Adani Power - 3QFY17 Result Update - Net Loss Widens; Eyes on Compensatory Tariff - Reliance Securities

On account of lower generation, higher fuel and interest cost, consolidated net loss of Adani Power (APL) widened to Rs3.2bn in 3QFY17 compared to Rs1.14bn in 2QFY17, while its net sales declined by 6.2% yoy. APL continues to report dismal numbers due to lack of adequate coal supply from Bunyu mines, which has been forcing the Company to blend expensive spot coal inventory as well as importing higher quantum of coal due to limited availability of domestic coal and PPAs signed at low rate. We reiterate our HOLD recommendation on the stock with a Target Price of Rs33.

Lower Generation Drags Net Sales

APL's reported revenue down by 6.2% yoy to Rs58.1bn in 3QFY17 owing to lower generation (-10.2% yoy) of 14.9bn units (BUs) while average realization rose by 4.6% yoy to Rs3.9/unit. It sold 14.9 BUs in Q3FY17 as against 16.6BUs in Q3FY16 due to lower generation at Udupi. Overall PLF stood at 94% in 3QFY17 compared to 93% in Q3FY16. Net sales includes: (1) Compensatory tariff of Rs3.4bn (vs. Rs1.3bn in 3QFY16) for Mundra plant; (2) Compensatory tariff of Rs0.12 bn (vs. Rs1.15bn in 3QFY16) for Adani Power Maharashtra; (3) Additional compensatory tariff of Rs0.29bn (vs. Rs 2.0bn in 3QFY16) with PPA of APML & MSEDCL; and (4) Compensatory tariff of Rs0.9bn (vs. Rs0.6bn in 3QFY16) for Adani Power Rajasthan plant.

EBITDA Margin Declines; Net Loss Swells

APL's EBITDA margin stood at 28.4% in 3QFY17 compared to 32.5% in 3QFY16 due to 8.7% yoy rise in fuel cost to Rs2.47/unit. Its interest cost increased by Rs1.12bn to Rs14.3bn in Q3FY17on account of higher working capital and impact of mark-to-market losses on forex currency. Its reported consolidated net loss stood at Rs3.25bn in 3QFY17 (Rs1.1bn profit in 3QFY16 & Rs1.14bn net loss in 2QFY17) on account of lower generation, higher fuel cost, higher interest cost. Its trade receivables continue to remain same at Rs4.3bn from acquired Udupi Power Corporation.

Outlook & Valuation

At CMP, the stock trades at P/BV of 1.6x FY18E & EV/EBITDA of 6.7x FY18E. We believe that recent sharp pick-up in international coal prices will negatively impact APL's profitability as it is dependent on imported coal for most of its power plants. As the stock price has corrected significantly in last 24-36 months, we believe that the negatives pertaining to low PPA and higher fuel cost have already been factored into current valuation. We reiterate our HOLD recommendation on the stock with a Target Price of Rs33.

Shares of ADANI POWER LTD. was last trading in BSE at Rs.35.35 as compared to the previous close of Rs. 35.15. The total number of shares traded during the day was 1040376 in over 1986 trades.

The stock hit an intraday high of Rs. 35.55 and intraday low of 34.75. The net turnover during the day was Rs. 36529603.

Source : Equity Bulls

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