Adani Transmission's Q3FY20 results (Underperformer) - Sale of 25% in Mumbai DISCOM completed
Q3FY20 Result highlights
- Adani Transmission Ltd (ATL) net sales declined by 3% yoy to 27.4bn (vs our estimate of Rs28.2bn) led by decline in sales of 1% yoy (at Rs18.9bn) from Mumbai Distribution business
- Adani Electricity Mumbai Ltd (AEML) reported AT&C loss of 7.89% for 9mFY20 (normative at 8.36% for FY20E). The Mumbai DISCOM sold 2.06BU in Q3FY20 (vs 2.14BU in Q3FY19) and reported EBITDA of Rs4.9bn (growth of 65% yoy) and a PAT of Rs480m (flat yoy).
- Revenue of transmission business grew by 17% yoy to Rs6.8bn and EBITDA grew by +21% yoy to Rs6.3bn with commissioning of seven TBCB projects in Q4FY19 & Q1FY20. As a result, ATL’s EBITDA grew by 21% yoy to Rs10.9bn (below our est of Rs11.2bn).
- ATL won five TBCB projects (YTDFY20) with a project cost of Rs46bn with an estimated levelized tariff of Rs5.1bn. Overall, eight TBCB projects are under construction and total revenues expected from the under construction projects is Rs9bn
- Qatar Investment Authority has invested Rs32bn in Adani Transmission - Rs12bn equity (25% stake) and Rs20bn as subordinated debt. The proceeds from sale of equity has been used to reduce promoter debt at standalone company (Rs38bn earlier)
- Recently, it raised USD1bn bond on AEML at a rate of 3.95% with bullet repayment and USD 310m amortising bond by six subsidiaries of Adani Transmission Limited at 5.20%.
Key positives: Won new TBCB project - Kharghar-Vikhroli with a first year tariff of ~Rs2.9bn
Key negatives: Lower profitability of Mumbai DISCOMs.
Impact on financials: Reduce our earnings estimate to account for miss in Q3 earnings estimates; introduce our FY22 estimates
Valuations & view
We expect ATL’s FY19-22E EBITDA and earnings CAGR to be 28% and 34% respectively, led by commissioning of new assets 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 revised TP of Rs185/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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