Adani Power: Higher finance costs, forex losses impact profits

Return to profitability hinges on ability to secure higher proportion of low-cost domestic coal and lower interest costs

 

Higher-than-expected loss of Rs 619 crore for the December 2012 quarter saw Adani Power’s stock fall 4.4 per cent to close at Rs 60.90; the market was expecting a loss of about Rs 120 crore.

 

While the company has put the blame on high-cost imported coal, visible from the 220 per cent year-on-year surge in fuel costs, this is not the case sequentially. Fuel cost as a percentage of revenue generated has dropped from 74 per cent in the September 2012 quarter to 69.7 per cent in December one. However, loss during this period increased from Rs 273 crore to Rs 619 crore. In fact, profit at the operating level, excluding forex-related items, has more than doubled to Rs 378 crore from Rs 175 crore in the September quarter.

The incremental loss between the quarters can be traced to a similar increase in finance cost, up from Rs 211.35 crore to Rs 530.98 crore. Higher finance cost also includes Rs 78.83 crore of losses due to derivatives exposure. Besides, there is a foreign exchange loss of Rs 59 crore versus a gain of Rs 154 crore in the September 2012 quarter. Even if one were to exclude forex items, the company would still have ended in the red.

Falling prices of coal in international markets has helped reduce per-unit fuel cost on a sequential basis. But, during the December quarter, the company added 660 Mw of generating capacity, bringing this to 4,620 Mw. It sold 5,604 million units as compared to 4,131 million units in the previous quarter. Commissioning of new capacity though, resulted in a higher depreciation charge, which increased from Rs 268 crore to Rs 380 crore.

There is little doubt that cheaper and regular supply of coal from Coal India would have resulted in better numbers for the company. Unable to meet its requirement from domestic supplies or from its own mines, the company is forced to buy coal from the spot market, which is at a premium to longer-term contracted coal.

Unfortunately, the company’s problem is unlikely to be resolved soon. By end-FY14, the company, post-commissioning of its various plants will need 26-27 million tonnes (mt) of coal. Of this, only six mt is secured from its own mines in Bunyu, Indonesia and another 2.3 mt was secured in the recently concluded quarter. A substantial portion of the remaining fuel thus, has to come from cheap domestic sources, if costs are to be kept under control. Given the scenario in the power sector and the helplessness expressed by Coal India, Adani Power will need more financial help and cheaper fuel to stay afloat and fund its losses.