Reduce Adani Power - Geojit BNP Paribas

Maintain 'reduce' rating on Adani Power – TP reduced to Rs.60.

- EPS estimates for FY13 and FY14 have been cut drastically and subsequently target price has been reduced by 5% to Rs.60.

- Reduce rating is maintained due to company's inability to pass through the rising coal costs on its long term power sale contracts.

- Execution delays and high level debt of the company also have contributed for the negative outlook.

- Near term earnings are cut significantly because of execution delays and higher costs of imported coal at Mundra plant.

- Major upside on the stock seems unlikely despite assuming that Coal India would sign FSA (fuel supply agreement)

- TP cut is marginal as the ramp – up in supplies of domestic coal over the medium term may have a positive impact on the company's performance.

Risks to the reduced TP

- Assume Adani Enterprises supplies around 11m tons of imported coal for Mundra plant at a landed price of USD44/ton. In such a case, there would be 108% upside to the TP. Expected that such a possibility is remote due to changes in Indonesian laws.

- Adani Power gets additional coal linkages from Coal India, and Coal India actually delivers.

- Adani Power gets captive coal mine for Tiroda plant.

Source : Equity Bulls

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