Raw material import costs put Adani Power under pressure
Shrikant / 19 Dec 2011
Adani Power, one of the leading private sector power utility companies, is commissioning the 2nd unit (660 MW) of the 3rd phase of the 1320 MW Mundra project, which is of a total capacity of 4620 MW.
Adani Power, one of the leading private sector power utility companies, is commissioning the 2nd unit (660 MW) of the 3rd phase (1320 MW) of the Mundra project. The whole project is of 4620 MW capacity, and is being commissioned in 4 phases as shown in the table below. The company is hopeful of commissioning the entire project by Feb 2012, which is 2 months ahead of schedule. I 2X330MW 660 II 2X330MW 660 III 2X660MW 1320 IV 3X660MW 1980
Adani Power Mundra - Project Specificatons
Phase
Specification
Capacity
Status
Technoloogy
Operational
Sub Critical
Operational
Sub Critical
Operational
Super-critical
Operational in Feb 2012
Super-critical
The company is using super-critical technology for 3300 MW generation capacity of the Mundra project. The remaining 1320 capacity is based upon sub-critical technology. With the use of super-critical technology, the company will save between 1.7%-4.2% of coal, and will also be able to reduce ash and harmful gas emissions through the respective units. It will also help the company get efficient heat rates.
Though Adani uses superior technology, one must not ignore the fact that this plant is based on imported coal, which is currently eating into the profits of Indian power utilities. Take for example, Tata Power and JSW Energy, who are underperforming on the bourses mainly due to the high prices of imported coal.
Adani Power will be selling 70% of the power generated in the Mundra project through the merchant route. We expect that the company will be able to sell power at above Rs 4 through this route. However, we would prefer a long-term agreement over a short-term one, as it will give a certainty of power offtake over a long period.
For the half yearly result, the company has reported a drop in its operating margins. As of Sept 2011, its total debt is in excess of Rs 23,000 cr. Its interest expense increased to Rs 222 cr in H1 FY12 from Rs 80 cr in the same period last year.
In our opinion, with the rupee at a historic low and imported coal prices sustaining over US$ 100 per tonne, Adani Power will see a further drop in its margins. Hence, investors are advised to stay away from this counter.
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