Adani Power (CMP: Rs125)            

Mkt Cap: Rs273bn; US$6bn       Bloomberg code (ADANI IN)

Highlights of Q4FY10 results

·         Adani Power Ltd (APL) has two 330MW units of Mundra-I&II (1,320MW) commissioned as at end of March 2010, although financials reflect operations of first 330MW mostly, since second unit was commissioned by end of March 2010.

·         APL reported generation at 685mn units, higher than our estimates of 665mn units.  We estimate that APL sold 618mn units during the quarter.

·         Realisations per unit were Rs3.26/unit, compared to our estimate and Q3FY10 realisation of Rs3.86/unit. The lower realisation is due to higher sales to GUVNL during the quarter at the PPA rate of Rs2.89/unit. Consequently, revenue for the quarter was Rs2bn, compared to our estimate of Rs2.27bn.

·         Fuel cost per unit was Rs1.02/unit, compared to our estimates of Rs1.21/unit, and substantially lower than Q3FY10 level of Rs1.45/unit. The reduction in fuel cost was led by the use of Indonesian coal at US$36/ton landed at the port.  

·         APL reported other income of Rs319mn in Q4FY10 as treasury income from IPO proceeds were booked in this quarter.

·         Interest expense for the quarter was Rs210mn; whereas the depreciation was Rs177mn.

·         APL paid tax at rate of 16% vs our estimate of 18%.

·         PAT for Q4FY10 was Rs983mn was ahead of our estimate of Rs910mn primarily led by lower fuel costs and higher other income.

Maintain Outperformer

APL has rapidly scaled up in its power capacity addition plans to 13,200MW from 6,600MW in the past one year. APL's strategy of tying up substantial portion of its portfolio under Case-I bids is likely to result in large near-annuity cash flows post commissioning of its projects over the next 3 years. APL has also demonstrated its execution capabilities with 660MW power plants commissioned and strong visibility of next 660MW in Mundra-I&II. On back of 3,300MW lined up for commissioning over the next 18 months, we expect APL's earnings to increase by 4.6x and expect operating cash flows of Rs70bn over FY10-12. We maintain our estimates for FY11 and FY12. Considering the strong ramp up of power capacity and the resultant cash flows over the next 3 years, we maintain our outperformer rating on the stock with target price of Rs146 per share.