Although Adani Power is highly leveraged, it continues to shop for assets
Gautam Adani may be short of cash flows but he’s certainly not short on ambition. The first generation entrepreneur’s firm is among the most-levered in the country but that hasn’t stopped him from borrowing more to buy more. As one analyst put it, “Adani Power continues to struggle to meet extant debt requirements, but is still not running shy of adding to its asset portfolio”. Bloomberg data puts the firm’s net debt to equity ratio at a fairly high 7.43 as on September 30 and the APL stock has lost 24% of its value in the last six months.
In April, APL became India’s largest private sector power producer, when it commissioned the fourth unit of its 3,300 MW thermal Tiroda power plant located in Maharashtra. The company edged out Tata Power from its spot as India’s biggest private sector power producer, a position that the latter had held for over a decade.
Today, APL has an operational generation capacity of 9,280 MW built from scratch. But, with an ambitious target of touching 20,000 MW by 2020; the company is now on a shopping spree. In August it agreed to acquire Lanco Infratech’s 1,200 MW thermal plant located in Udupi, Karnataka in August for R6,000 crore and followed it up last week by announcing the purchase of Avantha Power and Infrastructure’s 600 MW plant in Korba, Chhattisgarh for a value of R4,200 crore. If both deals are closed, APL’s portfolio will swell to 11,040 MW.
The Udupi purchase surprised analysts since the asset is mired in tariff-related litigation; moreover the acquisition was made at an expensive valuation. Again, the Korba plant has a power purchase agreement for only 35% of the power generated, under the cost-plus arrangement, to the home state but sale arrangements for the remaining 65% capacity remain unclear.
The company’s biggest asset, its 4,620 MW thermal power plant in Mundra, Gujarat, awaits a verdict on compensatory tariff—the Supreme Court has asked the Appellate Tribunal for Electricity (APTEL) to re-visit the grant of compensatory tariff. APL and Tata Power had asked for a revision in tariff for generation capacity based on coal imported from Indonesia but state-run distribution firms that buy this power are against a higher tariff.
Kotak Institutional Equities notes that despite including for compensatory tariff, interest coverage remains low at 1.1X with interest costs of R3,600 crore in FY2014. The outstanding debt was approximately R44,000 crore on a net worth of R6,500 crore and APL reported consolidated losses of R1,270 crore in 1HFY15 against a net worth of R5,400 crore. UBS observes that the capital that APL would need to raise was most likely to come from its owners as “external equity funding doesn’t look very likely at this stage.” The promoters could, of course, decide to sell a stake in their other businesses.
Gautam Adani would be hoping the government clears regulatory hurdles at the earliest. The 52-year-old businessman, whose interests range from ports and power to edible oil, became India’s 11th richest individual, according to Forbes magazine.
His personal wealth was pegged at $7.1 billion by Forbes, which said that the Ahmedabad-based industrialist added $4.5 billion to his net worth since 2013, making him the biggest wealth gainer in dollar terms for the year. His business, however, is not exactly in the pink of health.