Initiating Coverage Sector: Power Utilities BSE Sensex: 18,496

RESEARCH

ADANI POWER
Adani Power Ltd (APL) aspires to become one of the largest private IPPs in the country underpinned by a six-fold increase in capacity. Until date, it provides visibility for only 7.9GW where it achieved majority of the milestones. APL has long-term PPAs in place and has assured fuel linkages for a majority of its capacity. Nevertheless, we believe the company runs the risk of short supplies from the domestic market, which would translate into spot coal purchases. Further, we believe lower merchant tariffs would depress APL's profitability. We initiate coverage with HOLD recommendation and target price of Rs115/share. Tied up for coal, but domestic supply remains a concern Apart from sourcing 7.4mtpa of coal from Indonesia via Adani Enterprises, APL has assured linkages from Coal India for ~25mtpa. Although we are comfortable with its Indonesian supplies, we remain skeptical about its domestic supplies. Hence we build in 70% linkage coal and the balance from e-auction and spot market. Incase the share of linkage coal falls below this, APL's profitability will be under pressure. APL's profitability is at greater risk as PPAs are Case 1 Given the group's strong execution capability, APL would benefit in the near term from short-term sale as capacity commissions ahead of its PPA dates. However, we believe APL's longer-term profitability is at risk given that most of the PPAs are Case 1 in nature. Hence any change in the fuel dynamics or increase in cost will negatively impact APL's earnings and RoE. VALUATIONS AND RECOMMENDATION We value APL on a project-by-project basis and consider projects where there is reasonable clarity of commissioning on schedule. We build in 3.3x increase in capacity by FY13 and pre-PPA sales to arrive at 169% earnings CAGR over FY11-13E. Despite this accelerated earnings growth, we believe APL's earnings are at risk due to: 1) spot / e-auction coal purchases; 2) increase in coal prices; 3) slippages; 4) high leverage; and 5) lower-than-expected merchant tariffs. Further, APL's earnings are sensitive to merchant rates: for every Rs0.25/unit drop in merchant tariff, its FY13E earnings would decrease ~9.7%. At the current market price, the stock trades at 3.3x and 2.4x FY12E and FY13E book respectively. We initiate coverage with HOLD recommendation and FCFE-based target price of Rs115/share.

HOLD CMP Rs116 TP Rs115

07 June 2011 Hitul Gutka +91-22-6618 6410

hitul.gutka@pinc.co.in Vinod Nair +91-22-6618 6379

vinod.nair@pinc.co.in Madhura Joshi +91-22-6618 6395

madhura.joshi@pinc.co.in

STOCK DATA
Market Cap Book Value per share Eq Shares O/S (F.V. Rs10) Free Float (%) Avg Traded Value (6 mnths) 52 week High/Low Bloomberg Code Reuters Code Rs252.8bn. Rs28.9 2.18bn. 26.5 Rs132.8mn Rs145/106 ADANI IN ADAN.BO

Initiating Coverage

TOP SHAREHOLDERS
Name Adani Enterprises Ltd 3i Power Investments Ventura Power Investments Adishree Tradelinks Lotus Global Investments % holding 70.3 7.4 3.3 3.1 1.6

PERFORMANCE (%)
Absolute Relative 1M 5.2 5.4 3M (2.6) 2.4 12M 0.3 (11.0)

KEY FINANCIALS
FY09 Net Sales YoY Gr. (%) Op. Profits OPM (%) Adj. Net Profit YoY Gr. (%) (55) (50) (0.0) FY10 4,349 2,438 56.1 1,640 0.8 2.0 4.1 148.7 79.8 128.7 FY11P 21,352 391.0 12,205 57.2 5,132 212.8 2.4 5.3 8.5 49.3 20.5 33.0 FY12E 73,017 242.0 48,689 66.7 26,832 422.9 12.3 13.7 35.4 9.4 6.8 10.0

Rs mn FY13E 126,629 73.4 77,840 61.5 37,129 38.4 17.0 16.9 34.9 6.8 4.1 6.6 1

RELATIVE PERFORMANCE
Adani 200 160 120 80 40 Jun-10 BSE (Rebased)

KEY RATIOS
Dil. EPS (Rs) ROCE (%) RoE (%) PER (x) EV/ Net Sales (x) EV /EBDITA (x)

Sep-10

Dec-10

Mar-11

Jun-11

PINC Research reports are also available on Reuters, Thomson Publishers and Bloomberg PINV <GO>

