Adani Power - Fuel and forex plays spoilsport; Downgrade to 'SELL' - TP Rs74 - PINC Research

Q3FY12 Result Review – Adani Power

Fuel and forex plays spoilsport

Adani Power's (APL) Q3FY12 performance was impacted by transmission constraints, higher fuel cost and Rs3.4bn forex loss. With the commissioning of Unit I 660MW at Mundra Phase IV, APL's capacity increased to 2.6GW – thus increasing coal consumption. Due to lesser receipt of coal from Bunyu mines at the contracted price, APL consumed imported spot coal to operate its Mundra plant. We reduce our capacity addition and pre-PPA sale assumptions and build in increased spot coal purchases. We downgrade the stock to SELL with a reduced target price of Rs74/share.

- Firm merchant tariffs + volumes aid revenue growth
- Fuel and forex hurts profitability
- Reduce capacity addition assumption

Outlook and recommendation

We reduce our 1) capacity addition assumption, 2) gross and net generation and 3) build in higher spot coal purchase. We continue to build in coal supplies from Indonesia at USD36/tonne CIF – a key risk to our estimates, however assume a slower ramp up in coal production at Bunyu. We downgrade the stock to SELL as we foresee greater risk to earnings on account of lower pre-PPA sales and higher fuel cost. Reduce our target price to Rs74/share from Rs86/share earlier.

Source : Equity Bulls

Keywords