'Reduce' Adani Power - TP lowered to Rs.40 - Geojit BNP Paribas Financial Services

- EPS estimates for FY13 has been lowered 43% and for FY14 reduced 67%. Based on lower EPS estimates, the target price has been lowered 33% to Rs.40 over one year as against the earlier target price of Rs.60.

- Reduce rating is maintained due to the inability of the company to pass on the increase in coal costs on its long term power sales contract, capital costs escalations and also due to high debt levels.

- EPS estimates are cut due to lower utilization levels and coal costs escalations. Coal costs increased because of reduced availability of cheap domestic coal from 80% to 65%.

- It also seems that interest costs and depreciation expenses have increased due to capital costs escalations resulted from execution delays.

- The target price includes the value of 6.6 GW of power generation capacity at Mundra and Tiroda. However, no value has been assigned to the 1.32 GW Tiroda 3 and 1.32 GW Kawai projects, as they do not have visibility on their coal supplies and costs.

- Current target price implies around 16% downside potential from the current value of the stock (around Rs.47.5) and reiterate the 'reduce' rating.

- There may be upside risk to the target price if the company gets adequate coal supplies from domestic or other sources at lower prices or the spot power tariff is hiked.

Source : Equity Bulls

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