Hold Adani Power; target of Rs 55: KRChoksey

KRChoksey has recommended hold rating on Adani Power with a target of Rs 55, in its May 17, 2012 research report.

 “Adani Power Ltd (APL) reported Q4FY12 results below our and market expectations. Net sales grew by 16.7% Y-o-Y to Rs 998.3 cr, below expectations, due to lower realizations and lower generation. EBIDTA margins declined sharply to 9.6% vs 61.4% on account of sharp rise in fuel cost. Fuel cost per unit increased sharply to Rs 2.2 per unit vs Rs 0.9 per unit in Q4FY11. Higher Interest and depreciation further eroded APL’s profitability and the company consequently reported a loss of Rs. 290 cr.”

“Net sales increased by 16.7% YoY to Rs 998.3 cr, lower than expectations, as average realization per unit decreased to Rs 2.87 per unit vs Rs 3.14 per unit in Q4FY11. Lower average realizations were primarily on account of lower merchant rates, the company sold merchant power at Rs. 3.4 per unit. Non-availability of transmission line for evacuation of power also impacted sales growth. As of Q4 FY12, company has an installed capacity of 3,300 MW and operated at an average PLF of 62% in Q4FY12 vs 89% in Q4FY11. EBIDTA margins declined sharply to 9.6% vs 61.4% in Q4FY11 on account of sharp rise in fuel cost and lower average realization. Fuel cost per unit increased by 143% to Rs 2.2 per unit vs Rs. 0.9 per unit in Q4FY11 as APL purchased coal on spot basis due to lower production at Bunyu mines. The company imported 2.6 mnmt of coal during the quarter out of which coal from Bunyu constituted ~27%@36$ per ton, while remaining comprised of imported coal purchased at market rate (88$ per ton – CIF). A decline of 81% in operating profits coupled with higher depreciation and interest cost on account of capacity addition (3,300 MW as of FY12 v/s 1980 MW in FY11) lead to net loss of 290.2 cr.”

“APL delivered result below expectation on account of sharp rise in fuel cost and lower realizations. At CMP of Rs. 52 APL is trading at P/E of 15.6x its FY13 EPS. Performance of the company has been severely impacted on account of macro headwinds in the power sector. Increased dependence on spot imported coal v/s coal from Bunyu mines, considerable change in dynamics post signing of PPA and delay in commercial generation will act as an overhang on the stock. Considering the same we recommend a HOLD on the stock with price target of Rs 55,” says KRChoksey research report. 

Institutional holding more than 40% in Indian cos  

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