KSK Energy's Q3FY18 results (Outperformer) - Fuel supply under linkage to commence
Q3FY18 result highlights
- Mahanadi TPS (1200MW) operated at PLF of 52.4% (+1018bpsqoq) in Q3FY18 and 59% in 9mFY18. The power plant is supplying power to Tamil Nadu, Andhra Pradesh and Uttar Pradesh for capacity of 500MW, 400MW and 300MW respectively.
- On account of lack of cheap domestic fuel tie up for Mahanadi, KSK has been reporting losses. During the quarter, adj. EBITDA was Rs2.6bn (above our estimate of Rs1.8bn) and loss was Rs1.9bn.
- KSK was failing to meet its debt obligations for VS Lignite and Sai Wardha power plants , under subsidiaries due to lack of long term PPA. Lenders of the power plants, operating under subsidiaries have converted debt into equity and the lenders own major shareholding of these operating companies. As a result, these companies are now associates companies. KSK holds 33% and 28% stake respectively.
- During the quarter, KSK Mahanadi, the subsidiary operating largest operational power plant, has tied up coal under the auction of coal linkage of 6.8mtpa by quoting a minimal discount. The quantity is sufficient for meeting 70% of the fuel requirement. As a result we estimate a significant reduction in fuel cost going forward of upto Rs0.5-Rs0.6/unit.
Key positives: Signing of FSA with Coal India for supply of 6.8mtpa of coal and signed amended PPA with the offtakers
Key negatives: Slow disbursal of loan to complete Unit 3 & 4 of Mahanadi
Impact on financials: We estimate a loss of Rs8.2bn/Rs5.1bn in FY18E/FY19E from loss of Rs8.8bn/ profit of Rs1.5bn as we revise the CoD of unit 3 of Mahanadi and start accounting for loss in control in VS Lignite and Wardha Warora and introduce a profit of Rs462m in FY20E
Valuations & view
KSK’s Mahanadi power plant has tied up 85% of its capacity under long term power purchase agreement. However, lack of cheap domestic fuel was impacting profit and led to delay in commissioning of Unit 3 and Unit 4. With availability of linkage coal under auction, economics of power plants have turned favourable and we expect Unit 3 and 4 to be commissioned in FY19 and company to turn profitable in FY20 with a PAT of Rs462bn. Any investment by a strategic investor in any of its plants can be an additional trigger for the stock. Stock is trading cheaply at 0.2x FY18E P/ B. Maintain Outperformer, with a revised TP of Rs29
KSK Energy Ventures Limited. KSK Energy Ventures Limited is a power project development company. The Company is engaged in the development, ownership, operation and maintenance of power generation assets in India. The Company operates through two segments: power generation and power development. The Company develops private sector power projects. The Company's power plants include Sai Lilagar, which is an approximately 85 megawatts (MW) coal-based power plant in Chhattisgarh; Sai Regency, which is an approximately 60 MW natural gas-based power plant in Tamilnadu; Sitapuram Power, which is an approximately 40 MW coal-based power plant in Andhra Pradesh; VS Lignite, which is an approximately 135 MW lignite-based power plant in Rajasthan; Sai Wardha Power, which is an approximately 540 MW coal-based power plant in Maharashtra; Sai Maithili Power, which is an approximately 10 MW solar power plant in Rajasthan, and KSK Mahanadi Power, which is an approximately 1,200 MW coal-based power plant in Chhattisgarh.
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