CERC allowed compensatory tariff of Rs 0.85/kwh for sale of power under the PPA with Gujarat against the Deepak Parekh panel recommendation of Rs 0.89/kwh due to Indonesia formulating a law banning coal supply at less than international prices. The tariff has been raised by Rs 0.36/kwh for Haryana PPA vs the recommendation of Rs 0.62/Kwh as CERC has not allowed some of the changes compared to bid assumptions.
Further, 30% of the incremental mining profits from Indonesian mines owned by its parent, arising out of supply to Mundra power project, is to be shared with the beneficiaries. In addition, the company will sacrifice 1% return on equity and 0.25% return on equity for Gujarat and Haryana PPA, respectively.
Adjusting for these, the net compensatory tariff will be nearly Rs 0.78/ kwh for Gujarat PPA and Rs 0.32/ kwh for Haryana PPA. We revise consolidated loss in FY14 to Rs 2,240 crore and consolidated profit to Rs 500 crore/Rs 630 crore in FY15/ FY16 to account for the compensatory tariff. The order addresses the biggest concern on Adani Power around its ability to service its debt. At 21x FY15E earnings and 1.5x P/BV, we upgrade the Adani Power stock to outperform with a target price of Rs 49.