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Adani Transmission's Q1FY20 results (Underperformer) - New TBCB assets started contributing to revenues

Q1FY20 Result highlights

• Adani Transmission Ltd (ATL) reported revenue of Rs28bn in Q1FY20, 3.5x Q1FY19 led by revenues of Mumbai Distribution business (acquired in Sep-2018).
• The transmission business in Q1 FY20 reported revenue of Rs6.7bn (+23% yoy), EBITDA of Rs6.2bn (+23% yoy) and profit of Rs1.6bn (+33% yoy). Besides cost plus assets, seven TBCB assets have started contributing to revenue from Q1FY20 onwards (Rs1.4bn in  Q1FY20 and estimate of Rs6.2bn in FY20E).
• Distribution business for Q1FY20 reported revenues, EBITDA and PAT of Rs21.2bn, Rs5.2bn and Rs560m (vs our estimate of Rs600m). Distribution business reported distribution loss of 7.78% (vs norm of 8.36% for FY20E)
• Overall ATL EBITDA came in at Rs11.4bn, +125% yoy and adjusted profit was Rs2.1bn (est of Rs2.1bn).  The increase in EBITDA  is  primarily  on account of acquisition of Mumbai DISCOM. Note that the interest on unsecured perpetual securities of Rs34bn is not being expensed through income statement.
• In July 2019, it won two TBCB projects of Rs2bn tariff with project cost of Rs20bn. The scheduled commissioning date of these two projects is December 2020. Overall, six TBCB projects are under construction. Total revenues expected from the under construction projects is Rs6bn

Key positives:  Won two TBCB projects with tariff of Rs2bn, T&D  Losses of 7.78% (-99bps yoy) in Mumbai DISCOM; higher availability of transmission assets

Key negatives:  Lower profitability of Mumbai DISCOMs

Impact on financials: Maintain our earnings estimates

Valuations & view

We expect FY19-21E EBITDA and earnings CAGR to be 37% and 34% respectively, led by commissioning of new assets, Mumbai distribution business and refinancing-led interest cost savings. Given the rich valuations (23x FY20E earnings and 4.3x FY20E book value), we maintain Underperformer rating with a revised TP of Rs123/share (our price factors in new project win of Rs40-50bn per annum, and assumes an attractive return on all assets under acquisition and all bid assets under execution). The key risk to our call is ATL winning new transmission bids of large sizes.