Hold Adani Power Ltd - Fuel cost drags earnings.. - KR Choksey

Adani Power Ltd (APL) reported Q3FY12 results below our and market expectations. Net sales grew by 111% Y-o-Y to Rs 1,060 cr. However, EBIDTA margins declined sharply to 20% on account of sharp rise in fuel cost. Fuel cost per unit increased sharply to Rs 2.44 per unit vs Rs 1.04 per unit in Q3FY11. The company also booked a MTM forex loss of Rs 204.7 cr, which further eroded profitabilty. Consequently APL registered a loss of Rs 358 cr.

Merchant power drives topline growth

Net sales increased by 111% YoY to Rs 1,060 cr. Average realisation per unit for the quarter stood at Rs 3.51 per unit vs Rs 2.93 per unit in Q3FY11 on account of sale in merchant power. Merchant power realisation stood at Rs 4.3 per unt. The company sold 3,081 MU of power vs 1,931 MU in Q3FY11. Average PLF for the quarter was lower at 66% vs 85% in Q3FY11 on account of non-availability of transmission line for evacuation of power.

Sharp rise in fuel cost along with MTM forex loss erodes EBIDTA margins

For Q3FY12, EBIDTA margins (excl MTM) declined sharply to 20% vs 54.3% in Q3FY11 on account of sharp rise in fuel cost. Fuel cost per unit increased by 134% to Rs 2.44 as APL purchased coal on spot basis due to lower production at Bunyu mines. APL consumed ~1.6mnmt of coal, of which coal from Bunyu constituted ~23% while remaining comprised of imported coal. The production from Bunyu is expected to increase gradually. In addition there was a forex MTM loss of Rs 204.7 cr which further dragged EBIDTA margins to 0.7%. Consequently the company registered a net loss of Rs 358.1 cr.

Our View & Valuation

APL delivered result below our expectation on account of sharp rise in fuel cost. At CMP of Rs. 71 APL is trading at P/E of 35.5x its FY12 EPS and 10.5x its FY13 EPS. Performance of the company has been severely impacted on account of macro headwinds in the power sector. Issues/Lack of clarity w.r.t. to coal linkages, import of Indonesian coal and PPA signed will act as an overhang on the stock. Considering the same we recommend a HOLD on the stock with price target of Rs 77.

Source : Equity Bulls

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