RESEARCH

Adani Power

Earnings at risk despite accelerated growth

Revenues are not flexible to accommodate cost increases Despite being amongst the best placed in terms of fuel linkages and power sale, we believe Adani Power Ltd (APL) runs the risk of maintaining its earnings momentum. We expect APL's profit growth will lag revenue growth over FY11-14E due to rising costs. Since most of its PPAs are Case-I, i.e. where the location, technology, or fuel is not specified by the procurer, APL's revenue is not flexible enough to accommodate increase in cost, which compromises its RoE. We detail below our concerns with respect to the company's earnings. Tied up for coal, but domestic supply remains a concern We estimate APL to consume ~27.5mtpa of coal on a steady-state basis to fire 7.9GW, all of which has been successfully tied up. APL will consume a mix of international and domestic coal to fire its plants. To source coal from the international market, APL entered into a long-term agreement with its group company Adani Enterprises for importing 7.4mtpa of coal from Indonesia, all of which will be consumed by its Mundra Project. We expect the Indonesian coal to fire up to ~2.2GW of APL's Mundra project (~48% of project capacity) for a period of 20 years. In addition, APL has linkages from subsidiaries of Coal India - Mahanadi Coalfields (MCL), South Eastern Coalfields (SECL) and Western Coalfields (WCL) - for ~25mtpa. We assume the company receives 70% of the linkage requirement and sources the balance from a combination of e-auction and spot market. In addition, APL has applied for further linkage of 7mtpa to fire its 1,320MW Kawai Project.

69% of coal requirement will be sourced domestically

Spot Purchases 4.0%

MCL 25.4% Domestic 69.1% SECL 19.3% WCL 16.8% E-auction 7.6%

Indonesia 26.9%

Source: Company, PINC Research

Increasing dependence on domestic coal

Imported Coal 30.0 24.0 18.0 12.0 6.0 0.0 FY11E
Source: Company, PINC Research hitul.gutka@pinc.co.in 2

Domestic Coal

(mtpa)

FY12E

FY13E

FY14E

FY15E

RESEARCH

Adani Power

Coal consumption matrix for 4,620MW at Mundra

(mtpa) Mundra I&II Mundra III Mundra IV GCV Indonesia 3.01 2.91 1.49 5,200 MCL 0.20 1.25 5.55 3800-4300 E-auction 0.00 0.00 0.00 4,000 Spot 1.09 0.00 0.00 5,200 Blended GCV 5,146 4,855 4,293

Source: Company, PINC Research

Tiroda will consume domestic coal

(mtpa) Tiroda I Tiroda II GCV SECL 5.32 0.00 3800-4300 WCL 2.00 2.62 4300-5100 E-auction 0.00 2.09 4,000 Spot 0.00 0.00 5,200 Blended GCV 4,228 4,390

Source: Company, PINC Research

Ramp up in Coal India's production is vital for APL Coal Indias FY11 production remained flat at 431mn tons over FY10. However, this was significantly lower than its target of 461mn tons. Further Coal India reduced its FY12 production target to 452mn tons from over 485mn tons earlier. MCL, which is viewed as Coal India's best performing subsidiary in terms of output, reported a decline in production during FY11. This was due to recurrent strikes by villagers and lack of law and order in Talcher Coalfields. As seen from the chart above, APL's consumption of domestic coal increases from FY12 onwards. Hence, if Coal India or its subsidiaries continue with this muted performance going forward, APL's cost dynamics will change significantly. This will be due to increased consumption of more expensive: 1) spot coal - either directly or from its group company AEL; or 2) e-auction coal. In both these cases, the landed cost of coal will be higher than linkage coal - thus negatively impacting earnings. We factor APL will receive only 70% of its assured linkage quantity and will source the balance from e-auction and spot market.

