ADANI POWER
Reco price: Rs 100.85
Current market price: Rs 100.30
Target price: Rs 88
Upside: 12.3%
Brokerage: Citi Investment Research
Adani Power (APL) is an interesting case of private sector entrepreneurship, capitalising on India’s persistent power deficits and exploiting high medium-term merchant tariffs which should reduce the payback of projects, and also having lower execution time cycles by using Chinese equipments. Also, progress on the 4,620 MW Mundra plant and the group’s experience in executing mega projects successfully does bolster the investment case. However, quite a few loose ends need to be tied, such as insufficient coal for the 6,600 MW of capacities for 25 years, coal mining license risk, fuel pricing for Indonesian coal from AEL and dependence on reasonable merchant rates to extract higher than regulated peer value.
The brokerage has given APL, the benefit of the doubt and models in flawless execution of 6,600 MW to arrive at a fair value of Rs 93 per share. It has initiated coverage on APL with a sell or medium (3M) risk rating with a target price of Rs 88 (5 per cent discount to the flawless execution value). It says that it is worth noting that delays in commissioning of any of the power plants would have a significantly higher impact on APL than on any other regulated projects as the higher than peers value is contingent on APL exploiting opportunities in the merchant markets prior to the start of the PPAs.
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