Adani Transmission's Q3FY19 results (Underperformer) - Below Estimates; First quarter post DISCOM acquisition
Q3FY19 results
- Adani Transmission Ltd (ATL) reported first full quarter of results post acquisition of Reliance Infra’s Mumbai DISCOM business on 29th August 2018. Mumbai DISCOM business (AMÉL) reported revenue of Rs20bn, EBITDA of Rs5.1bn and PAT of Rs718m in Q3FY19. AT&C loss for the quarter was 7.53% (vs norm of 8.6%)
- In 3QFY19, the transmission business reported revenue of Rs5.6bn, EBITDA of Rs5.2bn and profit of Rs1.1bn. Besides cost plus assets, a number of TBCB assets have started contributing to income from 9mFY19.
- As a result, ATL EBITDA came in at Rs10.4bn (est of Rs11.3bn), +84% yoy and adjusted profit was Rs1.9bn (est of Rs2.7bn), + 31% yoy in Q3FY19. The increase in EBITDA and PAT is primarily on account of acquisition of Mumbai DISCOM. Note that the interest on unsecured perpetual securities of Rs32bn is not being expensed through income statement.
- During the quarter, company won a bid to develop TBCB project of Obra C Badaun Transmission with a project cost of Rs7bn. This was company’s 9th win in TBCB projects. The total levelized tariff of all the bid projects is Rs8.9bn with an expected cost of Rs65bn.
- Recently, it also acquired KEC Transmission asset at a EV of Rs2.3bn
Key positives: Acquisition of Mumbai DISCOM and KEC transmission asset; higher availability of transmission assets
Key negatives: Lower than estimated profitability for AMEL
Impact on financials: We reduce our earnings estimates for FY19E by 11% for disappointment in Q3FY19 profit and better clarity on Mumbai DISCOM profitability; introduce our FY21 EPS of Rs10.4/share
Valuations & view
We expect FY18-20E EBITDA and earnings CAGR to be 55% and 52% respectively, led by favourable order for Tiroda Aurangabad assets, commissioning of new assets, acquisition of assets (including Reliance Infra Mumbai DISCOM) and refinancing-led interest cost savings. Given the rich valuations (23x FY20E earnings and 4.6x FY20E book value), we maintain underperformer rating with a TP of Rs113/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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