Adani Power's Losses Widen On Higher Interest, Depreciation

Adani Group’s power arm Adani Power reported its Q4FY13 results on May 6. The company reported a 79% YoY growth in its total income to Rs 1889 crore in the March 2013 quarter. Its net loss, however, doubled to Rs 585 crore against a net loss of Rs 292 crore a year earlier. In FY13, Adani Power added a total 1320 MW of generating capacity. Its total capacity as of March 31, 2013 stands at 4620 MW.

During the quarter in question, Adani Power sold a total of 6 billion units of electricity against 3.5 billion units a year ago. The volumes increased due to the addition of capacity. Its per unit realisations increased by 4.5% to Rs 3.14/unit against Rs 3.01/unit.

Due to the higher commissioned capacity, the company has seen its fuel cost going up by 53.61% to Rs 1314 crore. However, the fuel cost per unit has declined by 10.4% to Rs 2.2 per unit against Rs 2.45 per unit a year ago. Owing to the decline in fuel cost per unit, the company has reported an improvement in its EBITDA margins. For the quarter its margins remained at 21.65% against 12.84% a year ago.

Its employee expenses have also gone up by 46% to Rs 36 crore. Its Other Expenses have increased by 41% to Rs 170 crore.

The quarter has also seen a reduction in the company’s Other Income from Rs 82 crore to Rs 46 crore, translating into a YoY decline of 44%. Due to the addition of capacity, its depreciation has doubled during the quarter to Rs 399 crore.

The chief cause for the company having reported losses is the surge in its finance expenses, which stood at Rs 500 crore, up 166% from Rs 188 crore a year earlier. Owing to this, it has reported a loss at the Profit Before Tax level. Its interest cover ratio stands at a miserable 0.1x, indicating the company’s inability to make interest payments.

On the balance sheet front, Adani Power has seen its long-term debt rising to Rs 33191 crore. Its short-term debt was at Rs 4411 crore by the end of the FY13. Due to the losses posted in FY13, its reserves have eroded from Rs 3861 crore to Rs 1900 crore. Its debt-to-equity ratio is at 8.75x, which is much too high even for the sector. Its liquidity ratio also indicates its weak financial position. Overall, there is a pressing need for the company to improve its cash flows.

The Central Electricity Regulatory Commission (CERC) has recently ruled in favour of Adani Power in connection with its Mundra power project, where it has allowed Adani Power to recover higher fuel costs in its projects from state electricity boards. The company, however, may require to further contest the case before the Appellate Tribunal for Electricity (Aptel), after which it will be able to raise the tariffs. The process may take a while, and is too premature to comment on the outcome.

We remain strongly negative on the stock and advise exiting the counter.