Our assumption for FY12 coal cost

Indonesian Coal MCL Currency GCV RoM / FoB Price CIF Price Port handling charges Landed cost of coal Source: PINC Research Rs/ton 3800-4300 852 1,724 324 2,049 SECL Rs/ton 3800-4300 906 1,352 324 1,677 WCL Rs/ton 4300-5100 1,586 1,827 324 2,151 E-auction Rs/ton 4,000 2,111 2,628 324 2,953 Contract USD/ton 5,200 18 36 9 45 Spot USD/ton 5,200 85 97 12 109

hitul.gutka@pinc.co.in

RESEARCH

Adani Power

Coal India production witnessed 4.6% CAGR over FY06-11

Coal India 500 400 300 200 100 0 FY06 FY07 FY08 FY09 FY10 FY11 (mn tons) MCL

Source: Coal India, MCL, PINC Research

Growth in coal production for Coal India, we believe, may remain muted due to difficulty in: 1) obtaining environmental clearances; 2) land acquisition; and 3) transportation due to inadequate evacuation infrastructure. This poses a significant challenge for new IPPs like Adani Power to operate their plants at optimal levels. Additional ~39mtpa required if all 16.5GW comes on stream APL targets to commission all 16.5GW during the next plan period. Assuming all capacity comes on stream, i.e. incremental 9,900MW, we estimate the company would require an additional ~39mtpa of coal. In case APL is unable to get linkages for this incremental capacity, we believe, it will either enter into an agreement with AEL (similar to the existing one) for sourcing coal from LINC Energy, Australia or PT Bukit Asam, Indonesia or buy coal via e-auction. We do not build in any of these projects into our valuations. Attractively priced Indonesian coal Through its wholly-owned subsidiary PT Adani Global, Adani Enterprises entered into agreements with holders of long-term exploitation licenses to exclusively mine coal in Bunyu Island, Indonesia. These mines have an estimated reserve of 150mn tons, of which the company is currently extracting ~7mn tons. It plans to increase output to ~8-11mtpa to meet any deficiency caused by non-receipt of domestic coal. As per the agreement, Adani Enterprises will supply coal at USD36/ton (CIF Mundra), adjusted for coal quality, with escalation at the end of every five years from the commencement of operations of the project. The FoB price of imported coal will be escalated by 10% every five years. APL also entered into an agreement with Mundra Port and SEZ (MPSEZ) to utilize their port and cargo handling services for which it will pay Rs300/ton towards port handling charges. These charges will increase at an inflationary rate every year.

Landed cost of Indonesian coal for FY12

Cost of Coal CIF price of coal (+) Import duty Landed cost in $/MT INR/USD Converted cost of coal (Rs/MT) (+) Port handling charges (Rs/MT) Landed cost of coal (Rs/MT) Source: Company, PINC Research hitul.gutka@pinc.co.in 4 USD/ton 36 2 38 45 1,701 324 2,025

RESEARCH

Adani Power

This contract not only provides partial comfort to the company for fuel, but also prices expensive coal cheap. We estimate landed cost of Indonesian coal at US$45/ton during FY12 compared with the prevailing price of ~US$91/ton (adjusted for calorific value). As a result, APL's Mundra project's fuel cost is estimated to be among the lowest at Rs1.06/unit against ~Rs1.71/unit for NTPC and ~Rs2.63/unit for JSW Energy. Since the Indonesian coal will fire only a third of its FY13 capacity, we believe this benefit will be offset by higher prices of e-auction and spot coal purchases for the other projects.

Adjusted for its calorific value, coal is priced at US$91/ton

New Castle 6700kc FOB Price 160 120 (USD/ton) FOB Price adjusted to 5200kc

80 40 0 Mar-09

Jul-09

Nov -09

Mar-10

Jul-10

Nov -10

Mar-11

Source: Bloomberg, PINC Research

But any increase in coal cost will compress APL's profitability As most of the power sale contracts entered into by APL are Case I bids, any escalation in fuel cost will have to be borne by the company. Hence, any price increases for fuel will only translate into lower earnings for APL. We build in 10% decline in coal cost across the board (except Indonesian contract) in FY13 and an inflationary increase thereafter for the remaining life of the projects. Recently, Coal India increased coal prices for grade A and B by benchmarking them at 15% discount to the prevailing international rate. It also raised prices for grade C, D, E and F by 30% after normalising the base price / RoM price of MCL coal (which was at a discount to other subsidiaries due to legacy issues) with the other subsidiaries. Since Coal India will charge the new RoM price (excluding 30% increase on it), APL's MCL coal cost will be higher to that extent. Although this may not be a major negative for APL's earnings, it exposes the company's profitability to such increases in future.

