Analyst Corner| Retain ‘reduce’ on Adani Power with target price of Rs 31

Subsequent to approval from Board and shareholders, the company has made application to stock exchanges for in-principle approval for voluntary delisting.

Adani Power’s (APL) Q1FY21 numbers came directionally along expected lines — hit by lower demand (51% PLF versus 78% y-o-y). Recurring Ebitda declined 17% impacted by weak merchant prices and higher operating expenses (new plants).

According to the company, claims under various regulatory orders stand at Rs 235 billion (50% approved; Rs 60 billion received so far). Subsequent to approval from Board and shareholders, the company has made application to stock exchanges for in-principle approval for voluntary delisting. We maintain our cautious stance as: a) 25% capacity is untied; b) Rs 170 billion claims are pending; c) D/E high at 10x; and d) rich valuation of 9x FY22E EV/Ebitda. Retain ‘reduce’ with DCF-based SOTP of Rs 31 (Rs 29 earlier), rolling forward to March 2022.

APL recorded 12.7BU volume (16.5BU y-o-y), which included 1.7BU contribution from Raikheda and Korba plants (nil y-o-y). PLF stood at 51% versus 78% y-o-y aided by Tiroda (merit order dispatch benefit) and Kawai plants. Subdued short-term market tariff and slump in power demand impacted Udupi and Mundra PLFs. With realisation down 1% y-o-y (adjusted for CT in base quarter), revenue stood at Rs 52 billion.

Higher opex, due to new plant, offset benefits of lower fuel cost (down 9% y-o-y), resulting in Ebitda dipping 17% y-o-y to Rs 13.9 billion (CT adjusted). APL’s short-term borrowing increased by Rs 15 billion due to slowdown in payments from discoms owing to Covid-19-induced lockdowns.

In our view, APL faces three key challenges, 25% untied capacities could keep near-term earnings depressed. Current D/E is ~10x and outstanding debt is Rs 570 billion (external debt-Rs 400 billion), on which the interest obligation is ~Rs 50 billion plus.