Adani Power: Operational metrics get better

But losses continue despite cheaper coal and higher realisations; decision on compensatory tariff hike is key

Though there is no further development on the 'compensatory tariff' increase after the Central Electricity Regulatory Commission's order last month, Adani Power's operational metrics look better than they did last year. While the company posted a net loss of Rs 585 crore in Q4FY13, its year-on-year (y-o-y) consolidated revenue grew 79 per cent to Rs 1,889 crore. The sales growth was largely driven by a 66 per cent increase in the total number of units sold as fresh capacity was added in FY13. Installed capacity was up at 5,620 Mw in FY13, from 3,300 Mw last year.

Increase in capacity and comparatively higher plant load factor (PLFs) drove the sale of power in Q4. Consequently, the company's earnings before interest, tax, depreciation and amortisation rose 109 per cent to Rs 455 crore during the quarter. The market was expecting its earnings to grow at a slower pace than revenues, but the company's managed to do better.

Earnings were largely driven by lower-than-estimated fuel costs and higher-than-estimated realisations. According to Emkay Global, average realisations increased 14 per cent y-o-y to Rs 3.27 a unit, indicating a slightly better merchant realisations mix. Thanks to the increase in merchant tariffs, the company's operating earnings beat has been strong. The big surprise came from the operating margins, which moved up to 19 per cent in Q4FY13, from 1.4 per cent a year ago, thanks to lower cost of coal. Analysts say this was largely driven by a decline in per unit fuel cost, down 12 per cent to Rs 1.92 in Q4FY13, from Rs 2.18 in Q4FY12, as international coal prices corrected.

Apart from the fall in international coal prices, the company also benefited as Coal India Ltd (CIL) supplied the contracted amount of coal. The fuel supply agreement signed with CIL and timely delivery of coal should help the company run its plants at a PLF higher than the 64 per cent clocked in Q4FY13. Though the company seems to be benefiting from the fall in international coal prices, analysts believe much depends on the quantum of compensatory tariff hike it gets from the committee, which is to be appointed after the power regulator's ruling. The tariff hike would be a key trigger for the stock. Most analysts believe Adani Power is expensive at current valuations. Emkay Global says the present valuation, to some extent, still factors in cheaper fuel and aggressive operating parameters.