Coal price from Mahanadi Coalfields raised by 18.8%

Rs/ton New Old Increase (%) Source: Coal India, PINC Research C 1,050 950 10.5% D 880 790 11.4% E 730 620 17.7% F 570 480 18.8% G 430 350 22.9%

hitul.gutka@pinc.co.in

RESEARCH

Adani Power

7.1GW tied up under long-term PPAs, exposes APL's profitability to cost escalation Unlike its peers, APL has already entered into long-term PPAs for 7.1GW - translating into 77% of its FY14 targeted installed capacity of 9,240MW. However, bulk of these PPAs - i.e. 4,744MW at Mundra and Tiroda I & II - which come into effect from FY13 onwards, are Case I bids. Hence the risk of increase in costs for these projects will be on APL, bringing its profitability under pressure. PPA's for Mundra I & II, Mundra IV and Tiroda I & II factor in a nominal increase of 2.1%, 2.6% and 2.0% CAGR respectively in energy charge over the 25 year tariff period. PPAs for Tiroda III and Kawai (1,200MW each) have fuel and transportation cost escalation clauses in place, thereby protecting its earnings to that extent.

7.1GW tied up under long-term PPA

PPA (MW) 1,000 1,000 1424 (712MW each) 1320 1,200 1,200 7,144 Source: Company, PINC Research Utility GUVNL GUVNL UHBVNL & DHBVNL MSEDCL RRVPNL MSEDCL Aug 2012 (475MW), Feb 2013 (949MW) Aug 2012 Aug 2013 April 2014 Date Feb/June 2010 Levellized Tariff (Rs/unit) 2.89 2.35 2.94 2.64 3.24 3.28 Total contracted capacity Comments Case 1 bid Case 1 bid Case 1 bid Case 1 bid Fuel & transportation escalable Fuel & transportation escalable

APL signed PPAs with GUVNL, Haryana, Rajasthan and Maharashtra. Of the 2,000MW PPAs signed with GUVNL for its Mundra project - 1,000MW is currently under a tariff revision dispute. However, we build in PPA sale for this disputed 1,000MW at the originally negotiated tariff.

All PPAs will be into effect by FY15

MW Mundra Long Term Short Term Tiroda I & II Long Term Short Term Tiroda III Long Term Short Term Kawai Long Term Short Term Total Source: Company, PINC Research FY11 1,980 1,000 980 1,980 FY12E 3,960 2,000 1,960 1,980 1,980 5,940 FY13E 4,620 3,424 1,196 1,980 1,320 660 6,600 FY14E 4,620 3,424 1,196 1,980 1,320 660 1,320 1,320 1,320 1,200 120 9,240 FY15E 4,620 3,424 1,196 1,980 1,320 660 1,320 1,200 120 1,320 1,200 120 9,240

hitul.gutka@pinc.co.in

RESEARCH

Adani Power

Pre-PPA sale and accelerated capacity addition are near-term earning drivers APL's near-term earnings will remain buoyant given its: 1) accelerated capacity addition; and 2) high merchant sale as capacity commissions ahead of scheduled PPA dates. We believe APL's strong execution capability would allow it to commission 5.3GW by FY14 (ex-Kawai), ahead of PPA dates. We build in commissioning as per the management guidance, i.e. an addition of 3,960MW in FY12 and 660MW in FY13. We expect APL to sell 66% and 40% of its FY12 and FY14 capacity respectively in the short-term market. With merchant rates remaining soft currently, we assume merchant tariff of Rs4.25/unit for FY12 and FY13 each and Rs4.00/unit for FY14. Unexpected delays in commissioning would be the risks to our earnings estimates.

High merchant sale during FY12 and FY14

LT 100% 80% 60% 40% 20% 0% FY11
Source: Company, PINC Research

ST

FY12E

FY13E

FY14E

FY15E

Merchant exposure not only allows APL to improve its RoE but also enhances earnings sensitivity. We estimate that for every Rs0.25/unit drop in merchant tariff and steady price of spot coal, APL's FY13 earnings will be lower by ~9.7%.

