Analyst Corner: Absence of PPA a concern for Adani Power

Published: November 26, 2014 12:25:49 AM

Adani Power (APL) has executed a binding term sheet to acquire Korba West Power...

Adani Power (APL) has executed a binding term sheet to acquire Korba West Power (KWPCL) from Avantha Power & Infrastructure (APIL). KWPCL has a commissioned capacity of 600MW and an expansion phase is under implementation. As per a press release by Ballarpur Industries (BILT IN), one of the promoters of APIL, the MoU with APL pegs the value of KWPCL at over R4200 crore.

As per the Central Electricity Authority (CEA), KWPCL’s 600MW capacity was commissioned on March 31. CEA’s latest available daily generation report states that the unit is not yet stabilised, implying that commercial operations have not commenced. Besides a MoU with the Chhattisgarh government for supplying 35% of offtake to the state, no PPA has been signed as yet.

APL has 9240MW of operational capacity and is in the process of acquiring Lanco Infra’s 1200MW Udupi project. Strategically, acquiring capacity in the ‘coal belt’ ahead of bidding for coal blocks is ‘ok’, but the absence of PPAs (power purchase agreements)  is a concern.
Our earnings outlook for APL hinges on the outcome of regulatory /legal events relating to PPAs and fuel sourcing, while cash flows depend upon the realisation of compensatory tariffs from its counterpart discoms. We maintain reduce and are reviewing our earnings estimates; the stock trades at 2.2x P/B on Bloomberg consensus FY16F estimates.

By Nomura

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