Adani Transmission's Q2FY20 results (Underperformer) - Gains significant market share in transmission bids
Q2FY20 Result highlights
- Net Sales of Adani Transmission Ltd (ATL) grew 74% yoy to Rs26bn in Q2FY20, led by additional revenue from Mumbai Distribution business (business acquired on 29th August 2018).
- Adani Electricity Mumbai Ltd (AEML) reported revenue of Rs19bn (vs Rs6.5bn in Q2FY19) and PAT at Rs701m (vs Rs205m in Q2FY19). The AT&C losses in Mumbai DISCOM were 8.2% (normative at 8.4%)
- Revenue of transmission business grew by 22% yoy to Rs6.7bn and EBITDA growth of +23% yoy to Rs6.2bn with commissioning of seven TBCB projects in Q4FY19 & Q1FY20 (contributing Rs1.2bn in the quarter).
- Overall ATL EBITDA came in at Rs10.3bn, +50% yoy and adjusted profit of Rs2.3bn (below our est of Rs2.6bn). As explained earlier, the increase in EBITDA is primarily on account of acquisition of Mumbai DISCOM.
- Unsecured perpetual securities have increased by 34% to Rs43bn (vs Rs32b in Q2FY19). Note that the interest on unsecured perpetual securities is not being expensed through income statement.
- ATL won five TBCB projects (YTDFY20) with project cost of Rs40bn with a levelized tariff of Rs4bn. Overall, nine TBCB projects are under construction and total revenues expected from the under construction projects is Rs9bn
Key positives: Five new TBCB projects worth of Rs40bn (YTD); higher availability of transmission assets.
Key negatives: Lower profitability of Mumbai DISCOMs.
Impact on financials: Maintain our earnings estimates.
Valuations & view
We expect ATL’s 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 (33x FY20E earnings and 5.5x FY20E book value), we maintain Underperformer rating with a 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.
Adani Transmission Limited. Adani Transmission Limited is a holding company. The Company operates as a power transmission company. It is engaged in transmission of electric energy and trading of castor oil. It owns, operates and maintains approximately 5,050 circuit kilometers of transmission lines, ranging from 400 kilovolts to 765 kilovolts, with a total transformation capacity of over 12,000 megavolt ampere (MVA). The Company has four operational Transmission Systems that primarily serve the Northern and Western regions of India, and additional projects of approximately 1,700 circuit kilometers in Rajasthan, Chhattisgarh, Madhya Pradesh and Maharashtra under construction. Its projects under utilities include Mundra-Mohindergarh Transmission Line, Mundra-Dehgam Transmission Line and Tiroda-Warora Transmission Line. Its engineering, procurement and construction projects include Mundra-Zerda Transmission Line, Nalia-Bitta Transmission Line, Kawai-Chhabra Transmission Line and Shantigram-Transmission Network.
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