Adani Power SELL. Higher Capacity Lifts Revenue; Key Issues Persist Maintain SELL. Power January 28, 2014 RESULT REVIEW. Outlook & Valuation

Transcription

1 Institutional Equities India Research Power January 28, 2014 RESULT REVIEW Bloomberg: ADANI IN Reuters: ADAN.BO SELL Higher Capacity Lifts Revenue; Key Issues Persist Maintain SELL For the ninth quarter in a row, (APL) has incurred Rs. 5.4 bn loss in Q3FY14 vs. our estimate of Rs. 5.1 bn compared to Rs. 6.1 bn loss in yearago quarter due to lack of adequate coal supply from Bunyu mines forcing it to blend expensive spot coal inventory, and higher import of coal due to limited availability of domestic coal. Adjusting for Rs. 0.9 bn of derivative loss, APL s recurring loss stood at Rs. 4.5 bn due to higher interest (62% YoY) on account of asset commissioning and depreciation (50% YoY) due to rise in project cost on account of re pricing of foreign debt amid depreciation of INR. Revenue up 122% YoY with EBIDTA Margin at 23%: APL s revenue rose 122% YoY to Rs bn vs. our estimate of Rs bn owing to rise in capacity of 7,920MW in Q3FY14 vs. 5,250MW in Q3FY13. Revenue was higher due to higher generation on commissioning of units of Tiroda & Kawai plants. Its EBIDTA stood at 23% in Q3FY14 compared to 17% in Q3FY13 on account of higher realization. Sales & PLF: APL sold 11.1 bn units in Q3FY14 vs. 5.7 bn units in Q3FY13 & 9.1 bn units in Q2FY14. PLF stood at 75% in Q3FY14 as against 63% in Q3FY13. Fuel Cost: APL s fuel cost remains high at Rs in Q3FY14 vs. Rs in Q3FY13. Fuel cost/unit is continues to be high with supply of Bunyu and CIL are expected to be lower respectively. Outlook & Valuation APL has underperformed Sensex by 52% over 12 months owing to lower coal supply from CIL and higher cost of imported fuel. We continue to remain negative on the stock despite likely tariff relief (on Mundra & Tiroda). At CMP, the stock is trading at 2.8x P/B in FY15E. We raised our revenue estimates by 9.2% & 2.1% for FY14E & FY15E, respectively due to relatively higher generation with commissioning of Unit III (660MW) at Tiroda and rise in PLF at newly commissioned 660MW Kawai power plant. We maintain our SELL recommendation on the stock, as we believe that the stock is expensive given high risks to its earnings. Key Financials Net Sales 21,352 40,898 67, , ,024 Op. Profits 12,204 11,303 9,596 23,102 42,561 OPM (%) Adjusted Net Profit 4,956 (2,873) (23,191) (31,175) (6,517) YoY Gr. (%) (158.0) Dil. EPS (Rs) (9.6) (10.9) (2.3) RoE (%) (44.4) (77.8) (19.2) ROCE (%) (0.3) EV/EBIDTA (x) PE (x) 14.0 P/B (x) Recommendation CMP: Rs33 Target Price: Rs35 Previous Target Price Rs34 Upside (%) 5% Stock Information Market Cap. (Rs bn / US$ mn) 95/1, week High/Low (Rs) 65/29 3m ADV (Rs mn /US$ mn) 248/3.9 Beta 1.5 Sensex/ Nifty 20,707/6,136 Share outstanding (mn) 2,872 Stock Performance (%) 1M 3M 12M YTD Absolute (16.6) (1.5) (48.4) (15.4) Rel. to Sensex (14.6) (1.6) (49.9) (13.5) Performance 23,500 21,500 19,500 17,500 15,500 Jan 13 Mar 13 Apr 13 May 13 Jul 13 Aug 13 Sep 13 Nov 13 Dec 13 Jan 14 Sensex (LHS) Source: Bloomberg Earnings Revision (%) FY14E FY15E Sales EBITDA PAT (bn) from (32) to (31) From (7.6) to (6.5) Source: Karvy Institutional Research Analyst Contact Rupesh Sankhe rupesh.sankhe@karvy.com (RHS)

