Sell Adani Power; target of Rs 50: Emkay

Emkay Global Financial Services is bearish on Adani Power and has recommended sell rating on the stock with a target of Rs 50 in its May 22, 2012 research report.

“APL reported 4Q12 net loss of Rs2.9bn against our expectations of Rs2.7bn of profit. The variance was primarily on account of i) reversal of Rs1.3bn of addtl revenues booked due to power sold on merchant in place of GUVNL’s PPA in 2Q12, ii) lower PLF @ 62%, iii) higher fuel cost and iv) lower realisations. Higher consumption of Indonesian spot coal (74%) vs. last quarter (67%) led to 131% yoy increase in fuel cost during 4Q12. Fuel cost for 4Q12 and FY12 stood at Rs2.2/unit and Rs1.8/unit respectively. Net realizations declined by 18% qoq and 8% yoy to Rs2.9/unit during 4Q12. After adjusting for non-recurring items, adjusted net loss stood at Rs4.0bn during 4Q12. For full year, reported and adjusted net loss stood at Rs2.9 bn and Rs0.6bn respectively.”

“We have been expressing our concern over the dicey business model of APL which is still very much open on fuel procurement part with capacities tied up under aggressive PPAs and merchant. This exposes APL to high level of uncertainties. We also expect more negative shocks from the company especially on account of operational parameters like project execution, Plant Load Factor, Station Heat Rate etc. APL is currently trading at 1.8xFY13E book which we believe is still overvalued considering the risks it is exposed to. We reiterate Sell on the stock with the revised price target of Rs50/share. Key risks to our call are (1) termination of PPA with GUVNL (Rs2.35/unit) and MSEDCL (Rs2.64/unit) with insignificant penalties and (2) clearance/alternate mine for Tiroda & (3) higher proportion of Bunyu coal at USD 36/MT,” says Emkay Global Financial Services research report.      

Bodies Corporate holding more than 50% in Indian cos   

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