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Adani Power: tough for investors to keep the faith

Adani Power sold 15.1 billion units of power in the September quarter, a jump of 44% from a year ago.

Adani Power sold 15.1 billion units of power in the September quarter, a jump of 44% from a year ago.

The acquisition of Udupi Power and booking compensatory tariffs have helped Adani Power Ltd’s numbers, but it still hasn’t been able to stop making losses. In the September quarter, the company reported a consolidated loss of Rs.369 crore.

The Udupi Power plant contributed Ebitda (earnings before interest, taxes, depreciation and amortization) of Rs.248 crore during the quarter. It also helped boost power generation. Adani Power sold 15.1 billion units of power in the September quarter, a jump of 44% from a year ago (Udupi was not part of the company a year earlier).

But for the boost from Udupi, Adani Power’s Ebitda gains would have been lower than the reported 47%. The losses at the profit level were in large part owing to the Rs.1,605 crore the company had to shell out as finance costs. About Rs.98 crore of this was a one-time pre-payment penalty charge as the company refinanced its loans—most likely under the 5/25 scheme, according to some reports.

While that would lead to lower interest outgo in future, Adani Power is still hugely leveraged. At the end of September, its total debt was Rs.48,477 crore. The company’s debt-equity ratio is 9.3 times. With cash reserves of Rs.725 crore, the net debt-to-equity is also not much different. While high debt is to blame for the high leverage, it is also partly owing to the erosion in net worth due to many quarters of losses.

The compensatory tariffs too have not helped much. In all these cases, Adani Power is in dispute with electricity distribution companies (discoms) and has booked revenues based on a higher tariff. In the September quarter, it booked compensatory tariff of Rs.509 crore. Adding to this compensatory tariff recognition from earlier periods, Adani Power now needs to collect close to Rs.5,300 crore from power discoms. To put that in perspective, the firm’s consolidated net worth is Rs.5,205.61 crore.

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As this column has pointed out in the past, even if Adani Power receives favourable orders in all these cases, it could be a long time before it recovers this money from financially crippled discoms. Secondly, as the company continues to buy other power generators, investors could well ask where the money is going to come from with debt already so high. Unless the Adani Power at least reverses its losses quickly, it will be hard for investors to keep the faith.

The writer does not own shares in the above-mentioned companies

[“source -livemint”]

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