the next 12 months will help the company to reduce the gearing. We reiterate underperformer with a target price of Rs24/share
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