FY13 earnings are sensitive to merchant rates and spot coal price
Merchant Rate (Rs/unit)
Spot coal FOB (US$/ton)

4.00 69 77 84 92 33,757 33,512 33,267 33,022

4.25 37,374 37,129 36,883 36,638

4.50 40,990 40,745 40,500 40,255

4.75 44,606 44,361 44,116 43,871

Source: PINC Research

Earnings also remain sensitive to MCL coal prices

Merchant Rate (Rs/unit)
MCL ROM Price (Rs/ton)

4.00 690 767 843 920 33,948 33,512 33,076 32,641

4.25 37,564 37,129 36,693 36,257

4.50 41,181 40,745 40,309 39,874

4.75 44,797 44,361 43,926 43,490

Source: PINC Research

hitul.gutka@pinc.co.in

RESEARCH

Adani Power

Other risks facing Adani Power: 1. Risk of slippages APL faced slippages in the past due to issues relating to Chinese visas and other reasons. However, we build in commissioning of capacity as per the managements guidance to arrive at an installed capacity of 5,940MW by FY12 and 6,600MW by FY13. Hence, any delay in commercialising will lead to lowering our estimates due to lower pre-PPA sales.

APL to commission 6,600MW by FY13

Project Mundra III Unit II Mundra IV Unit I Unit II Unit III Tiroda I & II Unit I Unit II Unit III Source: Company, PINC Research Capacity (MW) 1,320 660 1,980 660 660 660 1,980 660 660 660 Sep-11 Mar-12 Mar-12 Dec-11 May-12 May-12 Sep-11 Dec-11 Mar-12 Nov-11 Feb-12 May-12 Jun-11 Aug-11 Synchronisation Date CoD

Plans to add ~6GW by FY14

8,750 7,000 3,960 5,250 3,500 1,320 1,750 660 0 FY10
Source: Company, PINC Research

(MW) 660

1,320

7,920

FY11

FY12E

FY13E

FY14E

Total

2.

Lower calorific value of coal will impact earnings APL was initially allocated two mines - Lohara West and Lohara Extension - for its Tiroda project. However, allocation of both these mines was withdrawn later citing environmental reasons. APL was then awarded linkages from SECL (GCV ranging from 3,800-4,300kcal) and WCL (GCV ranging from 4,300-5,100kcal) for the project. We assume mid-value GCV from both these linkages into our estimates to determine coal consumption by the project. Incase the calorific value of coal is lower than our assumption for any of the projects, APLs overall profitability will reduce.

hitul.gutka@pinc.co.in

RESEARCH

Adani Power

3.

Highly leveraged, limited room for closing fresh projects Assuming APL successfully closes its 1,320MW Kawai project and commissions it by FY14, APL's installed capacity will increase to 9.2GW from 2.6GW currently. This 3.5x growth in capacity entails an investment of ~Rs160bn, which will be funded with debt/equity of 80:20. With FY11P and FY12E debt/equity expected to be at ~3.1x and ~3.0x respectively, we believe there is limited room for the company to achieve financial closure for any new project in the near future.

4.

Lower than expected merchant tariff As APL plans to sell 66% and 40% of the power in the merchant market in FY12 and FY14 respectively, we expect its earnings to remain highly sensitive to merchant tariffs. For every Rs0.25p drop in merchant rates, APL's FY13E earnings will be lower by ~9.7%. During FY11, APL sold power at ~Rs4.77/unit in the merchant market. With merchant tariffs expected to remain soft going forward, we build in merchant tariff of Rs4.25/unit for FY12 and FY13 respectively. Hence, if bilateral rates fall below this, APL's profitability will remain under pressure.

Massive capacity addition plan - 6x its current installed capacity APL operates ~2.6GW coal-fired plants in Gujarat. It plans a six-fold increase in its installed capacity to 16.5GW over the next plan period comprising of coal-fired super-critical projects. Majority of these projects are under the planning phase with limited clarity on their commissioning schedules. APL currently has 6.6GW under construction (including 1,320MW at Kawai), of which ~4GW are expected to commission by FY13 - after initial hiccups of non-issuance of visas to Chinese employees and cancellation of the Lohara West and Lohara Extension coal blocks for the Tiroda project. The commissioning of these projects would translate into 59% and 94% CAGR in installed capacity and generation respectively over FY11-14E, accelerating earnings momentum.

