PINC Research is bearish on Adani Power (APL) and has recommended sell rating on the stock with a target price of Rs 74 in its February 7, 2012 research report.
“Adani Power’s (APL) Q3FY12 performance was impacted by transmission constraints, higher fuel cost and Rs3.4bn forex loss. With the commissioning of Unit I 660MW at Mundra Phase IV, APL’s capacity increased to 2.6GW – thus increasing coal consumption. Due to lesser receipt of coal from Bunyu mines at the contracted price, APL consumed imported spot coal to operate its Mundra plant. We reduce our capacity addition and pre-PPA sale assumptions and build in increased spot coal purchases.”
“During Q3FY12 APL’s revenues grew by 111% yoy due to increased generation and better merchant tariff. Increased capacity translated into 75% yoy growth in generation to 3.4BU in Q3FY12. Share of merchant increased to 33% from 9% last year while tariffs improved ~12% yoy to Rs4.4/unit. Surprisingly APL sold 184MU as UI at Rs5.7/unit. Blended realisations increased to Rs3.51/unit, higher by ~20% yoy. APL consumed ~0.7mn tonnes of coal from Bunyu mines (Indonesia) at USD38/tonne landed during Q3 FY12. In order to bridge the demand-supply gap, APL consumed 1.5mn tonnes of spot coal – landed price of which was ~USD92/tonne. As a result, its fuel cost increased to Rs2.0/unit, higher by 92% yoy, from Rs1.04/unit last year. This coupled with Rs3.4bn of forex loss translated into APL reporting net loss of Rs3.6bn. Till date, APL has commissioned only 2.6GW against its FY12 target of ~6GW. We reduce our commercialisation estimate to 2.6GW owing to delays in commissioning of transmission line to evacuate power from Unit II 660MW at Mundra Phase III.”
“We reduce our 1) capacity addition assumption, 2) gross and net generation and 3) build in higher spot coal purchase. We continue to build in coal supplies from Indonesia at USD36/tonne CIF – a key risk to our estimates, however assume a slower ramp up in coal production at Bunyu. We downgrade the stock to SELL as we foresee greater risk to earnings on account of lower pre-PPA sales and higher fuel cost, reduce our target price to Rs 74/share (Rs86/share earlier),” says PINC Research report.
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