Adani Power has seen several downgrades post results for the quarter ended September 2012 last Wednesday, wherein it reported a net loss of Rs 225.4 crore. The losses were on account of higher fuel cost, which continue to put pressure on the company’s earnings leading analysts to lower their expectations.
"We now forecast a loss of Rs 350 crore for FY13 unlike earlier and reduce EPS estimates by 5% for FY14 to account for higher fuel costs," says Arun Kumar Singh, who tracks the company at HSBC Global Research, in a recent note. Given the various concerns pertaining to higher costs and fuel availability, analysts do not see any positive respite for the share price, which has significantly underperformed the Sensex in the last six months – it is also down 4.5% post results to Rs 47.90 currently as against a flat Sensex. Credit Suisse analyst Amish Shah who maintains ‘underperformer’ on the stock said in a note that high gearing, delays in Lohara West’s clearances, no fuel visibility for Tiroda-II and Kawai remain our other key concerns.
Mounting concerns
This is the fourth consecutive quarter wherein the company has reported losses. The biggest concern has been the fuel cost, which came at Rs 2.62 per unit, up 77% compared to corresponding period last year. The company had to depend on costly imported coal due to lack of sufficient coal supply form its captive resources. This came at a time when the average realisations fell, albeit marginally, to Rs 3.47 per unit, thereby impacting profitability. The current situation could continue for the rest of the fiscal year believe analysts who expect the Bunyu mines to produce 4-5 million tonnes of coal in FY13, as against the earlier 5-6 million tonnes.
As a result of higher than expected losses in the second quarter and lower expectations in the coming quarters, analysts have raised their loss estimates for the company for the current financial year. Additionally, analysts also believe that the proportion of merchant power sales could decline in the coming months given the start of long term contracts. This could impact the earnings considering that merchant power realisation of about Rs 4 per unit, which helped in overall performance, accounted for almost 40% of the power generation in September 2012 quarter.
The road ahead
One needs to see to what extent the company can ramp up volumes in coming quarters in the absence of coal and transmission infrastructure. In FY13, while analysts are expecting the power generation capacity to reach to 5,280 mw (4,620 mw at end-FY12), they see the plant load factor declining to about 55-68% compared to 69% in FY12 (volumes decline of 9% to increase of 12%). Unless fuel availability improves, gains from capacity increase may not accrue.
Going ahead, the revision in tariff consequent to higher fuel costs, ramp up of coal production, higher availability of coal from Coal India are equally important and key things to watch in the coming months. Depending on the outcome, it could lead to changes in analysts’ estimates.