2 January 28, 2014 Results Review Key Highlights Total Commissioned Capacity: Rajasthan commissioned Unit II of 660MW, thus completing its 1,320MW power project in Kawai with which APL s total commissioned capacity rose to 7,920MW. Current Availability of Domestic Coal: Maharashtra & Adani Power Rajasthan signed MoU with Mahanadi Coalfields for supply of domestic thermal coal of 3.4 MMT each, with which APL currently has availability 18.6 MMT of domestic coal for Mundra, Tiroda & Kawai Power Projects. Exhibit 1: Quarterly Performance Rs Mn Q3FY13 Q2FY14 Q3FY14 QoQ (%) YoY (%) Net Sales 18,844 30,446 41, Operating Costs 15,649 24,360 32, EBIDTA 3,195 6,085 9, EBIDTA Margin (%) bps 610 bps Other Income Interest 5,310 10,728 8, Depreciation 3,806 5,829 5, Profit Before Tax (5,484) (9,836) (4,137) Tax (944) 903 1, Tax Rate (%) Adjusted PAT (6,428) (10,739) (5,448) Extraordinary Income Reported PAT (6,190) (10,719) (5,448) Exhibit 2: SOTP Valuation Rs bn Earlier (Rs/share) Revised (Rs/share) Remarks Mundra I IV Lower tariff order by CERC Tiroda I & II We maintain our assumption for availability of Bunyu coal for FY14E to 4 MT. Kawai Lower coal supply from CIL to 65%. Cash Total Exhibit 3: Earnings Estimates Revision FY14E FY15E (Rs mn) New Old Chg % New Old Chg% Revenues % % On account of early commissioning of Kawai II units EBITDA % % commissioning of Unit III (660MW) at Tiroda EBITDA Margin (%) Higher domestic coal supply Net Profit (31) (32) (7) (7.6) Lower forex losses Source: Karvy Institutional Research, Company 2

3 January 28, 2014 Financials Exhibit 4: Income Statement Revenues 21,352 40,898 67, , ,024 Growth (%) Operating Profit 12,204 11,303 9,596 23,102 42,561 Other Income 184 1,980 1,907 1,904 1,910 EBIDTA 12,388 13,283 11,503 25,006 44,471 Growth (%) Depreciation & Amortization 1,886 5,904 12,897 20,893 20,595 EBIT 10,502 7,379 (1,394) 4,113 23,876 Interest Charges (Net) 2,550 7,375 17,029 30,092 28,370 PBT (Before E/o items) 7,952 3 (18,423) (25,979) (4,494) Tax provision 3,000 2,948 4,768 5,196 2,023 Minority interest (4) (72) Pre exceptional PAT 4,956 (2,873) (23,191) (31,175) (6,517) Extra ordinary items 180 2, Net Profit 5, (22,950) (31,175) (6,517) Growth (%) Basic EPS (Rs) (9.6) (10.9) (2.3) Diluted EPS (Rs) (9.6) (10.9) (2.3) Growth (%) Exhibit 5: Balance Sheet Equity Share Capital 21,800 21,800 23,933 28,719 28,719 Reserves & Surplus 41,073 38,613 19,001 8,460 1,943 Shareholdersʹ Funds 62,873 60,413 42,934 37,179 30,662 Minorities Interest 5,663 5, Total Debt 245, , , , ,454 Deferred Tax liability 3,120 6,023 10,790 10,790 10,790 Capital Employed 316, , , , ,906 Fixed Assets 324, , , , ,340 Cash & cash eq. 12,542 32,393 17,181 20,904 2,974 Net current assets (20,340) (25,775) (68,204) (101,826) (150,602) Investments Total Assets 316, , , , ,906 3

4 January 28, 2014 Exhibit 6: Cash Flow Statement Pre tax profit 7,952 3 (18,423) (25,979) (4,494) Depreciation 1,886 5,904 12,897 20,893 20,595 Total tax paid (3,000) (2,948) (4,768) (5,196) (2,023) Chg in working capital 17,753 5,434 42,430 33,621 48,776 Other items 184 2, Cash from oper. (a) 24,774 11,341 32,377 23,339 62,854 Capital expenditure (170,705) (106,794) (68,208) (50,719) (105,527) Chg in investments (100) (90) (3) 0 0 Cash from inv. (b) (170,805) (106,884) (68,211) (50,719) (105,527) Free cash flow (a+b) (146,031) (95,544) (35,834) (27,380) (42,673) Equity raised/(repaid) 1,391 (1,028) 7,045 27,310 1,890 Debt raised/(repaid) 139, ,026 15,975 5,683 24,743 Change in Minority Int 4,639 (72) (5,590) 0 0 Dividend (incl. tax) (1,434) (1,434) (1,575) (1,890) (1,890) Other items 3,000 2,903 4, Cash from fin. (c) 146, ,395 20,622 31,104 24,743 Net chg in cash (a+b+c) ,851 (15,212) 3,724 (17,930) Exhibit 7: Key Ratios Y/E Mar E 2015E OPM (%) Net Margin (%) 23.2 (7.0) (34.2) (24.2) (3.8) Net Debt/Equity (x) ROCE (%) (0.3) RONW (%) (44.4) (77.8) (19.2) EV/Sales (x) EV/EBIDTA (x) PE (x) 14.0 Price/Book (x)