Plans to add 16.5GW

MW Operational 1,980MW Mundra-I & II Mundra-III Under Construction 5,940MW Mundra-III Mundra-IV Tiroda-I & II Tiroda-III Under Implementation 1,320MW Kawai Under Planning 7,260MW Dahej Chhindwara Bhadreshwar Total Source: Company, PINC Research hitul.gutka@pinc.co.in 9 2,640 1,320 3,300 16,500 Gujarat Madhya Pradesh Gujarat Super-critical Super-critical Super-critical Fuel and MoEF clearance pending, PPA yet to be signed Fuel and MoEF clearance pending Fuel and MoEF clearance pending, PPA yet to be signed 1,320 Rajasthan Super-critical Fuel and MoEF clearance pending 660 1,980 1,980 1,320 Gujarat Gujarat Maharashtra Maharashtra Super-critical Super-critical Super-critical Super-critical Synchronised Expected CoD by Q1 FY13 Expected CoD by Q1 FY13 Fuel pending, Expected CoD by Q3 FY14 1,320 660 Gujarat Gujarat Sub-critical Super-critical Operational Operational State Technology Status

RESEARCH

Adani Power

59% CAGR rise in installed capacity over FY11-14

10,000 (MW)

Generation likely to witness 94% CAGR over FY11-14

60.0 (BU)
94% CAGR

7,500

59% CAGR

45.0

5,000

30.0

2,500

15.0

0 FY11 FY12E FY13E FY14E

0.0 FY11 FY12E FY13E FY14E

Source: Company, PINC Research

APL is yet to achieve key milestones for other projects (7.2GW). These include environmental clearances, fuel linkage/security, signing of PPAs and financial closure. Hence we do not include any of these projects into our valuations. We value only 7.9GW where either all milestones have been achieved or there is significant visibility of this being achieved.

Milestones provide visibility for 6.6GW

MW Operational Mundra-I & II Mundra-III Under Construction Mundra-III Mundra-IV Tiroda-I & II Tiroda-III Under Implementation Kawai Under Planning Dahej Chhindwara Bhadreshwar 2,640 1,320 3,300 X X X Yet to be signed Yet to be signed ToR approved ToR approved ToR approved 1,320 X ToR approved 660 1,980 1,980 1,320 X 1,320 660 Land Water Fuel PPA MoEF

Source: Company, PINC Research

hitul.gutka@pinc.co.in

10

RESEARCH

Adani Power

Initiate coverage with HOLD recommendation We value APL on a project-by-project basis and consider projects where there is reasonable clarity of commissioning on schedule as either all or majority of the milestones have been achieved. Except Tiroda III, all the other projects (in our valuation) are secured for fuel and have achieved financial closure, which reduces risk. We also build in pre-PPA sales wherever possible, which translates into 169% earnings CAGR over FY11-13E. Despite this accelerated earnings growth, we believe the risks (mentioned above) outweigh the positives. We are cautious on the stock given its high earnings sensitivity to merchant rates, non-pass through of higher fuel and other costs, and limited visibility in achieving financial closure of new projects. At the current market price, the stock trades at 3.3x FY12E book. We value each project to arrive at our FCFEbased target price of Rs115/share and initiate coverage with HOLD recommendation.

SoTP-based target price of Rs115

Rs bn Mundra I & II Mundra III Mundra IV Tiroda - I & II Tiroda III Cash Total Source: PINC Research 28 30 66 75 39 13 250 Rs/share 13 14 30 34 18 6 115 Comments FCFE, Terminal growth rate of 3%, Ke 12% FCFE, Terminal growth rate of 3%, Ke 12% FCFE, Terminal growth rate of 3%, Ke 13% FCFE, Terminal growth rate of 3%, Ke 13% FCFE, Terminal growth rate of 3%, Ke 14%

Assumptions
For FY13 Capacity (MW) Blended PLF (%) Coal consumed (mn tons) Blended realisations (Rs/unit) Blended coal cost (US$/ton) Mundra I & II 1,320 85% 4.30 2.51 56 2,514 FCFE Calculation Cost of equity for: Operational Projects All milestones achieved All milestones except fuel achieved Terminal growth rate (%) Source: PINC Research 12% 13% 14% 3% Mundra III 1,320 85% 4.15 2.34 45 2,028 Mundra IV 1,980 82% 6.79 3.44 45 2,011 Tiroda I & II 1,980 79% 6.80 3.36 38 1,699

hitul.gutka@pinc.co.in

11

RESEARCH

Adani Power

ANNEXURE Company Background

Adani Power Ltd, the flagship power company of the Adani Group, currently operates 2,640MW with focus on the West coast. In addition, most of its future projects are lined up in the Western region that faces chronic power deficit. APL plans to enhance capacity by 6x over the near future. To maintain a good balance between long-term and short-term power sale, APL already entered into long-term PPAs for 7.1GW. APL will deploy Chinese equipment for all its upcoming projects.

