Adani Power Loss Widens To Rs 619 Crore, EBITDA Under Pressure

The power arm of Adani Group Company has reported a net loss of Rs 619 crore in the Dec 2012 quarter. Adani Power had reported a loss of Rs 356 crore in the Dec 2011 quarter. The loss has widened despite a YoY 55% rise in its topline to Rs 1883 crore. The company, in a separate statement, said that the loss increased due to the higher imported coal prices and non availability of the transmission line. For the first nine months, the company has reported a huge net loss of Rs 1709 crore.

Adani power has been in discussion with the regulatory authorities to raise tariffs from its Mundra mega power project but the decision is yet to come. Currently, it has a total generating capacity of 5320 MW and it expects to increase it to 10000 MW by March 2013. With nearly a two-fold rise in operating capacity expected, investors have not shown any thumbs up to the company. The reasons are obvious for the company which is setting up power plants based on imported coal. 

The change in the regulatory environment in Indonesia has seen coal prices rising. Adani Power has an agreement with its parent company to purchase coal at USD 36 per tonne but the Indonesian coal prices have gone up by to US 50 per tonne for Jorong J-1 category which has put pressure on the Adani group.

The higher coal costs have eaten most of its EBITDA margins. Last fiscal in the same quarter, the company had reported EBITDA margins of 21.31% which have declined to 16.97% in Dec 2012 quarter. Coal costs alone increased 120% from Rs 596 crore to Rs 1312 crore. Coal costs jumped by more than 1400 basis points to 69%. JSW Energy, which reported robust numbers last week, reported decline in the fuel costs (as % of sales) by about 1400 basis points. It also reported EBITDA margins of 36%. Adani's margins of nearly 20% are not very robust compared to JSW Energy. The ultimate reason is that the company is primarily selling power through the PPA route which has put pressure on its margins.

The most notable fact about the Adani group is that it has reported loss at operating level (after depreciation). It has seen its depreciation expenses growing by 127% to Rs 380 crore compared to Rs 167 crore a year before. During the year from Dec 2011 to Dec 2012, the company added a total 2680 MW of capacity, the higher depreciation rates of these new capacities have eaten into its profitability. The company also said that there were some transmission constraints though it has not elaborated further on it.

Its finance costs too have increased sharply by 40% in the quarter on a YoY basis. The losses in the first nine months of the fiscal, leaves no room for calculating the interest cover ratio. One may also see decline in the reserves when the company reports its financial results in the March 2013 quarter.

The serial losses that the company is posting will put the upcoming nearly 5000 MW capacity (by March 2013) under pressure. As the company looks forward to becoming the first private player to operate 10000 MW capacity generators in the country, its declining financial performance has become a matter of concern. 

Last year (CY2012) the stock remained flat, thanks to the recovery in the second half of the year. By August 2012 the stock had almost wiped off half of the market cap seen in Jan 2012. The stock is again on a decline since the last few days and the streak may continue due to losses posted in the Dec 2012 quarter. We maintain our advice of avoiding the scrip.