5 Rangachari Muralikrishnan Institutional Equities Team Head Institutional Equities / Research / Strategy muralikrishnan@karvy.com K. Anant Rao Head Sales Trading & Derivatives k.anantrao@karvy.com INSTITUTIONAL RESEARCH Analysts Industry / Sector Desk Phone ID Amey Chalke Pharmaceuticals Associate amey.chalke@karvy.com Ankur Lakhotia Derivatives and Quant Associate ankur.lakhotia@karvy.com Hatim Broachwala, CFA Banking hatim.broachwala@karvy.com Kruti Shah, CFA Economist kruti.shah@karvy.com Manoj Kumar Manish Derivatives and Quant Analyst manojkumar.m@karvy.com Maruti Kadam Research Associate maruti.kadam@karvy.com Mitul Shah Automobiles mitul.shah@karvy.com Parikshit Kandpal Infra / Real Estate / Consumer / Strategy parikshit.kandpal@karvy.com Rahul Sharma Pharmaceuticals rahul.sharma@karvy.com Rahul Singh Textiles rahulsingh@karvy.com Rajesh Kumar Ravi Cement, Logistics & Paints rajesh.ravi@karvy.com Rupesh Sankhe Power/Capital Goods rupesh.sankhe@karvy.com Varun Chakri Research Associate varun.chakri@karvy.com INSTITUTIONAL SALES Celine Dsouza Sales celine.dsouza@karvy.com Edelbert Dcosta Sales edelbert.dcosta@karvy.com INSTITUTIONAL SALES TRADING & DEALING Bhavesh Gandhi Sales Trader /69 bhavesh.gandhi@karvy.com Prashant Oza Sales Trader /71 prashant.oza@karvy.com Gurdarshan Singh Kharbanda Sales Trader / 69 gurdarshansingh.k@karvy.com PRODUCTION Asim Kumar Mohapatra Editor asim.mohapatra@karvy.com Vijayalaxmi L. Moolya Production vijayalaxmi.m@karvy.com

6 Stock Ratings Absolute Returns Buy : > 15% Hold : 5 15% Sell : < 5% For further enquiries please contact: research@karvy.com Tel: Disclosures Appendix Analyst certification The following analyst(s), who is (are) primarily responsible for this report, certify (ies) that the views expressed herein accurately reflect his (their) personal view(s) about the subject security (ies) and issuer(s) and that no part of his (their) compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report. Disclaimer The information and views presented in this report are prepared by Karvy Stock Broking Limited. The information contained herein is based on our analysis and upon sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and we are not responsible for any loss incurred based upon it. The investments discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information or analysis mentioned in this report, investors may please note that neither Karvy nor Karvy Stock Broking nor any person connected with any associate companies of Karvy accepts any liability arising from the use of this information and views mentioned in this document. The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above mentioned companies from time to time. Every employee of Karvy and its associate companies are required to disclose their individual stock holdings and details of trades, if any, that they undertake. The team rendering corporate analysis and investment recommendations are restricted in purchasing/selling of shares or other securities till such a time this recommendation has either been displayed or has been forwarded to clients of Karvy. All employees are further restricted to place orders only through Karvy Stock Broking Ltd. This report is intended for a restricted audience and we are not soliciting any action based on it. Neither the information nor any opinion expressed herein constitutes an offer or an invitation to make an offer, to buy or sell any securities, or any options, futures nor other derivatives related to such securities. Karvy Stock Broking Limited Institutional Equities Office No. 702, 7 th Floor, Hallmark Business Plaza, Opp. Gurunanak Hospital, Mumbai Regd Off : 46, Road No 4, Street No 1, Banjara Hills, Hyderabad Karvy Stock Broking Research is also available on: Bloomberg KRVY <GO>, Thomson Publisher & Reuters.