Adani Power down 2% post Q3, tariff litigation worries analysts

Adani Power’s stock saw selling pressure on Monday due to a sharp drop in the company’s profits in the results for the December quarter. Its shares declined over 2 percent intraday. Most analysts are bearish on the stock post tepid Q3 and are concerned over its debt situation and uncertainty around its litigation in the Supreme Court. CLSA has given a sell call on the stock with a target price of Rs 26. It said that higher coal prices had inflated its fuel costs, while the forex volatility had hurt costs related to finance. The brokerage cut its earnings per share (EPS) for FY18CL on the back of this increased coal prices. Meanwhile, the company’s debt position remains stressed pending the resolution from the Supreme Court on the compensatory tariff, the brokerage said in its report. On the balance sheet’s front, M&A risks still remain, while cash burn has started again, the report added. It has given a sell call on the stock with a target price of Rs 26.Nomura gave a reduce call on the company’s stock with a target price of Rs 29. The brokerage has highlighted the big miss on the company’s bottom line as well as the uncertainty in developments around the company. The brokerage believes the litigation in SC on compensatory tariff may not necessarily be in the favour of the company. Over and above this, earnings and cash flows of the company continue to hinge of ‘what-if’ scenarios. Deutsche Bank has given a sell call on the stock with a target price of Rs 29. The brokerage believes that the compensatory tariff will not be able to compensate the higher fuel cost on the back of higher coal prices. The formula given by the power regulator for Adani Power is about 30 percent lower than the first formula proposed by the watchdog. The power generator’s posted a loss of Rs 325.3 crore against a profit of Rs 104 crore in the corresponding quarter in FY16. It posted a loss due to lower revenue and operational income and higher finance cost. The numbers missed analysts’ expectations as a CNBC-TV18 poll pegged the loss at Rs 82 crore on revenues of Rs 6,069 crore.