It’s not only the northern grid that’s coming under heavy pressure these days. That Adani Power Ltd posted a loss for the June quarter isn’t a surprise. But the consolidated loss came in at Rs 810 crore, far more than the Rs 100 crore or so loss that brokerage firms had forecast. It’s also higher than the Rs 285 crore loss the company posted in the March quarter.
The bright spot in the numbers: revenue increased 75% from a year ago as the firm added new capacity. That was driven by a 56% improvement in power volumes sold, to 4,546 million units. Thus, Adani’s power realizations also improved from a year ago. For the most part, the firm’s tariffs are fixed; repeated appeals to increase rates have been met with stubborn resistance from state utilities. The improvement in realization came from a higher share of merchant power sold. That is not sustainable as Adani has to soon start honouring its power purchase agreements with state utilities.
Secondly, a management statement talked about “limited availability of transmission lines”, indicating that revenue could have been higher. In any case, Adani’s capacity utilization (or plant load factor) decreased to 63% in the June quarter compared with 74% a year ago. It is not much of an improvement from the 62% seen in March.
However, the drop in capacity utilization is also due to the limited availability of fuel, and at a reasonable cost. That has been missing for most Indian power producers for a while now. In Adani’s case, the recent decrease in coal prices seems to have been overwhelmed by the steeper fall in the rupee, which lost about 9% in the quarter. Fuel costs have increased as much as four times over a year ago.
The falling rupee did more damage to Adani’s earnings. The firm is believed to have not hedged foreign debt worth some $2.5 billion (Rs 13,875 crore today). As a result, finance costs, too, bit into earnings, rising nearly four times from a year ago. About half these costs comprised mark-to-market losses of Rs 206 crore. The firm is planning to more than double its capacity this year; but note that this will also add to increasing depreciation expenses. The big question mark over fuel supplies blights Adani Power’s outlook.