Indonesian Coal Haunts Adani Power

Adani Power, one of the leading private power companies, has posted losses of Rs 358 crore for the quarter ended December 31, 2011. This loss is enough to wipe out the profit made by the company in the first six months of this fiscal. A point to note is that this is for the first time that the company has posted loss in any quarter.

During the quarter the company commissioned 680 MW generation capacities which took its total capacity to 2,640 MW. Led by this, the company witnessed huge volume growth in the total units generated. As a net impact of this, its topline increased by a remarkable 111 per cent for the quarter.

On the margin front, however, its performance has been dismal. The high fuel cost sourced from the international market, mainly Indonesia, has taken a huge toll on its net profitability. The EBITDA margins declined sharply from 55 per cent in Q2FY11 to 20 per cent in this quarter. The fuel cost has almost tripled in the quarter which is the main cause for worry. Even though the company has increased its capacity, it should be noted that as a percentage of sales the contribution of fuel cost has doubled in the quarter

Further, due to the high interest rates in the country, the company had to bear an interest outgo of Rs 138 crore which was twice as much compared to Rs 53 crore paid in the third quarter of the last fiscal. Also, due to the heavy currency fluctuation the company suffered a forex loss (mark to market) of Rs 204 crore. Adani Power has loans of Rs 23,252 crore and has a debt to equity ratio of 3.54x.

The company is about to commission large capacities which will see its total capacity reaching 6,000 MW by March 2012. It has been adding the capacities very aggressively and since all its current projects are on schedule there is no doubt that Adani Power will introduce the remaining 3,360 MW capacity in this fiscal. But it should be noted that these capacities are based on foreign coal. Already the rates of Indonesian coal have gone up due to the new coal pricing regulation announced there. Beside, its parent company, Adani Enterprise, has purchased coal mines in Australia where the coal prices are still in triple digits. The rupee is still hovering in the range of Rs 49-50 against dollar and hence we don’t expect profits to arise even in the next quarter as well.

The inability of the power companies to pass on the prices will further shrink their profits in cases where imported coal is used as feed to run the power plants. In our opinion, investors interested in this counter should currently avoid buying this scrip as the timing is far from right.