Adani Power Surges Anticipating Regulatory Nods

The shares of Adani Power have gained more than 30% from Nov 1, 2012 on expectations that the company will receive a much required 30% domestic coal linkage to its ambitious 4620 MW mega power project. This project consumes 100% imported coal. However, the plant has been hit by technical issues, due to which it has seen a decline in the plant load factor (PLF) in its Mundra project (see table). A technical study conducted by the company indicated that the use of imported coal is impacting the performance of the boiler due to slagging (ash deposition in high temperature areas of the boiler).

The company has seen its high flying margins coming down from over 50% in FY12 to as low as -8% in the first quarter of FY13. The PLF, which touched 89% in the March FY11 quarter, has also come drastically down to 54%. The impact of this can be seen on the total number of units generated. While the company increased its operational capacity by 1.75x from 2640 MW (Q2FY12) to 4620 MW (Q2FY13), its total units generated increased by only 1.42x.

If Adani were to match the performance in terms of PLF to that in Q2FY12, its units generated would have been nearly 7500 million units (MU) as compared to actual generation of 4701 MU in Q2FY13. This would have yielded total revenues to the tune of about Rs 2560 crore in the Sept quarter of this fiscal against the actual revenues of Rs 1500 crore on the assumption that 75% PLF and Rs 3.47 per unit.

This plant has been built considering a 30% domestic coal supply from Coal India. The coal major, however, declined to supply coal to the plant saying that the imported coal-based power plants did not form a part of the planning commission’s original estimates. The company has again asked the power ministry to consider 30% domestic coal supply for the plant. The ministry has also recommended restoring the original clause of domestic coal supply from Coal India.

The issue is currently being discussed in a high level ministerial meeting. The outcome of the meeting will be important for the company, considering that the Mundra project is a huge single-location power generation project in the country.

Later in the week, the Central Electricity Regulatory Commission (CERC) is expected to hear Adani Power's petition about hiking the tariff rates from its Mundra project. The anticipation of a positive outcome will keep the stock on the buyers' radar. The outcome will also have an impact on Tata Power's shares, as it is also seeking similar treatment for its Mundra UMPP.