October 25, 2016 / 17:50 IST
Adani Power (APL) reported Q2FY17 loss of INR1.1bn on recognition of revenue (INR5.1bn) pertaining to compensatory tariff (CT). Volumes at 15bn units were flat YoY despite higher availability at 92% (85% in Q2FY16) as demand remained tepid. As operational cash flows remain weak (non-payment of CT of INR80bn booked till date), the company continues to get cash support from promoters warrant conversion at INR32.54 led to INR2bn cash flows during the quarter. Stock performance hinges on early resolution (along with retrospective recovery) of CT. Maintain ‘HOLD’ with target price of INR28.
APL’s performance is expected to improve further with commencement of the 440MW PPA at Tirora, better coal supplies at Kawai and uptick in Udupi’s PLF. However, early resolution of CT (along with retrospective recovery), for which hearings have been completed, is critical for revival of cash flows. At CMP, the stock trades at 1.2x each FY17E and FY18E P/BV. We maintain ‘HOLD/SU’ with SoTP-based target price of INR28.
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