Milestones achieved by APL

Date Aug 1996 Sep 2006 Dec 2006 Feb 2007 July 2007 Nov 2007 Jan 2008 March 2008 March 2008 March 2008 April 2008 Aug 2008 Aug 2008 Sep 2008 Jan 2009 March 2009 May 2009 June 2009 Dec 2009 Jan 2010 March 2010 July 2010 Nov 2011 Dec 2010 Details Incorporation of the company Financial Closure of Mundra Phase I Coal supply agreement with Adani Enterprises for Mundra Phase I, which was later extended to Mundra Phase II PPA with GUVNL for 2,000MW Financial Closure of Mundra Phase II Allocation of Lohara West and Lohara Extension coal blocks for Tiroda Power Project Signed shareholder agreement with Millennium Developers Private Ltd for investment in Tiroda Project PPA with AEL for 221MW Coal supply agreement with Adani Enterprises for Mundra Phase III Financial Closure of Mundra Phase III Coal supply agreement with Adani Enterprises for Mundra Phase IV PPA with UHBVNL for 712MW PPA with DHBVNL for 712MW PPA with MSEDCL for 1,320MW Financial Closure of Tiroda Phase I Boiler Light up of Unit I of Mundra Phase I Synchronization of Unit I of Mundra Phase I Financial Closure of Mundra Phase IV PPA with RRVPNL for 1,200MW Certified as CDM Project by UNFCCC Commissioning of Unit II of Mundra Phase I Synchronization of Unit III of Mundra Phase I Synchronization of Unit IV of Mundra Phase I Synchronization of first super-critical 660MW unit at Mundra

Source: Company, PINC Research

hitul.gutka@pinc.co.in

12

RESEARCH

Adani Power

Project details:
Mundra (4,620MW): All of the company's 2,640MW operational capacity is located in Mundra. APL plans to enhance this by 1,980MW (3x660MW) using super-critical technology, entailing an investment of Rs90bn over FY12-13. The expansion will be funded through debt/equity of 80/20. The project will consume a mix of imported and domestic coal and would require 15.5mt on a steady-state basis. Currently, all the coal consumed by the project is imported from Indonesia. The company entered into long-term PPAs for 3,424MW (74% of its installed capacity) with GUVNL (2,000MW), UHBVNL and DHBVNL (1,424MW) and the balance will be sold as merchant power.

Key project details

Capacity (MW) 4,620 Source: Company, PINC Research Project Cost (Rs bn) 191 Scheduled CoD FY12/13 Station Heat Rate 2,107 GCV of Coal 4,697 Debt:Equity 80:20

Tiroda (3,300MW): APL plans to develop a 3,300MW coal-based power project at Tiroda in two phases - 1,320MW and 1,980MW respectively - through its subsidiary Adani Power Maharashtra Ltd. This Rs159bn project will consist of five super-critical units of 660MW each and is targeted to commission by FY14. APL sold 26% equity in the project to Millennium Developers Private Ltd. The project will be funded on debt/equity of 80/20 and will operate on domestically procured coal. The company entered into long-term PPAs for 2,520MW (76% of its installed capacity) with MSEDCL and plans to sell the balance in the short-term market.

Key project details

Capacity (MW) 3,300 Source: Company, PINC Research Project Cost (Rs bn) 159 Scheduled CoD FY13/14 Station Heat Rate 2,100 GCV of Coal 4,293 Debt:Equity 80:20

Kawai (1,320MW): Kawai Power Project is a proposed coal-based power project with aggregate capacity of 1,320MW. The project is proposed to be developed by APL's wholly-owned subsidiary, Adani Power Rajasthan Limited at Kawai Village, District Baran, Rajasthan. This power project has an estimated development cost of Rs59bn, which will be funded by 80/20 debt/ equity. The company has applied for domestic coal linkages for the project. The company has entered into long-term PPAs for 1,200MW (90% of the installed capacity) with RRVPNL.

