Revenues of power generation firms see sudden spikes when new capacities get commissioned. During the March quarter, Adani Power Ltd, one of the largest private sector power utilities, commissioned about 660 megawatts (MW) of additional capacity.
It commissioned around 1,320MW during fiscal 2011. It’s no surprise then that, driven by higher volumes, the company’s net revenue increased fourfold in the March quarter (Q4) to Rs 855.6 crore from the year-ago period.
Also see | Powering Ahead (PDF)
This was despite a 5% drop in average realizations per kilowatt hour from a year before. Merchant power tariffs have not been very encouraging in the last three quarters, thanks to the additional capacity and competition. However, tariffs did recover from the December quarter, which led to an improvement in realizations from the preceding quarter.
The company’s operating margin at 60% was 1.5 percentage points higher than the year-ago period. It has also steadily improved over the last two quarters. The average plant load factor was robust at around 89%, though lower than 93% a year ago. But analysts reckon that this will improve as new capacities stabilize and demand improves in the coming quarters.
Adani Power also has an edge over peers in terms of fuel (coal). With the group having mines in Indonesia, it has relatively better control on cost and supply, while those firms linked purely to domestic coal supplies are facing pressures of both uncertain supply and higher prices from Coal India Ltd.
However, what matters for investors, especially in power generating firms, is the ability to translate higher generation into better net profits. Being capital-intensive projects, both interest costs and depreciation kick in as projects get commissioned and have a bearing on the net profit.
Adani Power’s March quarter saw net profit margin down to less than half that of the year-ago period at around 21%, mainly on account of a surge in interest and depreciation costs. Besides, the deferred tax liability was also higher than analysts’ expectations.
Strong operational performance translated into a net profit of Rs 174.4 crore for the quarter, about 75% higher than a year ago. The company’s shares rose 2.27% to Rs 110.25, as results were in line with the Street expectations.
“The stock trades at around two-and-a-half times its fiscal 2012 book value, but a steady and phased addition in capacity will see consistent revenue and profit upsides for the firm,” says Ajay Parmar, head of research at Emkay Global Financial Services Ltd.
In terms of fuel linkages and land availability for new projects, Adani Power is better poised than some of its peers. However, market risks of lower merchant power tariffs and a few tax regulatory issues, such as minimum alternate tax for special economic zones, could weigh on market sentiment for the stock.
Graphic by Yogesh Kumar/Mint
We welcome your comments at email@example.com