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  1. Reduce rating on Adani Power: Net loss gives street a shock

Reduce rating on Adani Power: Net loss gives street a shock

Normalised Ebitda miss and net loss were substantially higher for Adani Power in Q1FY16 compared Nomura and consensus forecast.

By: | Published: August 17, 2015 12:43 AM

Normalised Ebitda miss and net loss were substantially higher for Adani Power in Q1FY16 compared Nomura and consensus forecast.

At R14.5 bn, Adani Power’s (APL) consolidated normalised Ebitda (earnings before interest taxes depreciation amortisation) came in 5%/8% below our/consensus forecast on account of normalised top line coming in 3% below our forecast. Ebitda miss together with higher-than-expected finance cost led to APL posting a normalised consolidated net loss of R5.6 bn, 86%/57% higher vs. our/consensus net loss forecast.

APL’s reported consolidated net loss for Q1FY16 stood at R4.2 bn. We normalise reported earnings for prior-period compensatory tariff (CT) booked for its Tiroda plant. The management pegged this at R1.25 bn, but we calculate this amount as R1.45 bn.

Comparability of consolidated earnings is limited as Q1FY16 financials (i) include the earnings of Udupi Power Corp. (UPCL, not listed) with effect from April 20, and (ii) include earnings from the 40MW solar PV plant which got merged with APL (effective April 1) but exclude financials of the transmission assets following restructuring of businesses within the Adani Group.

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Further, as APL has not disclosed ‘derivative gain/loss’ separately from finance cost, assessing normalised finance cost is not possible. Q1FY16 reported finance cost at R14.9 bn was 11% above our forecast.

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Maintain Reduce; our earnings estimates is under review.

While APL’s business model morphs on the back of M&As, management commentary/clarification on financial and operating metrics is getting low on specifics. Meanwhile, booking of CTs for various projects continues to mask weak results and a stretched balance sheet.

Our earnings outlook for APL hinges on the final outcome of regulatory/legal events relating to power purchase agreements and fuel sourcing, while cash flows depend on realisation of CTs from discoms. We are reviewing our forecasts; the stock trades at 1.4x P/B (price-to-book) on Bloomberg consensus FY17 estimates.

UPCL: APL completed the acquisition of UPCL from Lanco Infratech on 20 April 2015 – the 1200MW project’s PLF (plant load factor) stood at 70% in Q1FY16. Revenues/Ebitda were R5.7 bn/R2.2 bn for the quarter (from acquisition date).

Korba West: APL expects to conclude its deal to acquire Avantha Power’s (not listed) 600MW Korba West project in Chhattisgarh within the next few months as it awaits a few approvals from authorities.

Consolidated debt & debt refinancing: The management mentioned that, relative to March 31, consolidated debt on APL’s books would be a bit higher as of Q1FY16. As for debt refinancing being undertaken by APL for its projects under the government’s 5:25 scheme, the management expects to conclude the exercise for its Tiroda project, UPCL and Mundra-III (3x660MW) by mid-September. The debt refinancing exercise under the 5:25 scheme has already been completed for APL’s Kawai project. In its Q4FY15 earnings call, the management had stated that it expects aggregate savings of R22 bn (R7 bn at Mundra, R10 bn at Tiroda and R5 bn at Kawai) over the next two years (FY16 and FY17) following this debt refinancing exercise.

Operating stats: Q1FY16 PLF at Mundra/Tiroda/Kawai was 85%/70%/67%. Consolidated net generation stood at 16bn kWh whereas blended normalised realisation came in at R3.6/kWh. As per management commentary, merchant sales volume was 1,494bn kWh while merchant tariff realisation was not disclosed.

Compensatory Tariff: The management pegged total CT booked in Q1FY16 at R7.13 bn (including a prior period component), implying R0.54/kWh on total units sold by Mundra/ Tiroda/Kawai. Total CT as mentioned in ‘notes to the accounts’ in its earnings release stood at R5.68 bn (R2.3 bn for Mundra, R2.9 bn for Tiroda and R0.46 bn for Kawai).

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