Key project details

Capacity (MW) 1,320 Source: Company, PINC Research Project Cost (Rs bn) 59 Scheduled CoD FY14 Station Heat Rate 2,250 GCV of Coal 4,000 Debt:Equity 80:20

Other projects (7,260MW): Apart from the projects mentioned above, APL plans to add another 7,260MW at Dahej (2,640MW), Chhindwara (1,320MW) and Bhadreshwar (3,300MW) respectively. However, these projects are still at a nascent stage and are yet to achieve most of the critical milestones.
hitul.gutka@pinc.co.in 13

RESEARCH

Adani Power
Year Ended March (Figures in Rs mn) Income Statement
Revenues Growth (%) Operating Profit Other Income EBIDTA Growth (%) Depreciation & Amortization EBIT Interest Charges (Net) PBT (Before E/o items) Tax provision Minority interest Pre-exceptional PAT Extra-ordinary items Net Profit Growth (%) Diluted EPS (Rs) Growth (%)

FY09
(55) (55) (55) (55) (6) (50) (50) (0.0) -

FY10
4,349 2,438 259 2,697 353 2,343 377 1,967 327 (1) 1,640 61 1,701 0.8 -

FY11P
21,352 391.0 12,205 1,045 13,250 391.3 1,886 11,364 3,232 8,132 3,000 5,132 5,132 201.7 2.4 201.7

FY12E
73,017 242.0 48,689 1,056 49,745 275.4 7,201 42,544 8,511 34,032 7,201 26,832 26,832 422.9 12.3 422.9

FY13E
126,629 73.4 77,840 1,062 78,902 58.6 14,536 64,367 17,013 47,353 10,225 37,129 37,129 38.4 17.0 38.4

Cash Flow Statement

Pre-tax profit Depreciation Total tax paid Chg in working capital Other items Cash from oper. (a) Capital expenditure Chg in investments Other items Cash from inv. (b) Free cash flow (a+b) Equity raised/(repaid) Debt raised/(repaid) Change in Minority Int Dividend (incl. tax) Other items Cash from fin. (c) Net chg in cash (a+b+c)

FY09
(55) (1,142) (6) (1,203) (44,623) 532 (44,091) (45,294) 8,463 39,785 699 11 48,959 3,664

FY10
1,967 353 1,131 60 3,511 (86,658) (0) (86,658) (83,147) 33,289 55,808 324 (205) 89,216 6,068

FY11P
8,132 1,886 (7,826) 2,192 (92,698) (92,698) (90,506) 91,446 91,446 940

FY12E
34,032 7,201 (7,201) (3,316) 30,717 (89,594) (89,594) (58,876) 65,076 (1,221) 63,856 4,979

FY13E
47,353 14,536 (10,225) (29,327) 22,337 (42,725) (42,725) (20,388) 16,815 (1,221) 15,594 (4,794)

Balance Sheet
Equity Share Capital Reserves & Surplus Shareholders' Funds Minorities Interest Total Debt Deferred Tax liability Capital Employed Fixed Assets Cash & cash eq. Net current assets Investments Total Assets

FY09
18,420 4,371 22,790 699 49,897 73,387 69,257 5,585 (1,456) 0 73,387

FY10
21,800 35,980 57,780 1,023 105,705 120 164,628 155,562 11,654 (2,587) 0 164,628

FY11P
21,800 41,112 62,912 1,023 197,151 3,120 264,206 246,374 12,594 5,238 0 264,206

FY12E
21,800 66,723 88,523 1,023 262,227 3,120 354,894 328,766 17,573 8,554 0 354,894

FY13E
21,800 102,630 124,431 1,023 279,042 3,120 407,616 356,956 12,779 37,881 0 407,616

Key Ratios
OPM (%) Net Margin (%) Dividend Yield (%) Net Debt/Equity (x) Net working capital (days) ROACE (%) ROANW (%) EV/Sales (x) EV/EBIDTA (x) PER (x) PCE (x) Price/Book (x)

FY09
0.0 1.9 -

FY10
56.1 37.7 0.0 1.6 (217.2) 2.0 4.1 79.8 128.7 148.7 123.1 6.3

FY11P
57.2 24.0 0.0 2.9 89.5 5.3 8.5 20.5 33.0 49.3 36.0 4.2

FY12E
66.7 36.7 0.5 2.8 42.8 13.7 35.4 6.8 10.0 9.4 7.4 3.3

FY13E
61.5 29.3 0.5 2.1 109.2 16.9 34.9 4.1 6.6 6.8 4.9 2.4

P/BV Band

Median P/BV v/s Daily P/BV

200

Daily PBV 5
4.0x 3.5x 3.0x 2.5x 2.0x

Median PBV

150

4 3 2 1 Aug-09

100

50

0 Aug-09

Jan-10

Jul-10

Dec-10

Jun-11

Jan-10

Jul-10

Dec-10

Jun-11

hitul.gutka@pinc.co.in

14

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